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GRA 4303 Maritime Logistics Strategy

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Title: GRA 4303 Maritime Logistics Strategy


1
GRA 4303 Maritime Logistics Strategy
  • Session 1 2

2
GRA 4303 Maritime Logistics Strategy Session 1 2
  • Course introduction
  • Relation to GRA 4301 and 4302
  • Lecturers
  • Cases
  • Definitions
  • Globalization of Markets
  • Introduction to
  • Logistics Management
  • Strategi
  • Vision and Goals

3
Definitions (1)
  • Logistics Logistics is that part of the supply
    chain process that plans, implements, and
    controls the efficient, effective flow and
    storage of goods, services, and related
    information from the point of origin to the point
    of consumption in order to meet customers'
    requirements
  • Logistics management The process of managing
    logistics to achieve the established logistics
    goals of the company
  • Supply chain The supply chain involves all
    processes that a company uses to conceive,
    design, produce and deliver products or services
    successfully to customers, including receipt of
    payment. It is a vastly broader term than
    logistics
  • Logistics outsourcing The management of 2 or
    more interrelated logistics activities to an
    external provider, enabling the shipper to focus
    on core competencies and to receive enhanced cost
    and/or service value

4
Definitions (2)
  • International freight forwarder Usually an asset
    light entity, it acts as the agent of both the
    shipper and the carrier (ocean or air cargo).
    Common activities are cargo rate referral and
    booking, arranging for cargo delivery to port or
    terminal, preparing and delivering private and
    government documentation, e.g. letters of credit,
    insurance, shippers export declaration, and for
    assuring regulatory compliance. Compensation is
    customarily a combination of fees paid by the
    shipper for specific services rendered and
    commissions paid by the selected carrier. Many
    forwarders have established a customs brokerage
    capability. Some have created or purchased
    NVOCCs, which permit them to issue their own
    bills of lading (with limited liability).
    Compensation for this service is the spread
    between whats billed to the customer and paid to
    the carrier. Traditionally each shipment
    represents a stand along transaction, where
    payment results when one or more of the service
    is provided.

5
Definitions (3)
  • 3rd party provider Acts on behalf of shippers,
    may possess some assets, especially distribution
    or transport equipment. Normally payment is
    directly from shippers, with few or no
    commissions paid by carriers. 3PLs stand apart
    from traditional providers as carriers and
    freight forwarders because of their ability to
    manage broad cross functional processes, e.g.
    order fulfillment. Many 3PLs provide an
    analytical and consulting capability as part of
    their service. The term logistics outsourcing
    became identified with 3PLs because 3PLs often
    took over selected activities within logistics
    departments and became responsible for managing
    process improvement. Generally compensation is
    in the form of management fees and performance
    incentives, e.g. increased order fill rates,
    reduced order cycle times, increased
    productivity, lower total costs, etc. Short and
    long term contracts between provider and user are
    sometimes employed

6
Definitions (4)
  • 4th party provider The 4PL term was first
    introduced and trade marked by Anderson
    Consulting in the mid 1990s. With the increasing
    popularity of using 3PLs to outsource broad
    transport and distribution management functions,
    Anderson concluded that a non-asset (few or no
    transport, equipment or distribution facilities)
    based entity would be needed to oversee and
    manage a wide variety of 3PLs and traditional
    providers engaged by large global shippers. 4PLs
    are expected to possess a comprehensive overview
    of logistics and its separate functions,
    understand the supply chain and and specific
    industry sectors, have process reengineering and
    consulting capabilities, and regularly employ
    state of the art technology and systems tools.
    Compensation is likely to be a combination of
    management fees, performance incentives and
    profit sharing with the shipper. Arguably no 4th
    party company exists today that can manage in the
    comprehensive manner and on a global scale
    described here. However, an amalgam of different
    types of alliances between consulting companies,
    E-logistics firms, asset providers and 3rd
    parties may result in the emergence of a
    bone-fide 4th party over the next several years.

7
Provider Spectrum
Provider
Freight forwarder 3rd party 4th party
Small, traditional
Integrated forwarding
  • Increasing
  • Process
  • integration
  • Management
  • integration
  • Performance
  • metrics
  • Risk/reward
  • agreements

Emerging global alliances
Domestic, transport warehouse
Technology driven, multi- modal, globally capable
Responsible managing 3rd party other providers
Fully integrated strategic supply chain issues
Customer
8
Group Work
  • Select a company who can be classified according
    to each of the definitions and explain why it
    fits to the definition
  • International Freight Forwarder
  • Logistics Management
  • Supply Chain Management
  • 3PL
  • 4PL
  • Logistics Outsourcing

9
Globalization of Markets
10
Trends Consolidation and Globalisation
Mergers and Aquisitions
Reduction in number of automotive manufacturers
Source E-Business and the Automotive Supply
Chain, London, 2000
11
Trends Reduced Lead Times in Distribution
Reduction in time from order to delivery in
automotive industry
Reduction in lead time in European distribution
Source E-Business and the Automotive Supply
Chain, London, 2000
12
Trends Focus on Core Business - Outsourcing
Investigation of 277 large US shippers Current
degree of outsourcing and future intent
Logistics
Source Ernst Young/University of Tennessee,
2000
13
Globalization of Markets
  • Growth in numbers and size of global companies
  • Standardization of products and services on a
    global basis
  • Reduction of the number of players in each phase
    of the Supply Chain

14
Globalization of Markets
  • Reduction in the number of competitors and
    increased market shares of the remaining
  • Global division of tasks and skills
  • Transportation and logistics share of the value
    chain will increase significantly

15
Globalization of Markets
  • The survivors in the future global markets
  • Customer Loyalty
  • Production cost has to be equal or lower than
    competitors
  • Control over supply and distribution
  • Products and services must be differentiated from
    the competitors
  • Customer awareness
  • Supply Chain Integration
  • Process Management
  • IT integration along the supply chain

16
Formation of Strong Supply Chain Networks
17
The Supply Chain Model
S U P P L I E R S
CUSTOMER S
Plan Buy Make Move Sell
Planning and Forecasting
Distribution and Logistics
Procurement
Manufacturing
. . . Organizations Buy, Make, Move, and/or Sell
Goods . . .
18
SCM Implication
  • Companies will in the future compete between
    supply chains and not within them

Supply Chain A
The Market
C o r e C o m p e t e n c i e s
The Customer Share, Loyalty, Retention
Supply Chain B
Supply Chain C
Customer Value
19
The Integrated Supply Chain
  • Global e-commerce
  • Integrators

End Customers
Distribution
Suppliers
Manufacturing
Product Flow
Cash Flow
Organizational Flow
20
The Supply Chain creates pockets of inventory
  • The challenge
  • to reduce inventory investment while still
    maintaining capacity utilization and achieving
    customer satisfaction.

Stores Warehouse
Distribution Network
Customer
Supplier
  • Components
  • Raw Materials
  • Work-in-Process
  • Finished Goods
  • In Transit Inventory
  • In Transit Inventory
  • In Transit Inventory
  • Finished Goods
  • Raw Materials

VELOCITY
Most companies have multiple product lines and
many supply chains. Effective inventory
management becomes more difficult and complex as
products increase and service requirements expand.
21
Trends Supply Chain Development
Source European Logistics Association/A.T.
Kearney
22
Future Challenges for the Customers of Maritime
Services
23
Cost of Distribution Typically Quoted as 30
Dealer
Dealer margin 10-18
The black hole
Marketing 8-15
Manufacturer or distributor
Organisation 4-6
Warranty 1-2
Logistics 2-4
Product develop- ment
Total cost
Distribution 25 - 35
Manufacturing
Purchasing
Contracting
Expanding
?
Platform Development
Outsourcing Commonality Strategic
sourcing Partnerships
Lean manufacturing Outsourcing Network factory
Source WW ASA 2000
24
Cost of Distribution Typically Quoted as 30
Dealer
Dealer margin 10-18
The black hole
Marketing 8-15
Manufacturer or distributor
Organisation 4-6
Warranty 1-2
Logistics 2-4
Product develop- ment
Total vehicle cost
Distribution 25 - 35
Manufacturing
Purchasing
Deep Sea Transportation 0,3 - 1
Contracting
Expanding
?
Platform Development
Outsourcing Commonality Strategic
sourcing Partnerships
Lean manufacturing Outsourcing Network factory
25
Leading Factors in Awarding Logistics Contract
Price Potential cost/inventory savings Product/bus
iness expertise Technology capability Geographical
scope Industry reputation Breadth of service
offerings Financial strength Prior
relationship Other Sales presentation
Least important
Most important
Source Lazard Fréres Co. LLC
26
3 PL- Third Party Logistics Providers
Air Transport Ground Transport Water
Transport Intermodal Transport
Sender/ Passenger
Organiser/ Supporter
Recipient/ Passenger
Historical
Organiser
Air Transport Ground Transport Water
Transport Intermodal Transport
Out- sourced Logistics
Out- sourced Logistics
Sender/ Passenger
Organiser/ Supporter
Recipient/ Passenger
Future
Organiser
Future Transportation Firm Activities
Potentially disintermediated
Source. PwC analysis
27
New entrants are approaching the market
Greater Functional Integration Broader
Operational Autonomy
Client
BOA Arrangement 1990s-2000s
4PL
Shippers
Service Providers
Internal Logistics Operations
Client
28
Shareholder Value Growth
SP 500 20
Overall Transportation Industry
Third-party Logistics Services
Equipment Leasing
Railroads
Air Parcel
Trucking - Truckload
Ocean Carriers
Source Mercer Analysis. All figures for US
public companies only, except ocean carriers.
Compound annual growth rate for market
capitalization, 1993 - 1997.
29
New Entrants Are Approaching the Market
Recent alliances between transporters and IT
leaders
Examples
30
Retail Car Buyers Are Going To Use E-commerce...
Use of E-commerce in car buying process
Would buy on Internet
Source FT World Motor Conference, Sept. 1999
31
(No Transcript)
32
(No Transcript)
33
The Logistics rationale
34
The Logistics rationale (1)
The key components of logistics represent about
10 of world GDP, or about US 4.0 trillion
Source Cass Information Systems ProLogis
35
The Logistics rationale (2)
Although global logistics outsourcing is a small
of global logistics today, it is still a
significant number
In billions USD 1999/ 2000
In billions USD 1999
4000
921
Outsourcing represents 5.7 of total logistics
Extrapolating U.S. data suggests size of
global market
Total logistics
Total logistics
228
531)
U.S. logistics outsourcing market
World logistics outsourcing market
1) Net Third Party U.S. Based firms Logistics
revenues in the range of 28-29 billion USD in
2000
Source Cass Information Systems ProLogis
36
The logistics rationale (3)
Logistics Break-up of costs
Source Cass Information Systems, Inc. ProLogis
37
The logistics rationale (4)
The outsourcing market
Billion USD
According to Northeastern University and
Armstrong Associates, the outsourcing market is
growing nearly 20 annually
125 billion USD in net revenue for 3PLs
Net revenue for 3PLs is approximately 53-55 (in
the US), and profits before taxes are 6-8 of
gross(?) revenues according to Cass information
Systems Inc., ProLogic Armstrong Associates
The difference between gross and net is that we
take out the cost of transportation purchased for
clients to calculate net revenue
38
The logistics rationale (5)
Growth in the outsourcing market
Survey 277 US shippers Time frame 2000-05
Source Ernst Young/University of Tennessee,
2000
39
The logistics rationale (6)
Different customer philosophies with respect to
outsourcing of logistics
Movement towards more and more outsourcing to
systems integrators Lou Sorchevich, Director of
international transportation, GM
Do not know whether VWT is profitable and feel
it is probably irrelevant, since it is viewed as
a strategic investment by senior
management Joe Manschke, Ken Fletcher, Chuck
Domke, Logistics, transport processes, VWT/VW
Would like the carriers to provide more
value-added services, especially in booking and
control of various supply chain activities like
point to point services and contracts where land
side processes at both origin and destination are
managed by the ocean carrier Bob Frinier, Vice
President, Logistics, Nissan
Our company intends to co-develop global process
systems with our partners and integrate
operations with a few of the best providers in
the logistics area Bill Carrigan, Manager Global
Marine Transport, Ford
40
The Logistics rationale (7) Cost of Distribution
Typically Quoted as 30
Dealer
Dealer margin 10-18
The black hole
Marketing 8-15
Manufacturer or distributor
Organisation 4-6
Warranty 1-2
Logistics 2-4
Product develop- ment
Total vehicle cost
Distribution 25 - 35
Manufacturing
Purchasing
Contracting
Expanding
Platform Development
Outsourcing Commonality Strategic
sourcing Partnerships
Lean manufacturing Outsourcing Network factory
?
Source A.T.Kearney
41
The logistics rationale (8) The 3PL industry
appears poised for significant growth
  • Survey of 500 firms by Northeastern university
    Andersen Consult, 2000
  • Lazard Freres (NY investment bankers, 2000)
  • Flemming Jacobs, CEO of NOL/APL, 2000
  • The worlds largest companies are heavy users
    (50 have used for more than 5 years)
  • Based on all research we have done, logistics
    stocks over the next 5 years will continue to
    outperform stocks of other transportation
    companies. The crux of it is that we think the
    logistics sector is at an early stage, maybe in
    the first or third inning, of a secular
    (long-term) growth found in the outsourcing of
    transportation functions.
  • Marine shipping business is mature. Logistics
    will be our focus, equaling 1999 container
    revenue of 4.2 billion within 3 years.

42
The logistics rationale (9)
Shareholder Value Growth
Some of the large ocean carriers are familiy
owned and controlled, implying that stocks are
under-priced. Competitive advantages from
capitalisation if owners sell down. Note that
3PLs have no problems in receiving funds
SP 500 20
Overall Transportation Industry
Third-party Logistics Services
Equipment Leasing
Railroads
Air Parcel
Trucking - Truckload
Ocean Carriers
Source Mercer Analysis. All figures for US
public companies only, except ocean carriers.
Compound annual growth rate for market
capitalization, 1993 - 1997.
43
The Logistics rationale (10)
Source Armstrong Associates
44
The logistics rationale (11)
  • Companies will in the future compete between
    supply chains and not within them

Supply Chain A
The Market
C o r e C o m p e t e n c i e s
The Customer Share, Loyalty, Retention
Supply Chain B
Supply Chain C
Customer Value
E.g. Ford/UPS/Exel
45
Players in Maritime Logistics
46
Asset based logistics companies - Maritime
Logistics offerings can be seen as a continuum,
ranging from single purpose offerings, to
enhanced core business services to fully
integrated separate profit centers
Global physical, IT, analysis risk sharing
capabilities are built into providers
competitive offerings.
Fully autonomous physical I.T.
based logistics units
Some enhanced integrated logistics capability
Emerging profit driven logistics units
Single purpose logistics firms
Future ??
  • Many
  • container,
  • break bulk
  • and special
  • purpose
  • ships that
  • provide high
  • level maritime
  • and even land
  • transport
  • services
  • ANZDEL
  • K-Line
  • NYK
  • Mitsui
  • WWL
  • OOCL
  • COSCO
  • Hapag
  • Lloyd
  • Yang
  • Ming
  • Maersk
  • Logistics
  • APL
  • Logistics

47
Maersk Logistics versus APL Logistics (1)
A comparison of the key logistics attributes of
two of the most advanced marine logistics
providers today is useful to benchmark ones own
market position
Maersk Logistics
Key Attribute
APL Logistics
Per NOL top management and CEO future is in
logistics. Sees liner shipping as
mature industry, growing only if trade expands
Strong endorsement from parent A.P. Moller,
although appears less enthusiastic than APL
Attitude of parent company top management
Independent profit center. May link more closely
to parent goals, e.g. IS joint strategy,
exception management approach. Note McKinsey
Mercer roles today
Independent profit center staff. Report direct
to Moller not MS. Attempt to leverage liner
investments and brand name
Relationship to parent sister companies
48
Maersk Logistics versus APL Logistics (2)
A comparison of the key logistics attributes of
two of the most advanced marine logistics
providers today is useful to benchmark ones own
market position
Maersk Logistics
Key Attribute
APL Logistics
Revenues (net) 406m Margins (EBIT) 28m
Revenues (net) 420m Margins 12-24m
Estimated Financial status
Link together all information from disparate
operating units to enable end to end management
of global customer shipments
Handle all physical and information needs of
key global industries and customers with strict
accountability
Logistics mission
49
APL HomePort
  • From 10,000 to 67,000 Internet business
    transactions per month from Jan -98 to Sep -99
  • Types of transactions (Sep -99)
  • Schedules 43
  • Tracing 32
  • B/L Print 8
  • Status 1
  • Other 14

Marine shipping business is mature. Logistics
will be our focus, equaling 1999 container
revenue of 4.2 billion within 3 years Fleming
Jacobs, CEO, APL
50
Asset based logistics companies Motor/air
origins
Logistics offerings can be seen as a continuum,
ranging from single purpose offerings, to
enhanced core business services to fully
integrated separate profit centers
Global physical, I.T, analysis risk sharing
capabilities are built into providers
competitive offerings
Separate profit driven logistics entity
Highly developed, technology rich company
Some integrated logistics capability
Single purpose logistics firms
Future ??
  • 10s of
  • thousands of
  • these firms
  • exist today
  • that provide
  • single purpose
  • capability
  • Many firms
  • claim to
  • offer some
  • level of multiple
  • integrated
  • services as part
  • of core business
  • Potential
  • for conflict
  • with goals
  • of parent
  • customers
  • leads to
  • separation
  • - Schneider
  • - Menlo
  • UPS
  • Fed Ex
  • RIL

51
Logistics outsourcing in auto industry
Large scale outsourcing has occurred in the auto
parts sector in recent years, but now there is
evidence of expansion to include finished units,
e.g. Ford/UPS alliance
52
UPS/Ford North America
Transit time days
Source Global Automotive Logistics conference,
2000
53
UPS/Exel/Ford Europe
Exel and UPS Logistics Group Europe have formed
an alliance to review the effectiveness of all
current inbound logistics processes for
production parts and components for the Ford
Motor Company in Europe. (10/24/00) Detailed
process specifications will be jointly developed
by Exel, UPS Logistics Group and Ford in an
alliance that will provide supply-chain support
across all Fords European plants. The deal
follows the successful strategic alliance of the
Ford Motor Company and UPS Logistics Group in the
US and Exel's 20-year relationship with Ford,
including established operations in Southern
Europe, USA and Brazil. Ford's new inbound
logistics network in Europe is designed to
achieve significant improvements in
transportation and distribution processes and
inventory.
54
Non asset based logistics companies
Logistics offerings can be seen as a continuum,
ranging from basic forwarding firms to complex
public and private solutions driven enterprises
Who will emerge with sufficient IS content and SC
skills to manage all or most customer logistics?
Hybrid re- lationships betwn asset and non asset
firms
2 types of mega global forwarders have emerged
as result of acquisitions
Niche focused intermed- iaries
Small under capitalized firms
Future ??
10s of thousands of these firms exist
today that provide a wide variety of services
Many firms in this category that survive
by customizing their services to
particular customers or industry sectors.
  • Type 1
  • Driven by
  • public sector
  • Type 2
  • driven by
  • private FF
  • expansion

Examples - Lufthansa Cargo Services - Cosco
and Bolero alliance
Public driven expansion
TPT Post
Deutsche Post
Panalpina
Private driven expansion
ABX Logistics
NFC/ Exel
Schenkers
55
Competitor actions Develop a competitor rating
scheme Example only
Maersk Log
APL Log
Deutsche Post
UPS Log
Logistics attribute
NYK
Key
Parent company support
- Low
Logistics vision
- Medium
Current financial
- High
Marketing strat
Operating strat
56
E-logistics
57
Why e-logistics (1/2)
  • Increase value to customers, partners and
    suppliers through expanded service offerings
  • Improve communication channel with established
    market, open to new segments/niches
  • Improve efficiency, reduce costs (automate)

58
Why e-logistics (2/2)
  • E-logistics will bring three areas of
    functionality
  • Increased pipeline visibility, e.g. global
    inventory management
  • Improved collaboration between all SC
    participants
  • Improved functionality in managing global SC,
    e.g. applications that can be downloaded, e.g.
    booking in transport, trade compliance in trade
    management, finance and duty paid landed costs,
    etc.

59
E-Logistics Trends (1)
  • The significant increase (1 trillion seems to be
    a consensus estimate) in global electronic
    logistics over the next 4 years will be driven by
    3 forces
  • Increase value to customers/partners/suppliers
  • Lower cost
  • Improved internet functionality

60
E-Logistics Trends (2)
  • Supply chain visibility information
    transparancy
  • Internet open standard infrastructure
  • Reduced IT systems cost (Internet/ASP)
  • Customer core business focus outsourcing
  • Supply chains without fat impossible to hide
    protect high profit activities over time
  • Logistics capabilities of increasing importance

61
E Logistics Implications
  • To compete globally shippers will focus on supply
    chain process improvement as a major source of
    competitive advantage.
  • Increasingly this process improvement will be
    enabled by web-based information technology
  • Carriers and other providers of logistics
    services must assess the impact these emerging
    logistics offerings have on their business and
    develop an appropriate strategic response

62
Group Work
  • What effect will the future competition between
    value chains have on traditional shipping
    companies?
  • What effect will the future development in
    e-commerce have on traditional shipping
    companies?
  • Which new fields of competence should shipping
    companies develop to participate in the new
    economy?

63
WW ASAs Logistics Strategy
64
The Need for Change
Customers Customers Value Chain
Customers Value Chain
WW ASAss Global Services (and Internal
Processes)
WW ASAs s Organisation Systems
65
Possible Project Approach
  • Understand the market development
  • Identify core competencies
  • Develop standardized products and services
  • Develop global infrastructure
  • Train organization
  • Implement strategy (Balanced Scorecard)

66
Strategic Challenges
  • WW ASA has to develop a thorough understanding of
    both its customers and customers customers
    value chains

67
Strategic Challenges
  • Market developments
  • The customers and customers customers value
    chains
  • Competitors value chain
  • Standardization of products and services
  • Throughout identification of core competencies

68
The Strategic Processes in WW ASA
69
WW Global Logistics Strategy
Physical cargo flow and WW focus
WWL
BI BARWIL WW Chartering
70
WW Global Logistics Strategy
Develop cross-functional competence and
cooperation in the WW Group - between the
principal companies - between the principal
companies and corporate - within the principal
companies
WW
50
Barwil
Barber Int.
Wilship
WWL
Logistics Strategy
Logistics Strategy
Logistics Strategy
Logistics Strategy
WW Group Logistics Strategy
71
Logistics Strategy Project Structure
Feasibility Study Dec 99 - April 00
Main Project
Implement new services
2000
2001
1999
2002
72
Global Logistics Strategy Project
Future Market/ Scenario Analysis
Requirements Implications Knowledge Manageme
nt Tools
Logistics Services
Present Future Customer Requirements
Logistics Organisation
IT Solution
Competitor Analysis
Alliance Agreements
Process Re-engineering Methodology
Performance Measurement System
Alliance Building Process
73
Supply Chain Reengineering
74
New Hollands Supply Chain Model
75
Physical Cargo and Information Flow
76
Process Re-engineering
  • Main deliveries
  • Detailed mapping of existing distribution
    process/lanes
  • Proposed improved distribution process -
    validated and improved distribution process
    from WWL
  • Identified possible improved IT solutions with
    infrastructure, software and potential
    alliance partner(s)

77
Germany - UK Dealer logistics chain
78
(Detailed 1)
Germany - UK Dealer logistics chain
79
Germany - UK Dealer logistics chain
80
Time Mapping
Pr 2
Process 1
Process 5
Process 8
Pr 7
Process 3
Process 4
Process 6
Time
81
Cost Mapping
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