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Thirdparty Logistics


full responsibility for key supply chain operations ... COSCO. China Shipping. SinoTrans. EAS. China Merchant. 6/10/09. 36. Course Review Topics Covered ... – PowerPoint PPT presentation

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Title: Thirdparty Logistics

Third-party Logistics
Services Offered by Third-party Providers
  • Basic Service Providers
  • warehouse management
  • order processing
  • order fulfilment
  • transportation carrier selection
  • Value-added Service Providers
  • shipment/order consolidation
  • import/export customs
  • logistics information systems (EDI, reporting)
  • fleet management/operations (e.g. cross-docking)
  • product assembly/installation
  • Logistics Integrators
  • full responsibility for key supply chain
  • replenishment/order-filling policies
  • product returns
  • customer spare parts inventory replenishment
  • rate negotiation

Contract Warehousing
Bulk Warehouse
Distribution Center
Incoming Products
Customers Retailers
  • Activities
  • Labor supervision
  • Receiving, storage, shipping
  • Value Added Services
  • Traffic/transportation
  • Benefits
  • Lower capital investment
  • Lower fixed/variable cost ratio
  • Focus to the core
  • Professional service

Supplier Hub / Regional Fulfillment Center /
Regional Distribution Center
Incoming Materials Or Products
Bonded Warehouse
Mfg site/ Point of Use
  • Activities
  • Same as contract warehouse
  • Customs clearance
  • Freight consolidation
  • Shipment visibility
  • Inventory ownership
  • Order fulfillment
  • Value Added Services
  • Benefits
  • Lower capital investment
  • Focus to the core
  • Delayed payment of duties and taxes
  • Pay (for material) on production
  • Visibility of pipeline inventory

Shipment Consolidation and Transportation
Incoming Materials Or Products
Point of Sale/ Point of Use/ Customers
Consol. Center
De-con Center
  • Activities
  • Transport arrangement
  • Customs clearance
  • Freight consolidation
  • Shipment visibility
  • Carrier mgmt / rate mgmt
  • Merge in transit
  • Benefits
  • Shorter cycle time
  • Lower freight costs
  • Visibility of pipeline inventory
  • Inventory consolidation

Product Returns / Technical Services
Repair centers
Product Return Center
OEM Warranty Fulfillment
  • Activities
  • Testing / screening
  • Warranty program mgmt
  • Inventory ownership
  • Warehousing and inv mgmt
  • Fulfillment
  • Depot repair mgmt
  • Benefits
  • Centralization of inventory
  • Lower capital investment
  • Focus to the core
  • Reduced reverse logistics costs
  • Speedy response to customers

Critical Parts / Service Parts Logistics
Repair centers
OEM Warranty Fulfillment
  • Activities
  • Failed parts replacement
  • Warranty program mgmt
  • Inventory ownership
  • Warehousing
  • Depot repair mgmt
  • Visibility and TrackTrace
  • Benefits
  • Centralization of inventory
  • Lower transportation cost
  • Improved visibility of inventory
  • Lower capital investment
  • Better after-sales service support

Logistics Financial Services
Customers / Retailers
  • Activities
  • Inventory finance (factoring, LOC)
  • Distribution finance (asset based
  • lending, receivable finance)
  • Payment solutions (COD)
  • Leasing
  • Benefits
  • Reduced cost of capital
  • Improved cash flow
  • Reduced capital investment

Total Logistics Management
Bulk Warehouse
Distribution Center
Incoming Products
Customers Retailers
  • Activities
  • Logistics planning
  • Network optimization
  • 3rd vendor mgmt
  • Information technology
  • Supply chain visibility
  • Benefits
  • Reduced total logistics costs
  • Global visibility
  • Single logistics solution and contact
  • Focus to the core
  • Reduced investment in logistics

Benefits of out-sourcing the logistics function
  • improve company focus
  • focus on core functions and core competencies
  • cash infusion
  • selling assets to 3PL provider
  • access to world-class capabilities and new
  • free-up resources
  • no capital investments in logistics
  • resource not available internally
  • accelerated reengineering benefits
  • reduce and control operating costs
  • eliminate labor problems
  • pushes risk to 3PL provider
  • risk pooling
  • cost of investment in technology by 3PL provider
    shared among clients
  • achieves economies of scale and provides better

Risks of Out-sourcing Logistics
  • Co-ordination costs
  • Loss of internal logistics management
  • Biased choice of service providers
  • Leakage of sensitive data and information
  • Service degradation
  • Less reliable? Longer order cycle time?
  • Emergency response?
  • Loss of control and representation
  • Reduced contact with final customer
  • 3PL for outbound logistics interact with your
    customers, you become less visible to your

Why 3PL can achieve economy of scale provide
better service?
  • Consolidation is the key!

Example 2 independent firms, 2 independent
supply chains
Consider 2 scenarios
Scenario 1 The firms performs their own
logistics functions
Firm 1
2 warehouses 2 separate distribution networks
Firm 2
Scenario 2 A 3PL takes care of both firms
logistics functions
Firm 1
1 warehouse 1 distribution network
Firm 2
? Zhi-Long Chen
Value Propositions of 3PL
Service, Retention market share
Cost of Goods Sold Technology
Productivity Transportation/Warehousing/ Materials
Shareholder Value
Working Capital
Lower Raws Finished Goods Inventory Shorter
Order to Cash cycles
Invested Capital
Fewer physical assets Warehouse, trucks,
Fixed Capital
3PL Business Models
  • Transactional model
  • Carriers per shipment, per container unit, per
    weight / volume unit
  • Freight forwarders per shipment, per weight /
    volume unit
  • Public warehouse operators per weight / space
    area unit
  • Contract logistics model
  • Activity-based costing, i.e., Fixed
    management fee variable charges based on
  • Or, cost plus
  • Or, gain sharing model
  • Total logistics management
  • Fixed management fee variable charges based
    on volume
  • Or, cost plus
  • Or, gain sharing model

CEO Perspectives on 3PL Industry
  • Industrys most significant revenue generators
    (ranked in order)
  • Transportation management/services
  • Warehousing management/operations
  • Value added services
  • Dedicated contract carriage
  • Fleet management/operations
  • Logistics information services
  • Top 3 most important opportunities in the
  • Further integration of supply chain activities
  • Transportation management
  • Further information systems development
  • Globalisation
  • 4-th Party Logistics

Source Transport Logistics, Vol. 1, No. 1,
pp51-66 (1996)
Challenges of 3PL
  • Setting up internal benchmarks and performance
    measures before finding a 3PL partner
  • Development of appropriate and sustainable
    pricing systems
  • Developing an interactive and collaborative
    partner relationship
  • IBM no more outsourcing, but optimized
  • Finding qualified people
  • Development of systems which are flexible,
    adoptable and user-friendly
  • Development of a global logistics infrastructure

Ten building blocks for a successful 3PL
  • Carefully develop internal costs
  • Develop key performance indicators
  • Seek broad company inputs at the Request for
    Proposal (RFP) stage
  • Solicit multiple RFPs
  • Only select the services you really need
  • Make sure that you understand the technology
    issues before you sign a contract
  • Prepare to change your assumptions after the
  • Avoid cost-plus contracts
  • Find out if the cultures are similar
  • Dont give up complete control of your supply

Source Survey of Fortune 500 manufacturers by
Accenture and Northeastern University.
European Logistics Market
Source Deutsche Bank
Global Logistics Expenditures
Source Bowersox and Calantone, CSFB Estimates.
11.4 of Global GDP
  • Size of 3PL Industry
  • In 1999, around 40-45 Billion 5 of the total
    logistics expenditures
  • In US, the growth rate for 3PL market is
    estimated around 15 annually

From Modern Material Handling, Nov. 2003
Major 3PLs
Source Logistics Magazine (07/00)
Major 3PL Operators in USA
  • Airborne
  • Americold
  • APL Logistics
  • Arnold
  • BAX global
  • Burnham Services Corp.
  • Caterpillar Logistics Services
  • Circle International
  • Cardinal
  • DSC Logistics
  • Eagle Global Logistics
  • EXEL Logistics, Inc.
  • Expeditors
  • Federal Express Logistics Services
  • J.B. Hunt Logistics, Inc.
  • HUB Group Logistics Services
  • Leaseway Logistics Services, Inc.
  • Maersk Logistics
  • Menlo Logistics
  • North American
  • Penske Logistics
  • Power
  • Roadway Logistics Systems
  • C.H. Robinson Company
  • Ryder Dedicated Logistics
  • Schneider Logistics
  • Standard
  • T B
  • TLC
  • TNT Contract Logistics, Inc.
  • UPS Logistics
  • USF Logistics
  • USCO Distribution Services
  • Yellow Logistics Services, Inc.

Source CSFB Industry Report, Sept. 2000
How many companies use 3PL?
  • 93 companies
  • Covering automotive, chemical, computer, consumer
    products, electronics
  • 52 with sales revenues over 1B, 10 between
    500M to 1B

From 3PL Study Results and Findings of 2001
Annual Study by Cap Gemini Ernst Young
What 3PL functions do companies use?
From 3PL Study Results and Findings of 2001
Annual Study by Cap Gemini Ernst Young
Benefits of 3PL
From 3PL Study Results and Findings of 2001
Annual Study by Cap Gemini Ernst Young
Ten Top reasons Companies Outsource
Source Fifth Annual Outsourcing Index Deloitte
Consulting, January 2003
Leading Global Air Freight Forwarders 1998
Source Stinnes, MergeGlobal, IATA figures and
Deutsche Bank
Leading Global Sea Freight Forwarders 1998
Source Stinnes and Drewry
Growth of 3PL Industry
  • In US, the growth rate for 3PL market is
    estimated around 15-20 annually.
  • In Asia and the rest of the world, the growth
    rate is estimated to be even higher in the range
    of 20-30 annually.
  • China
  • 2001 Transport and logistics expenditure is
    US230 billion (20 of GDP), with only 4.7
    billion on outsourcing.
  • Key factors for stimulating growth
  • Increased operations of multi-national firms in
  • Cost pressures
  • Government support in establishing national
    logistics centres
  • Reduced regulations Chinas entry to WTO

Mercers 3PL Survey in China (2002)
  • 20 logistics providers and 50 shippers in 8
  • 85 of providers revenue comes from basic
    services such as transportation, management and
  • Nearly 70 of providers believe clients are not
    ready for outsourcing, while almost half of the
    shippers surveyed cite obstacles for outsourcing,
    especially 3PL service quality
  • The market is very fragmented No 3PL provider
    interviewed has a market share over 2. About 80
    of providers revenues come from the Yangtse
    River and Pearl River Delta regions
  • MNC shippers prefer MNC providers for their IT
    systems, industry/operational expertise, and
    standardized operations
  • Chinese shippers prefer Chinese providers for
    their lower prices, local knowledge and national
    network coverage

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Hong Kong Logistics Industry and Major Local
  • Container throughput in 2001 17.9 million TEUs
  • Air cargo throughput in 2001 2.1 million tonnes
  • Major Local 3PL Players
  • OOCL and Cargo Systems
  • Kerry Logistics
  • Jardine Logistics
  • IDS Logistics
  • Seapower Resources Intl
  • SUN Logistics
  • LINE
  • Power Logistics
  • TradePort
  • Some Major Chinese 3PL Players
  • China Shipping
  • SinoTrans
  • EAS
  • China Merchant

Course Review Topics Covered
Topics Covered
  • Introduction to logistics management
  • what is logistics management
  • importance of logistics management
  • Supply Chain Structures
  • Modularization, postponement
  • Strategic orientation market, product or process
  • Site competence vs. process technology complexity
  • Transportation strategy
  • Transport modes and cost components
  • Tradeoffs in transportation design
  • Transportation costs vs. inventory
  • Transportation costs vs. responsiveness and
  • Transportation Network Design
  • Pros and Cons of Direct Ship, centralized DC, etc.

  • Vehicle routing and scheduling
  • Shortest path
  • Dijkstras algorithm
  • Travelling salesman problem
  • Heuristics
  • Vehicle routing
  • Clarke-Wright savings methods
  • Gillette Millers Sweep Method
  • Generalized Assignment Model for Vehicle Routing
  • Set Partitioning Model for Vehicle Routing
  • Optimization-based heuristics techniques
  • Full truckload vs. LTL

  • Location strategy
  • factors to consider
  • quantitative models for analysis
  • Center of Gravity Method
  • Heuristics
  • p-median problem, p-center problem
  • network optimization models
  • Location-allocation models
  • supply chain network design selective evaluation
    heuristic, guided linear programming,
    multi-echelon multi-product networks
  • Covering models
  • other approaches
  • Regression analysis
  • Factor rating system, Delphi method
  • AHP
  • dynamic location models

  • Process Choice and Facility layout strategy
  • Process flow analysis
  • Critical Path method
  • Process types project, job, batch, line
  • Layout planning
  • Product vs. process layout
  • Assembly line balancing
  • CRAFT (Computerised Relative Allocation of
    Facilities Technique)
  • Systematic Layout Planning
  • Matching products and processes
  • Storage and Material Handling
  • Order picking
  • Warehouse layout and stock location
  • Cross docking

  • Global logistics
  • Drivers and challenges
  • How leading edge companies manage logistics
  • New organizational paradigm for the supply chain
    of the future
  • E-logistics
  • Internet impact on logistics
  • E-logistics services market opportunities
  • Achieving Strategic Fit
  • Competitive dimensions cost, quality, speed,
  • Order qualifiers and order winners
  • Efficient vs. responsive supply chains
  • Benchmarking the supply chain
  • Supply chain mapping and throughput efficiency
  • Supplier and distributor benchmarking
  • Supply Chain Operations Reference Model (SCOR)

  • E-fulfilment
  • Online retailing
  • Bricks--mortar stores vs. e-tailers
  • Acceptance Sampling (not covered in the final)
  • E-procurement
  • On-line auctions and exchanges
  • Quick response logistics
  • Apparel industry and Quick Response
  • Grocery industry and Efficient Consumer Response
  • Automotive industry and Lean Manufacturing
  • Reverse logistics
  • 3rd party logistics
  • Services offered
  • Benefits and risks, Growth and challenges
  • 3PLs in China