3 Rd Party Logistics

7/31/2019 3 Rd Party Logistics

1/51

Page 1 of 51

Seton Hall University EMBA

Shanghai Cohort 2011 / 2013

MASTER OF BUSINESS ADMINISTRATION

WHAT FACTORS AFFECTING THE 3rd PARTY LOGISTICTS DISTRIBUTION IN CHINA?

Student:xxx

Director:xxx
http://www.de910.com/?q=node/21http://www.de910.com/?q=node/21http://www.de910.com/?q=node/21


2/51

Page 2 of 51

ACKNOWLEDGEMENT

I would like to acknowledge the following people for their kindness and

support in making this dissertation possible:

Firstly, I would like to take the chance to thank my mentors at I.F.C.M for

everything that I have learned from them about enterprises business

management. Recognizing the concept of Teaching a man to fish instead of

giving him a fish, they sponsored this MBA project, providing lots of

benefits to more management people in different companies or even

managerial major students in the universities.

Also, I would like to express my sincere gratitude to Dr. Zhu Mingxia, the

thesis advisor and dissertation director, for her support, patience, and

encouragement. Her technical and editorial advice was essential to the

completion of this dissertation and has taught me innumerable lessons and

insights on the workings of academic research in general.

Last, but not least, I would like to thank my husband Jeffrey Zhao for his

understanding and love during the past few months. His support and

encouragement was in the end what made this dissertation possible. And

my parents receive my deepest gratitude and love for their dedication and

the many years of support during my graduate studies that provided thefoundation for this work.


3/51

Page 3 of 51

TABLE OF CONTENTS

1 PREFACE7

2 SIGNIFICANCE AND BENEFITS OF 3PL DISTRIBUTION IN CHINA9

2.1 Logistics DistributionEnterprises Core Competitive Capability..9

2.2 Beginning, Development and Significance of 3PL..11

2.2.1 Current Situation of 3PL in Developed Countries.12

2.2.2 Emerging of 3PL in China.12

2.3 SWOT Analysis of China 3PLs Market...13

2.4 Benefits of 3PL Distribution to Customers...17

3 CURRENT SITUATION AND PROBLEMS IN CHINAS 3PL DISTRIBUTION

AND DISTRIBUTION CENTER19

3.1 Types of Enterprises Distribution in China..19

3.2 Prospects and Future of Chinas 3PL Distribution20

3.3 Major Problems Affecting 3PL Distribution Development in China21

3.4 Existing Problems in Chinas 3PL Distribution Center.25

3.4.1 Characteristics of 3PL Distribution Center25

3.4.2 Restraints impacting 3PL Distribution Center Fast

Development26

4 RESEARCH OBJECTIVES & METHOD27

4.1 Research Objective27

4.2 Design and Return of Questionnaires27

4.3 Descriptive Statistics Analysis on Research Result...28

4.4 Services Provided by 3PLs in the Research..314.5 Aspects to be Improved.33

5 HOW TO DEVELOP CHINAS 3PL DISTRIBUTION AND OPTIMIZE THE

OPERATION OF DISTRIBUTION CENTER..355.1 Trends of 3PL Distribution..35

5.2 Trends of 3PL Distribution Center..35

5.3 Suggestions and Assumptions of China 3PL Distribution Development

and Distribution Center Operation optimization..37

5.3.1 Excellent Customer Service Function..38

5.3.2 Optimized Distribution Network..40

5.3.3 High Information Technology..41

5.3.4 Distribution Costs Reduction...42

5.3.5 Establishment of Excellent Management Team...43

5.3.6 Continuous Distribution Process Monitoring...43

6 FINDINGS...44


4/51

Page 4 of 51

7 CONCLUSION45

8 TABLE OF ACRONYMS AND ABBREVIATIONS.46

9 REFERENCE..47

10 APPENDIX I.49

Social Logistics Expenditure Table49

11 APPENDIX II.51

3PL Activities in Each Functions...51

12 APPENDIX III52

3PL Demand Analysis52

13 APPENDIX IV...53

Drivers for 3PL Logistics Outsourcing..53


5/51

Page 5 of 51

EXECUTIVE SUMMARY

Logistics and Third Party Logistics (3PL) have been the hot topics of

economic study in China since late 1990s. Hundreds of researches on 3PL

have been published. However, it is pity that some researches only refer to

the introduction of 3PL concepts that could not provide valuable insights on

the specific area in 3PL industry.

In fact, as 3PL providers and users improve the quality of their business

relationships, both parties should think of 3PL providers in three related

contexts: as a key resource directly to 3PL user organizations, as a key link

between supply chain organizations, and as a key to supply chain

integration.

This dissertation focuses on the factors that affect 3PL distribution in China.

It gives a comprehensive overview of current situation and an outlook for

the 3PL development in China, presents the dynamics and forecasts on 3PL

distribution in China. Based on theories, the author concludes that this

study should focus on problems existing in 3PL distribution and how to

optimize the operation of 3PL Distribution Center (DC) in China.

A survey is conducted to get the first-hand information. And a lot ofmanagerial insights and implications have been generated for local logistics

managers. It aims to help logistics people to solve the problems in China 3PL

distribution industry and seeks for the best optimized method to operate on

the stage of embryonic development of current 3PL distribution service

market.

< Key Words: Third Party Logistics (3PL), 3PL Distribution, Distribution

Center (DC), Factors >


6/51

Page 6 of 51

1 PREFACE

With peoples increasing needs of goods production, circulation and

consumption. the word of Logistics has drawn more and more attention of

many people from different industries. Nowadays, Chinese people pay more

attention to the new concepts, such as Logistics Company, Logistics

Center(LC), Third Party Logistics(3PL) and so on. And people gradually

realize that logistics plays an important role in enterprises core

competencies forces.

Although the product quality, price and supply are the three main criterions

of enterprises performance in market, and each of them plays an important

role in enterprises competences, actually these three factors are directly

affected by logistics operation. The inevitable trend of logistics industry isthe emergency of logistics providers who are closely connected with the

production and sales processes of user enterprises.

With the changing of modern business modes and external market

environment, 3PL appears and arouses the interests of people from all walks

of life. 3PL comes from the concept ofout-sourcingin managerial study,

which involves the use of external companies to perform logistics functions

that have traditional been performed within an organization. The functions

performed by the third party can encompass the entire logistics process or

selected activities within that process. 3PL services are multiple distribution

activities provided by an external party, assuming no ownership of

inventory, to accomplish related functions that are not desired to be

rendered and/or managed by the purchasing organization.1

Enterprise concentrates on its core business and out-sources logistics

function to professional logistics company in the form of contract. At the

same time, enterprise closely keeps in touch with the logistics company via

information system to manage and monitor its logistics operation. Therefore,

3PL is also calledContract Logistics.

3PL providers were formerly in transportation, warehousing, Information

System (IT) and other related industries. They communicate with external

customers, provide and monitor logistics services. It is only the third party,

but as a key to supply chain integration, serves with the whole set of

logistics activities. The service function of 3PL has been transformed from

the only one simple function, such as warehousing, transportation or IT, to

comprehensive logistics services, including coordination and management

of logistics activities, design and optimization of logistics solutions, as well

as searching and management of logistics information.

(1 Skjoett-Larsen, T., Third party logistics-from an inter organizational point of view)


7/51

Page 7 of 51

Karl Marx says the ultimate objective of capitalists is to get maximal

profits2. It is the same principle that is applicable in all kinds of industries.

In order to get maximal profits, each company has its own way. Some

decrease purchasing costs, some reduce production cost, and some cut

down management expenses.

In order to increase user enterprise profits and enhance its own competitive

capability, 3PL provider must strictly control distribution process, which is

the key process of logistics operation, through which not only costs can be

reduced, but profits can be created. Hence, distribution is the key profit

source in logistics operation.

(2

Liu Fagong, Managerial Economics, 1998)


8/51

Page 8 of 51

2 SIGNIFICANCE AND BENEFITS OF 3PL DISTRIBUTION

IN CHINA

2.1 Logistics Distribution Enterprises Core Competitive

capability

The important basis of enterprise development is logistics distribution. And

the efficiency of logistics distribution determines the efficiency of goods

circulation. Thus, logistics distribution has played an important role in

enterprises core competitive capability.

Normally, the prices of industrial finished goods are determined by logistics

expenses that accounts for 10% to 60% of whole price of the goods. If

logistics expenses decreases by 20%, the whole expenses will be reduces by

2% to 12%. Under the circumstances, these potential savings will take

decisive role in company competitive capability in the market.

Dick Hunter, Vice president of Dell said when he talked about Dells

successful experience, Because 74% of whole expenditures are spent on

the spare parts purchasing, 0.1% reduction of logistics expenses is equal to

10% increase of production efficiency. It is obvious that logistics distribution

has great influence on enterprises business.3

The following detailed overview of the competitive scenario highlights the

key opportunities that 3PL service providers can exploit:

For example, company ABC produces 60,000 pairs of leather shoes every

year. The author assumes its annual demand of raw materials leather is 120

tons, meaning monthly 10 tons leather consumption. In addition, assumethe price of raw material leather is RMB10,000 per ton and the bank loan

rate is 8% per year.

Company ABC will have several choices when it considers the purchasing

scenarios.

Scenario 1, company ABC asks a loan of RMB1,200,000 from bank at the

beginning of year to buy all the raw material leather needed for the whole

year, stores them in warehouse and arranges storekeepers to keep them to

satisfy its production consumption little by little.

(3 Wang Shuyun, Cost Changes and Distribution)


9/51

Page 9 of 51

Scenario 2, company ABC only asks a loan of RMB100,000 from bank at the

beginning of year to buy 10 tons of raw material leather which is only

needed for one month production. Then the sales earning of the first month

of leather shoes can be used to buy the raw material leather in the second

month. At the same time, 3PL company assists company ABC to transport

450KG leather to the factory every day and distribute its finished leather

shoes to its dealers every Friday and Saturday. In this scenario, company

ABC adopts the way of goods delivery to break up the whole into the parts.

In scenario 1, company ABC has to establish its own warehouse because of

big amount of raw materials purchased at the beginning of the year and

leather shoes produced in workshop little by little. This is the manufacturing

business model. In this way, company ABC must invest lots of fixed assets

that cost a lot.

However, if company ABC adopts the second scenario, professional 3PL

company helps to directly transport the raw material leather to the

workshop in small batches and distribute finished shoes to dealers at fixed

time. No investments are needed for inventory management and other

processes, which cuts down the company ABCs expenditures and saves its

energy. That is the charm of 3PL distribution.

Similarly, considering the bank loan company ABC has to pay, the interest of

scenario 2 is only RMB 8,000, but that of scenario 1 is RMB 96,000. It is

obvious that scenario 2 is also much better than scenario 1 in this respect.

Professional 3PL company adopts optimized logistics solution to deliver

goods twice per day. It delivers 225 tons of raw material leather to the

workshop at 7am in the morning, and takes away the finished shoes

produced in the previous day to transport them to the dealers at noon.

Analyzing from the above example, business model and production

essentials allocation of company ABC have changed because of logisticsoutsourcing to the 3PL company. Now company ABC has no storks, fixed

assets, bank loans and inventory management. Instead, the efficiency is

increased a lot. That is capital optimization.

Considering from the aspect of professional 3PL company, if it provides

service to many customers instead of one customer, it helps customers

decrease costs, at the same time, it helps heavily reduces 3PLs own costs.

Moreover, considering from the aspect of regional business development,

economic resources allocation is more reasonable, and business operation is

more efficient.

3PL has gained prominence as it offers a total gamut of solutions at a single


10/51

Page 10 of 51

stop that can help user companies reduce their overall costs. Evidently,

logistics ability has become the key part of enterprises competitive

capability. And people begin to realize that sometimes it can be constituted

by the professional 3PL company, not enterprise itself necessarily.

2.2 Beginning, Development and Significance of 3PL

Figure 1: Reason of 3PLs Emerging

3PL appears in the market because of the result of social work specialization

and division. Influenced by new managerial theories, enterprise invests

most of their capital, human resources, material resources into its core

business to enhance its market competence and to seek for earning

maximum return on investments. Social work specialization leads to some

none-core business functions separation from business activities, which

includes logistics function.

With the increasing number of world-renowned 3PL participants in the world,

companies are more forthcoming about handing over their logistics

requirements to these 3PL service providers. This move allows the

manufacturing companies to concentrate solely on their core competencies,

eventually bringing down their operational costs, reducing lead time for raw

materials and finished products, and vastly improving their process

efficiency,2says the analyst of research service of 3PL markets in U.S.

Further, outsourcing to 3PL companies saves a great deal of time, and

expenses otherwise incurred in maintenance and training the personnel.4

(4Sink, H. L., Langley, C. J., & Gibson, B. J., Buyer observations of the US third-party logistics market)

World Economic Integration

Enterprise Strengthen Core Competence

3PL

Specification

IncreaseEfficiency

Logistics Out-sourcing

Economic Development


11/51

Page 11 of 51

2.2.1 Current Situation of 3PL in Developed Countries

3PL market in Europe is in the mature period, and it accounts for 76% of

total logistics services, which is more mature than that of 58% in America.

And it is continually increasing. According to the statistics, the turnover of

American 3PL market is 35 billion US dollars in 1992, which accounts for 2%

to 3% of total logistics market turnover. It mounts up to 50 billion US dollars

in 2000, which accounts 5% to 6% of total logistics market turnover.5

In Japan, some large-scaled retailers have their own distribution centers.

Besides, around 1.6 millions of medium and small-sized enterprises rely on

the social distribution centers,6 such as Mitsubishi logistics Center. 3PL in

Japan mainly serves medium and small-sized enterprises. Advanced

information technology in 3PL industry lays a good foundation on fast

development in Japan.

2.2.2 Emerging of 3PL in China

3PL in China begins at the recent years, although it popularizes in the world

since 1980s. Its unique advantage attracts more attention from lots of

enterprises. With Chinas optimized economic systems and intense market

competition, price wars among enterprises become more fiercely. In order

to maintain high profits, the problem of costs reduction has urgently to be

settled. 3PL, providing the whole set of logistics activities and solutions to

bring down warehousing and transportation costs, becomes goods Third

Profit Source.7

Chinas 3PL is underway, but it has unbelievably fast development and huge

market potential. According to the statistics,annual expenditure of related

logistics in China is RMB 1,900 billion and the costs of logistics accounts for

20% of GDP. China market scale in 2001 is RMB 40 billion, and the business

of 70% logistics providers increased by 30% in the past 3 years. Evenly, theannual increase rate of China logistics market from 2000 to 2005 reached by

25%.8 Chinese enterprises have great demands on the new-fashioned

logistics services, which leads to the source of rich profits and the bright

prospects of logistics industry.

(5Communications Information Industry Journal, 2001-5)

(6Jiang Chaoqun, Modern Logistics Operation Management)

(7Wang Shen, Wang Xiaoli, The Analysis of the Third Profit Source Appearing in Enterprises)

(8Report of China Logistics Development 2005, National Development and Reform Committee)


12/51

Page 12 of 51

2.3 SWOT Analysis of China 3PLs Market

The method of SWOT analysis is extensively applied into many economic

researches. SWOT refers to Strength, Weakness, Opportunity and Threaten,

which means the analysis of the Strengths and Weakness of an

organization and the Opportunities and Threats facing it.9

Strength of China 3PLs Market:

Some large-scaled 3PL providers appeared in China 3PL market during

these years, such as Sino-trans, Zhong Hai Logistics and so on. Comparedwith foreign 3PL companies, those local providers are acquainted with

Chinese logistics market, have national network, lower operation costs and

good relationship with local governments, which are incomparable

advantages than foreign companies.

The table 1 shows the types of 3PL providers in China and their own

advantages and characteristics.10

Indeed, these advantages only can be taken effective within some time,

China 3PL enterprises must enhance their management, services and

information level, as well as educate talents if they wish to enter into the

international market successfully.

Weakness of China 3PLs Market:

Simplex service

At present, most of China 3PL companies only can provide simplex service,

such as transportation, warehousing and inter-city distribution, but there is

little packaging, distribution processing services provided, which leads to

the incomplete form of supply chain. Strictly speaking, those companies

could not be put into the category of 3PL.

(9J.H. Adam, Longman English-Chinese Dictionary of Business English)

(10 Wang Zhitai, Modern Logistics Management)


13/51

Page 13 of 51

Table 1 Types of 3PL providers in China

Typ

es

Transformed from

state-owned largeor medium-sized

enterprises

Transformed from

traditional

transportation and

warehousing

enterprises

Transformed from

the monopolized

group which was

directly governed

by state in the past

Private

logistics

companies

Advantages

1. Ready-made

logistics basic

infrastructure

and equipments

2. Wide area of

warehouse

3. Existed

management

system

4. Familiar with

local market

1. In possession of

national network,

transportation and

warehousing

assets

2. Past Logistics

market, operation

network, equipment

and enterprise scale

1. Extensive range

of

transportation

and

warehousing

network

2Deep-rooted

basis of customer

relationship

1. Flexible

systems

and low

manageme

nt costs

2. Provide

feasible

logistics

solutions

for special

industries

Example

Zhong Hai Logistics

Company, etc.

Sino-trans;

Cosco (China Ocean

Shipping Group

Company);

CMST (China National

Materials Storage

andTransportation

Corporation), etc.

China Railway

United Logistics;

China Post, etc.

P.G.LOGISTIC

S GROUP;

Datong

International

Group, etc.

Cha

racteristics

Fast development Strong core

competition capability

Have the

fastest

development

and the

brightest

prospect inChina logistics

industry


14/51

Page 14 of 51

Low information technology level

Low information technology level of current Chinese 3PL market represents

in the following aspects: low mechanization, lacking of advanced logistics

equipments, not fully making use of some scientific measures, such as

Global Position System (GPS), Electronic Data Interchange (EDI),

Warehousing Management System (WMS), Electronic Order System (EOS),

etc. Customer could not get timely and accurate goods tracking information,

and their needs for service diversity have not been satisfied. All these bring

about the difficulty in forming mutual trust and establishing long-term

partnership between user companies and 3PL providers, which heavily

restricts 3PL fast development in China.

Be Short of talents who have advanced logistics and management

knowledge

Although some experts have carried out many researches on 3PL, and some

related courses and majors have been opened in University, advanced

general logistics knowledge is not popularized in China. Many people only

know logistics can provide transportation and warehousing service, but do

not know advanced logistics knowledge should be the new integration of

those traditional businesses. In addition, some logistics companies do not

pay enough attention on talents, and they lack professional logistics

management talents.

Opportunity of China 3PLs Market:

Great market potential

From the angle of market demands, China is one of the most economic

energetic countries and the biggest consumption market in the world. Manymultinational companies are transferring more business to China and

decrease supply chain costs via outsourcing logistics operation. For example,

IBM, Lenovo, Sumsung have entered into China 3PL market in some core

cities, e.g. Beijing, Shanghai, Tianjin, Guangzhou, Shenzhen, Shenyang and

so on. Besides, 2008 Olympic Game will be held in Beijing, and the

estimated logistics demands will reach RMB40 billion.11 Undoubtedly, it will

bring about many opportunities and huge profits.

Governments high recognition

(11

Beijing Investment Guide (2005-2006))


15/51

Page 15 of 51

The articleIdeas on speeding up China advanced logistics development12

was published in March, 2001 by Economic & Trade Commission and

Ministry of Railways of the Peoples Republic of China. And inCatalogue of

industries, products and technology which are encouraged to develop in

China13 issued by State Planning Commission of the Peoples Republic of

China and Economic & Trade Committee, the development of logistics

distribution center has been listed as an urgent key task to fulfill. Till now,

logistics development planning has been constituted in over 20 provinces

and 30 cities in China. Governments high recognition on logistics creates

favorable macro-environment for China 3PL development.

Opportunity after WTO

After entry into WTO, Chinese local market is opening step by step. Underincreasing pressure of calling for cost reduction and core competence

increase, Chinese enterprises will increase their demands for logistics

out-sourcing. At the same time, emerging of foreign logistics companies will

inspire local logistics companies to learn advanced managerial knowledge

and seek for new room of development.

Threaten of China 3PLs market:

Challenges from foreign logistics companies

After China enters into WTO, not only some famous foreign logistics

companies go into Chinese logistics market rapidly, but more unknown

foreign logistics companies have plans to occupy Chinese logistics market.

Chinese local 3PL companies are facing huge challenges from foreign

logistics companies.

Emergence of the Fourth Party Logistics (4PL)

Chinese people have vague ideas on the 3PL, however, the emergence of

4PL has been another focus in logistics industry. The emergence of 4PL

certainly will have some impact on 3PL. The automotive and FMCG sectors

seem to be the most proactive when it comes to trying out the 4PL

engagement.14 Management people have to think about the problems

whether to change existed business model or to create new systems, or to

seek development between both of them.

(12Extract of www.cq56w.com/Html/wlzs/20072/200723111936.html, 2001)

(13Extract of www.gwytb.gov.cn/tzzn/zdglfz.html, 2000)

(14

Fang Guangluo, Third Party Logistics)
http://www.cq56w.com/Html/wlzs/20072/200723111936.htmlhttp://www.gwytb.gov.cn/tzzn/zdglfz.htmhttp://www.gwytb.gov.cn/tzzn/zdglfz.htmhttp://www.cq56w.com/Html/wlzs/20072/200723111936.html


16/51

Page 16 of 51

2.4 Benefits of 3PL Distribution

Core Competencies Forces Focusing

Optimized resources deployment urges enterprises to concentrate their

limited human and financial resources on their core business. In this way,

enterprises can develop basic technology and new products to compete with

other competitors in the market. As a result, companies are actively

involved in a 3PL engagement or are evaluating opinions with some lead

logistics providers (LLPs) for certain business units.

Expenditure Saving

3PL vendors aid in bringing down the customers expenditure levels.Professional 3PL providers use the advantages of economic-scale and low

costs to increase utilization rate of all processes, and expenditures are

deceased consequently. According to the result of truck-use survey15 in 3PL

enterprises, fixed costs, which include the purchase of new trucks and

packaging equipments, and the costs of delivering goods and labors, have

been cut down due to more use of external transportation services instead

of their own trucks.

Inventory Decrease

Enterprises can not burden the unlimited increasing on inventory of raw

material and products, especially some high-value spare parts should be

sent to assembling place on time to realize minimum or even zero inventory.

3PL providers use well-planned logistics solutions and delivery means to

minimize the inventory, improve the cash flow status and realize cost

advantage.

Image Upgrading

3PL providers and customers are strategic friends, not competitors. 3PL

providers are professional and considerate to customers. They use sufficient

equipments and well-trained employees to control the whole supply chain to

lessen the complexity of logistics. Lead-time is also heavily shortened via

the transportation network and subcontracts in the world. Meantime, they

help customers improve service and establish brands image. Customers can

get to know the situation of products distribution from time to time via

Internet. Some favorable conditions of competition for enterprises, such as

low costs and high efficiency, which are created because of tailored logistics

solutions design by 3PL providers.

(15

Hao Jumin, Transportation Management)


17/51

Page 17 of 51

Business Efficiency Increase

Out-sourced 3PL distribution service makes enterprise be dedicated in its

familiar business and put limited resources allocation into core competence.

As the professional in the logistics industry, 3PL distribution provider is of

great benefits to customers logistics operation because of its rich

knowledge and experience. 3PL provider can look at the whole logistics

market in a higher and more extensive angle, instead of just from the angle

of one enterprise. And their logistics system developing and design ability

brings on completion of some difficulty logistics tasks, especially for some

medium or small-sized enterprises hard to finish. Enterprises business

efficiency is increased by 3PL distribution service.


18/51

Page 18 of 51

3 CURRENT SITUATION AND PROBLEMS IN CHINAS 3PL

DISTRIBUTION AND DISTRIBUTION CENTER

Economic globalization has great effect on the development of global

logistics industry, which promotes the process of reasonable allocation and

efficient usage of resources in the whole world. Business expansion of

multinational companies urges the fast development of international

logistics business and the room increasing of value-added service.

Simultaneously, increased moving of resources and goods promotes the

process of economic globalization due to the industrialization, socialization,

information and network of logistics industry. Therefore, logistics

modernization has the balancing function of promoting world economy

development.

China is in the process of adjusting economic structure and upgrading

traditional industries. It is necessary to develop advanced logistics in China.

In order to speed up advanced logistics development so as to realize the

high efficiency, high value and low cost, people have turned attention to the

development of 3PL distribution and distribution Center (DC).

3.1 Types of Enterprises Distribution in China

In current China, enterprise logistics distribution can be represented as the

following three types and they have been coexisted for some time.16

Type 1: Enterprises own DC

Many enterprises have their own DCs but the reasons are various. For

example, most of chain store enterprises are established from the old

vegetables or foods companies, and they have their own warehouses,equipments and people, which are the resources and basis of establishing

modern DCs. However in the long run, those DCs information and mechanic

level are comparatively low and distribution efficiency is also not high.

Type 2: Suppliers acting as logistics agency

Suppliers acting as logistics agency means direct goods distribution by

suppliers. Headquarter assigns a uniform supplier and the supplier directly

distribute the goods to dealers stores when goods are in needed. Chinese

old economic system leads to the prevailing of this type of distribution for

long time.(16

Niu Yulong, China Logistics)


19/51

Page 19 of 51

Type 3: Enterprises Distribution Supported by 3PL

Recently, owing to the fierce competition in international circulation industry,

some large-scaled companies begin to out-source logistics distribution to

social professional logistics companies, concentrating on their core business.

And this trend is more and more obvious. For example, Metro consigns DHL

to distribute its goods in China.17 These stores are mainly depending on 3PL

logistics companies to doing distribution in the needs of competition.

As A key client for 3PL, the retailing industry desires to incorporate supply

chain management systems that look beyond the processes of procurement,

storage, and distribution of goods.

According to China Logistics Development Report, the products distributedby 3PL in China only accounts for 16% and industrial raw material accounts

for 20%. From retailing industry, it can be found that some chain stores

have carried out some helpful trials on 3PL distribution. For example, Beijing

Commercial Group, which has over 300 convenient stores and supermarkets

in Beijing, assigns Hutchison Tibbett & Britten Group to distribute its goods.

Hutchison Tibbett & Britten Group is a professional 3PL company. Its area of

DC reaches 10,000 square meters and annual distribution capability is

5,000,000 cases and one billion RMB, which can satisfy the requirements of

200 convenient stores distribution twice a day. The logistics expense

accounts for around 2% sales revenue.18 It is the typically 3PL distribution in

retailing industry of China.

With the deepen of Chinese economic system, especially the dramatic

competition in international and domestic market after entry into WTO,

enterprises have higher demands on logistics services. 3PL companies face

the austere challenge on how to comprehensively improve the quality of

customer logistics operation management.

3.2 Prospects and Future of Chinas 3PL Distribution

China basically possesses the qualification of economic environment and

market condition for logistics and distribution. In the long run, China

logistics and distribution development will step into the new phase and have

prosperous future. And in the short run, some constraints will stop its fast

development, but still have many opportunities in the industry.

(17Extract of DHL Solutions Internal Journal, 2005)

(18Extract ofCompany Introduction, http://www.htblogistics.com/)
http://www.htblogistics.com/http://www.htblogistics.com/


20/51

Page 20 of 51

Part of logistics activities assigned to professional 3PL is popular, but the

business scope is narrow, and the relationship between 3PL providers and

customers is short-term and seems not stable. Medium and short distance

transportation is mainly responsible by some enterprises own logistics

departments, which may reflect enterprises laggard logistics management

level and low-quality logistics service ability in China logistics industry.

Out-sourcing is the effective approach to realize logistics socialization and

reasonableness. It is necessary for enterprises to take a trial on the range

and means of assignment if enterprises would like to fully make use of

business resources and satisfy the high degree of logistics system.

Development of 3PL distribution undoubtedly is an important way of

promoting the enterprisesreasonableness and efficiency, so as to improve

the whole society logistics reasonableness. 3PL distribution has the vastprospects, especially in nowadays information times. It will greatly boost

the development of logistics industry when advanced information and

network technology is put into the logistics management.

3.3 Major Problems affecting 3PL distribution development in

China

As a rising industry, advanced logistics industry has great market potential

in China. It can be approved that domestic and foreign logistics companies

are emerging in multitude into China, such as UPS, DHL and TNT. But our

logistics people are worried about it, because they are clear to know that it

is not ideal of enterprises logistics performance, market share and profits

earning ability. Nearly all logistics enterprises, especially 3PL companies,

are in the difficulty and eagerly to get out of the trouble.

Bottleneck and major problems

Chinese enterprises lacking of right and sufficient understandings on

logistics and distribution

Although the researches on logistics and distribution have begun from

1980s, and academic and governments related departments have more

understanding and cognition on them, in the whole society, enterprises in

particular, have very vague understanding on logistics and distribution.


21/51

Page 21 of 51

Economic theory in Chinese enterprises for a long time has been

attaching great importance on production process and taking lightly on

circulation process since it is regarded as no value is produced in the

circulation process, but produced in production process. Some enterprises

ignore the importance of logistics distribution and finally lose the business in

this respect. In addition, many enterprises, whichever are small or big, all

have their own logistics departments, which leads to the low economic

benefits. On the other hand, some enterprises do not pay enough attention

to their own core business, but devote most of energies to the logistics and

try to bring it into business scope. All these greatly affect the China 3PL

distribution development and the overall social benefit optimization. In this

point, enterprises in China should learn from foreign companies,

outsourcing logistics operations to focus on core competencies.

Not enough to satisfy everyone Market demand is in a sorry plight.

Considering the actual situation, business form of Chinas current 3PL is

obviously different from that of Europes advanced 3PL. In Europe, 3PL

indicates the third party that is independent from the supplier and demander.

3PL providers can organize and operate the logistics activities according to

customers requirements. And the user enterprises may escape from the

logistics binding, and concentrate on their core business. Thus, 3PL are

welcome by enterprises. In Europe and America, 3PL has formed

comparatively big scale. Experts believe that the quantity of 3PL providers

in the market becomes the maturity remark of logistics market. Usually,

logistics market is regarded as mature when the quantity of 3PL providers

accounts for more than 50% of all logistics companies.19 According to the

related statistics, the quantity of 3PL providers accounts for 57% in America,

35% in European Union and 80% in Japan respectively, but less than 20% in

China.20 In our country, most of 3PL providers are agency of ministry of

harbor or railway and have big limitation.

Just like what Ding Keyi said, President of Shenzhen Merchants Logistics, incurrent China, most of great demands on 3PL come from foreign invested

companies. Some high-tech, retailing and e-commerce businesses are

accustomed to doing logistics by themselves, and unwilling or neglect the

management model of supply chain. Even though some industrial business

companies out-source their transportation and warehousing businesses, the

relationship between companies and service providers is simple and

unstable business relationship, absolutely not the close cooperation in the

supply chain management.21

(19 Martin Christopher, Logistics for Reducing Cost and Improving Service)

(20

Wu Caixia, Distribution Management )

(21

Extract ofAn interview to Ding Keyi, President of Shenzhen Merchants Logistics)


22/51

Page 22 of 51

Logistics has been recognized as the third profit source.22 Enterprises

have taken many measures to strengthen the logistics management to

reach logistics reasonableness. However, due to the superficial recognition

on 3PL and some unknown reasons, most of industrial companies are not

willing to use 3PL. 3PL market demands are in a sorry plight.

Short of Logistics Talents

Analyzed from the development of international logistics and distribution,

logistics practitioner should have certain logistics knowledge and practical

experience. Foreign logistics distribution education and training are very

developed and reasonable education training systems have been wellestablished. Logistics major and non-logistics major students also could get

comprehensive logistics knowledge. Initiated by some logistics industry

associations, vocational education on logistics distribution develops

nationwide. It has to be paid special attention that vocational education is

very important economic way of educating logistics distribution talents.

After getting related certificates, practitioners can start logistics distribution

work in many countries.

Education on logistics distribution in China is far behind in developed

countries. Logistics major is open in only 10 tertiary colleges, which

accounts for only1% of total quantity of Universities in China. Logistics

education on graduate students just starts, but doctorate education has not

start yet.23 Logistics vocational education is even rare in China. According to

the information from the Beijing talent agency company which mainly works

for foreign companies, the needs for logistics managers have been greatly

increased during these years. It is hard to find the suitable logistics

managers for those companies in Beijing.

Therefore, education and training on logistics distribution should bestrengthened in China. On one hand, logistics education should be put in a

certain position in tertiary education. On the other hand, various ranges of

logistics education and training should be encouraged. Government should

strengthen the contact and cooperation between technology, education,

management consulting and international logistics.

Business expansion constrained by limited self-capability

(22 Shi Jiannian, Logistics Distribution)

(23Huo Hong, 3PL Operation Management)


23/51

Page 23 of 51

According to the international customs, 3PL companies can be divided into

two parts. One part is comprehensive integrated logistics company, which

refers to the companies with large scale, abundant capital, and excellent

service. Another part is functional logistics company, which represents as

the companies with single or several simple functions, such as the function

of transportation, warehousing, and distribution processing, etc.

Depending on their own advantages, 3PL providers are actively developing

their business scope, But in current situation, service ability is insufficient in

most of 3PL enterprises. Simplex service function, low operation efficiency

and insufficient service network all restrict core competence that heavily

affects local 3PL companies competition with foreign high-level

comprehensive logistics companies.

System environment for logistics distribution development awaiting

to be deeply reformed

It is the prerequisite and heavy task for China to reform the economic

system and environment. System environment for logistics distribution

development, is also the system environment or market environment for

enterprise to do business. Those systems mainly include financial system,

talents system, social security system, and so on. The reform of the systems

is far behind the business operation of enterprise and also cannot be

accustomed to the demands of market economic system reform.

Reallocation of logistics resources internally or externally is necessary to be

involved when enterprise begins to improve its own logistics efficiency.

Reallocation will be blocked if system reform is not improved. For example,

out-sourced logistics service will have conflicts with enterprise internal

resources, and it must have impact on the improvement of enterprises

logistics operation. In order to proactively promote the development of

logistics distribution, government must take some measures on the reform

of system environment.

Logistics industry is related with many industries, such asrailway, aviation

and ocean industries. In addition, it has many affiliations with other

Commissions and Ministries, such as State Planning Commission, Ministry of

Communications, Ministry of Railway and General Administration of customs,

etc. Different regulations and plans impose various constraints on resources

reallocation. They are hard to be unified into the same standard and hard to

operate in the real life although some so-called industry associations have

set up some standards. So reallocation of 3PL resources in China is subject

to the constraints on this kind of multi-governed systems.


24/51

Page 24 of 51

Bad logistics companies doing harm to the market regulation

Current transportation market in China is comparatively disordered.

Abnormal cost decrease leads to some bad logistics companies offer very

low quotation when they try to expand their markets. At the same time, forsome enterprises those need outsourced logistics service, being oppressed

by high costs, they rate the prices of 3PL services as a key criteria when they

make choices on 3PL. Although some enterprises know the quotation

provided by bad logistics companies are illegal, they still choose to only

out-source their transportation function to them, which leads to the

disordered competition in the logistics market and emerging of strange

phenomenon that excellent qualified logistics companies were defeated by

bad logistics companies.

On the other hand, according to the analysis of some logistics experts, the

phenomenon of failure of out-sourcing logistics service is because some

people worry about their own benefits be affected if logistics service is

out-sourced. They do their utmost to stop it happening. Moreover, some of

them have decisive position on enterprises operation, so this potential rule

is more popular in some state-owned or private companies. It is evitable

result of faultiness of China legal person structure governing.

3.4 ExistingProblems in Chinas 3PL Distribution Center

3.4.1 Characteristics of 3PL Distribution Center

Observing from the whole process of production to completeness of DC, DC

has many types, mainly including goods collecting center, goods picking

center, processing center and distribution center. Actually, distribution

center is the integration of the first three functions and brings into play the

function of goods picking and delivering to a higher level.

3PL DC is the combination of distribution activity, sales and supply

activities. It is not a simple logistics activity, but also is a kind of

business means. As amodern circulation establishment, 3PL DC is

different from department stores, trade centers and warehouses.

This circulation establishment is based on advanced equipments and

technology, which not only can deal with the business flow, but also

material logistics. It is the circulation establishment with complete

functions of business flow, material logistics, cash flow, and

information flow.

3PL DC is the unique result of advanced logistics, including a series of

optimized functions, such as storage, goods picking, goods collecting,


25/51

Page 25 of 51

processing, packaging, truck loading, route arrangement, etc. It has

big difference from the traditional warehouse, which only covers the

business of keeping, storing-in, and storing-out. Goods in 3PL DC is in

the situation of ceaseless movement, which can realize the

continuous value added in the whole process. The function of

distribution is actually derived from the function of transportation,

but it includes not only the transportation, but also goods picking,

goods collecting, trucks arrangement and so on.

Considering from the angle of resources allocation, it is the economic

activity in the form of modern goods delivering to realize the

resources allocation. And from the angle of delivering form of actual

goods, it helps to consolidate the businesses in DC and send the

goods to customers in the most reasonable way. Normally, except theinter-city long haul, distribution mainly refers to the short-distance,

small-volume and small range. It is the extended function of the

ending of logistics system.

3.4.2 Restraints impacting 3PL Distribution Center fast development

3PL DC belongs to the acting DC, and it can realize the maximum benefits of

society, but 3PL DC in China is immature and has imperfect technology.

Layout of traditional warehousing establishments, such as warehouse

and transportation routes, is not reasonable, which has impact on the

goods normal circulation. Because many 3PL DCs are transformed

from the old-function logistics companies, such as transportation

companies, warehousing companies, and processing companies,

their equipments could not completely satisfy the customers needs.

Current 3PL DCs in China are not really established on the basis ofmodern electronic information technology and their efficiency is also

awaited to be improved. Low-speed, too much wastage and

unreasonable circulation structure of traditional ways restrict the

overall logistics and even national economy development.

Market intensive competition and regional increasing economy scale

both require the enterprises to reduce costs to their utmost degree.

Besides, poor infrastructure, flexibility and low customer service level also

heavily hold back the fast development of 3PL DC in China.


26/51

Page 26 of 51

4 RESEARCH OBJECTIVES AND METHOD

4.1 Research Objective

The objective of research is to find out the factors affecting the Chinese 3PL

distribution and to get the highest degree of 3PL distribution reasonableness.

It can be identified from the following aspects whether 3PL distribution is

reasonable or not:

Whether to cut down the logistics expense,

Whether to decrease the logistics loss,

Whether to increase logistics speed,

Whether to express the optimized results of all logistics means,

Whether to effectively connect the line-haul transportation and

terminal transportation,

Whether to reduce the times of logistics transfers,

Whether to take the advanced technology measures

In a word, the degree of reasonableness of 3PL distribution determines

customers confidence on 3PL providers capability, thereby the ultimate

objective is to get maximized customer satisfaction

4.2 Design and Return of Questionnaires

This research focuses on the 3PL distribution in China, and the method of

questionnaire is adopted. It investigates the current status and

development of 3PL distribution in China, and does analysis on the result of

survey.

There are three parts in the questionnaires, which includes:

Basic situation of 3PL enterprises interviewed:

It includes the names of enterprises, their registered places, capital

resources, time length in 3PL distribution industry, number of employees


27/51

Page 27 of 51

and so on.

Current business status of 3PL enterprises interviewed:

It includes the enterprise main business scope, service area,

infrastructure, application status of modern information technology and

use of out-sourced strategy, etc.

Ideas on future development:

It includes the enterprises ideas on future market, worries on future

development, and expectation on market environment, that mainly

refers to the expectation on government.

Objective choices questions and subjective open questions are presented in

questionnaires. From the return of questionnaires, some information, such

as annual sales revenue, is vacant due to their self-protection consciousnessof enterprises.

This survey starts from October 2006 and ends in December 2006. The

objectives of survey are chosen from 3PL company list in China

consolidated by China Transportation Association, China Goods Agency

Association an China Purchase and Logistics Association.

The research is taken via telephone, fax, email and face-to-face interview

and meeting. The total effective quantity of returned questionnaires is 84.

For those ineffective questionnaires, their contents are not completed, or

cannot reflect the actual situation of 3PL in China.

4.3 Descriptive Statistics Analysis on Research Result

Basic situation of 3PL enterprises interviewed

According to the result of research, the quantity of returned effectiveresearch paper is 84. The enterprises include 10 state-owned enterprises,

45 private companies, and 29 foreign companies, which accounts for 11.9%,

53.6%, 34.5% respectively.

a) Regional distribution

Among all the enterprises taking the research, the enterprises whose

registered address is Beijing have the largest number, accounting for 45%,

the second largest is Shanghai, accounting for 18%.


28/51

Page 28 of 51

Figure 2: Enterprises Regional Distribution

Regional Distribution

45%

2%18%

5%

6%

6%

2%

1%

4%

1%

1%

4%

5%

Beijing

Tianjin

Shangdong

Shanghai

Jiangsu

Zhejiang

Guangdong

Liaoning

Jilin

HeilongjiangGansu

Qinghai

Yunnan

From Figure 2, the research is mainly taken on the enterprises that locate in

economic developed area of Eastern China.

b) Scales of enterprises which take the research

Figure 3: Employee Number of Enterprises

number of employees

2% 5%14%

35%

42%

2% =1000 people


29/51

Page 29 of 51

Figure 4: Registered Capital of Enterprises

Registered Capital (,000RMB)

2%14%

78%

6%

10000

Because many enterprises would not like to show their annual sales revenue,

the number of employees and registered capital are the important criterion

for identifying the scales of enterprises in this research. The enterprises

whose employees are less than 200 are small-size enterprises, whose

employees are more than 200 but less than 1000 are medium-size

enterprise, and whose employees are more than 1000 are big-size

enterprises.

Table 2: Time length of receiving 3PL distribution and enterprise scale

Enterprise

scale

Service

Length

Small-size

enterprise

Medium-size

enterprise

Big-size

enterprise

Total

< 2 Years 18 8 4 30

2-8 Years 25 13 7 45

>8 Years 0 2 7 9


30/51

Page 30 of 51

4.4 Services Provided by 3PLs

a) The service scope of 3PL provided

According to the research, 49.5% enterprises are provided with

comprehensive logistics services, 40% enterprises are provided with

transportation and warehousing service, and 9% with warehousing and

value-added service. And the customersproducts ranges are from normal

goods, cold chain goods to dangerous goods.

b) Relationship between 3PL and enterprises

From the statistics of research (see Figure 5), more than 10% enterpriseshave long-term relationship with 3PL.

Figure 5: Time length of Relationship

Time of relationship between TPL and enterprises

>33%

>10%

>50%

>1 years

2-3 years

>3 years

It is easily found from the research that some certain reasons leading to theshort-term service agreement between user enterprises and 3PL vendors.

No need for logistics service provider stability in the past:

Traditional service is only focus on one simple function of logistics,

such as transportation, warehousing or packingIt can be gained in

one-off way and customer has low request on service stability. But

new-typed distribution is the integrated service by external suppliers

to integrate the customers internal and external resources. So it

calls for the comparative stability for providers.

Low cooperation degree:

With the deep degree of the cooperation between customers and


31/51

Page 31 of 51

3PLs, costs and risks of changing 3PL providers increase sharply. So

more enterprises prefer long-term relationship with 3PL providers.

And they wish to establish the partnership relationship instead of

short business relationship with 3PLs.

Low individuation degree:

Similar or same quality of service provided will easily lead to frequent

change of 3PL. The characteristics of no enough flexibility exposes

with the customersfluctuated demands.

Severe competition in the market:

More and more providers compete in the market. So enterprises may

choose different 3PLs from time to time when they consider the costs

and other factors.

c) Information technology Level

Easily found in this research that some 3PLs use information technology to

transmit information, such as EDI, GPS etc. More and more 3PL companies

use electronic technology to get to know the position of goods and provide

the service.

From the Figure 6, we may find the situation of order tracking in different

companies.

Figure 6: Status of Order Tracking

Situation of Order Tracking

0%10%20%30%40%50%60%70%80%

90%

noorder

tra

cking

free

toll

numbe

r

internet

peoplecont

act

othe

rs

Local company

foreign company


32/51

Page 32 of 51

It is easily found that the most common way in all enterprises is people

contact. Foreign companies prefer Internet as the order tracking way

because of its low cost and 24-hour consistent service. But due to the

limitation of high expenditure of expensive equipments, the quantity of local

companies who use Internet is less than that of foreign companies. The way

of free toll number seems not be suitable for 3PL distribution, although it is

the effective way for ordinary consumer to check the position of their

packages in the Express Industry. After all, contract logistics distribution

service focus on companies instead of individuals. More and more

companies use GPS and Short Messaging Service(SMS)to track the order

status, but currently they are not the most popular ways. It is inevitable that

in the fact fixed meetings of both managers in 3PL and customers are the

most common ways.

4.5 Aspects to be Improved

a. For those enterprises who have chosen 3PL:

Table 3: Reasons that enterprises are not satisfied with 3PL providers

ReasonsProductionenterprises

Businessenterprises

High operative costs 7% 0%Not timely and inaccurate

information21% 34%

Low speed operation 21% 33%Incomplete service contents 7% 0%

High goods damage rate 7% 0%

High operation error rate 13% 0%Bad service attitude 0% 0%No network service 7% 33%

Cannot satisfy the demandsfluctuation

0% 0%

SourcesChina Warehousing Association

According to the above table from China Warehousing Association, it lists

some aspects that are not satisfied by customers. Although maybe it does

not include all aspects that were not satisfied, it lists major parts of

problems existed in the current 3PL distribution market.


33/51

Page 33 of 51

b. For those enterprises who have not chosen 3PL till now:

According to the 2002 China 3PL Market Investigation Report, customers do

not have confidence in 3PL service level and are hard to find an excellent

and suitable 3PL providers in the market. Many 3PL providers are good at

marketing, but are disappointing in actual operation. Some 3PLs could not

provide customers with consistent high-level service.

There are many reasons for enterprises not to choose 3PL as their external

logistics service providers. They include:

Enterprises already have their own strong internal logistics operation

capability,

Enterprises do not have confidence in 3PL service level, There are severe 3PL providers shortages in the logistics market,

Enterprises lack confidence in the benefits they can get after using 3PL

service,

Different work are managed by different departments in the enterprises,

Enterprises think 3PL service is too expensive,

Enterprises have unpleasant experience with 3PL in the past,

Enterprises have wrong understandings on 3PL,

Enterprises do not choose 3PL for lack of related information technology

system.


34/51

Page 34 of 51

5 HOW TO DEVELOP CHINAS 3PL DISTRIBUTION AND

OPTIMIZE THE OPERATION OF DC

Although many problems exist in current China 3PL industry, we could not

hesitate to move forward. Compared with Chinas 3PL market potential,

current China 3PL capability is slim but have abundant development room.

According to the investigation of China Warehousing Association, 82% of

raw material logistics services are provided by enterprisesthemselves or

suppliers, even higher in business enterprises. In addition, another

investigation by China Warehousing Association shows that 45% of

enterprises will choose new logistics providers in the coming one or two

years, and 75% of which will choose new type logistics companies instead ofpast warehousing and transportation companies. And 60% of them will

out-source its comprehensive logistics operation to new type logistics

companies in order to gain lower costs of warehousing, transportation,

packing, processing and sales strategy and information service.

5.1 Trends of 3PL Distribution

Today, organizations are increasingly engaging the services of 3PLs to

overhaul their logistical operations. Industrial and material industries will

have deepen intervention on business logistics. Firstly, manufacturing

enterprises logistics have expanded to business logistics. In some industries

with fierce competition, such as home appliance, fashion, cosmetics and

health care industries, large-scaled manufacturing enterprises directly

participate in the market activities that focus on consumers. Transportation

departments of some manufacturing enterprises have transformed from

self-distribution to social distribution and been used to the requirement of

large-scale chain enterprises. Secondly, traditional logistics companies aretransformed to 3PLs. With the reformed structure and logistics market

expansion, some old warehousing enterprises which have experience in

storing and storage in the past, begin to engage in providing the

professional logistics service.

5.2 Trends of 3PL DC Modern Development

Modern information technology has been widely used in current DC, such as

automatic picking system, automatic warehousing system andElectronic

Ordering System (EOS), etc. Under the support of modern information


35/51

Page 35 of 51

technology, a series of modern trends appear gradually.

Automatic warehousing

DC usually uses the warehousing system with automatic solid pallets

and goods picking, which largely increase the warehouse use rate,

accuracy and speed of goods storing and picking.

Mechanization of goods loading and moving

DC uses forklifts truck, pallets operation system and Automatic

Glided Vehicle (AGV) to realize goods loading and moving operation

automatically.

Electronic assembly

In foreign DCs, the quantity of labor force who are responsible for

goods sorting, order picking and goods collecting accounts for 70%of overall quantity of labor force. Thus, more and more DCs begin to

use automatic sorting and automatic picking system to finish the

assembly operation. For example, Electronic Label Picking system

has been widely used to increase the goods operation speed and

lighten the operation intensity.

Electronic goods supplement

In order to supplement goods timely, DC uses Automatic Goods

Supplement system. This system uses the computer technology to

achieve the result of electronic goods supplement. It can not only

exchange the information with suppliers on time, but also decrease

the mistakes of human operations.

Goods digitalization

Use of bar-code and electronic scanning technology can realize the

automatic inspection and monitor of goods. The goods quantities

and detailed pallet position will appear in the screen when order

number is put into the computer. Operation people may

conveniently find the goods on the pallets. Go into the next step oftally after the process of assembly is finished.

No paper in the process

After using bar-code, electronic scanning and EDI technology, no

paper is used in the whole process, which decrease the operation

mistake rate extensively. From goods receiving, inspection,

storing-in, sorting, order picking, goods collecting to assembly,

bar-code and no paper operation is realized comprehensively by the

use of PCs wireless communication.

Intellectualized operation

Logistics application in PC technology far exceeds the statistics


36/51

Page 36 of 51

processing and administrative governing, and has stepped into an

intellectualized governing field. For example, trucking arrangement

system software is commercialized in America and Japan. It can

shorten the time length of truck arrangement and planning, increase

the truck use-rate and decrease the lead-time.

Communication cooperation

Because DC must often exchange information with many suppliers,

the cooperation of planning and operation shows particular

importance during the operation. But the key of cooperation is

information sharing. After using the ways of Internet, electronic

business and EDI, information system can be closely integrated into

both sidesbusiness process to reach the cooperation.

In a word, high efficiency, low wastes and high-qualified service can beachieved by adoption of modern information technology that optimizes the

distribution business process and business with suppliers and customers.

5.3 Suggestions and Assumptions of Chinas 3PL Distribution

Development and the Operation Optimization of DC

Figure 7: Value of 3PL

Value of 3PL

Service Value Social Value Cost Value

Management & Technology Ability

System Planning

Individual Service

Information System

Consistent Improvement

Network ability

E

xtensity

Depth

Economic-scale

Inter-supplementEffect

PriceNegotiationability

Customer integration Supplier integration


37/51

Page 37 of 51

Michael F. Corbett & Associates ever concludes 10 key factors for 3PL to

successfully establish relationship with customers. They are

communications, flexibility, innovation, integrity, personal service,

productivity, relationship management, responsiveness, technical

competence and value.

3PL industry is undergoing a huge transition. Currently competing in a

highly fragmented, high growth market, 3PL providers are dealing with a

massive wave of consolidations. An excellent 3PL provider should have the

following characteristics:

5.3.1 Excellent Customer Service Function

As a service company in the fierce competition, 3PL should have 3CSconcept, that is Care, Cooperation and Communication. Service should

always surround the customersneeds and 3PL tries to create customer

needs. This requires 3PL to provide customer with basic service

(transportation, storage, etc), and actively provide customer with

custom-built value-added service. Excellent 3PL providers do research on

customersneeds, offering customers elaborate-designed service for their

choice.

Propose various distribution schemes according to requirements of

different industries

3PL companies should propose various distribution schemes

according to customersspecial demands on the characteristics of

products in different industries. For example, there are some

characteristics of logistics distribution in chain store industry, which

includes fast changing price, frequent ordering, splitting order and

strict request on goods guarantee period. The above characteristics

require 3PL providers fast feedback and recur to the perfect

information system and complicated technology support.

Provide value-added service

Customersexpectation on 3PL that they not only could cut down their

logistics costs, but provide more value-added service. So some 3PLs

begin to provide the services of re-labeling and repacking as part of

value added services in the logistics operation. Hence, more

customers would like to establish business relationship with 3PLs, and

even establish long-term strategic partner relationship with 3PLs.

Work out differentiation strategy


38/51

Page 38 of 51

It is impossible to perform the same service standard when enterprise

has different products. 3PL should set different storing volume,

transportation means and storage environment according to the

characteristics of different products. Unnecessary costs will happen if

characteristics of different products are ignored. For example,

different products have different temperature control requirements.

Normal goods and chemical dangerous goods must be stored into

different warehouses and transported by different transportation

means.

Adapt to the new trend of logistics distribution

3PL distribution is developed with the development of enterprises

own business. For example, the distribution of frozen fresh foods will

be paid great attention. DC will add the function of distributing frozenfresh foods when people have more and more demands on it. This is

the trend of establishment and development of specialized DC in

China. Accompanying the higher living standards and demands on

goods quality, some logistics distribution companies which were

specialized in fresh foods (such as milk, eggs, vegetables, bread and

ice-cream) will gradually transformed to the integrated multi-function

DC with normal temperature storing, chill space, packing, processing

and distribution.

Provide individual customer management and information service

Economic development urges 3PL providers to develop in the direction

of profession, individuation and big scale. Normally 3PL focus on

several enterprises to offer individual services.

DC is in the state of being middling of supply chain and must

communicate and feedback with upriver and backward position. Thus,

it is necessary for 3PL provider to provide individual customer

management and information system according to customersspecialrequirements.

After setting up EDI system, daily and monthly operation

statistics can be transferred to customer, and 3PL can directly

log into the system and help customer to settle the problems

happened in regional DC and work out the solutions. At the

same time, some reports, such as order operation report,

inventory management report, damage report, carrier

management report, can be automatically generated.

Opening 24-hour service hotline, 3PL may receive and collect

the complaints and the newest demands from customers and


39/51

Page 39 of 51

end-users, also communicate with customers with complete

records in call center. At the same time, goods information

tracking team organized by 3PL Transportation Department and

Customer Service Department is set up for customersfrequent

inquires. In this way, 3PLs service level and fast reaction

capability is constantly increasing.

5.3.2 Optimized Distribution Network

An important criterion for enterprise to choose 3PL is to consider whether

enterprises products target market is within the network of 3PL logistics

providing and the network has to be adapted to the dynamic increasing of

enterprise target market. With the development of commodity economy,enterprise target market is extended to the whole country, even the whole

world, which requires 3PL could provide with customer more choices at the

aspect of distribution network.

Establishment of DC

The article focuses on piecing together a distribution center operations plan.

At the beginning of DC establishment, logistics planning seeks to resolve

seemingly competing demands by recognizing that a building can be

designed so that it is economical to build, efficient to operate, serviceable

for decades, and easily expanded. Distribution purpose and functions also

should be clarified. DC should be established and operated in a scientific and

standardized principle.

The following steps and contents must be considered during the

establishment of DC

1) Logistics diagnose and analysis:It includes diagnose and analysis on the logistics costs, logistics process,

logistics resources allocation, human resources allocation and logistics

functions setup.

2) Logistics strategy analysis and design:

It includes the analysis and redesign on the supply chain and logistics

operation mode.

3) Overall logistics layout and design:

It includes layout and design of resources allocation, logistics process

optimizing, logistics management, resources allocation, logistics

technology and logistics information.


40/51

Page 40 of 51

4) Logistics operation layout and design:

It includes logistics network management, warehousing management,

transportation management, inventory control, costs and risk control.

5) Operative measures of logistics process and Layout and design of

logistics functions:

Evaluation is taken as the operative measures during the logistics

process.

6) Operation of DC:

It includes the operation and analysis on equipments and operation in

DC, and DCs automation, as well as the way of increasing DC operation

efficiency.

Distribution modes adjusting to different conditions

The development of 3PL lies on the local economy level, basic establishment

requirement and local labor costs.

Current logistics industry in China is immature. The level of Eastern China

and Western China, and costal area and inland have big gap. Unsound laws

and regulations, conservative thoughts, various goods tastes, these factors

all result in the low efficiency of national distribution. So distribution modes

must be suitable for the local market changes.

5.3.3 High Degree of Information Technology

The percent of outsourcing is likely to increase with the logistics service

providers improving their efficiency and productivity through service

integration and incorporation of information technology. Technological

enhancements in particular have led to superior information managementsystems, which ultimately enable 3PL enterprises to come out with

customized solutions for the end users.

High degree of information technology represents as the digital and

computerized logistics information processing, standardization and

real-time of logistics information transmission, database and codes of

logistics information collection. All request the establishment of modern

information system, bar-code technology, database technology, digital

ordering system, and fast and effective customer reaction.

Promoting scientific level in DC


41/51

Page 41 of 51

Real 3PL distribution is established and developed on the basis of modern

electronic information technology. In the logistics field, information and

communication technology (ICT) include EDI, Bar-code, GPS, etc.

Application of information technology related with enterprise logistics will

promote the enterprise modern logistics level. Logistics operation

automation not only increase the efficiency, but deeply decease the

enterprise operating costs which brings about comparatively lower sales

price and strong competition capability in the market.

5.3.4 Distribution Costs Reduction

Several strategies have to be considered when considering decease of

distribution costs. Such as consolidation strategy, standardization strategy,and order period improvement strategy.

Consolidation strategy means the consolidation of ways of

distribution, which is the optimization of route and increasing of truck

full loading rate under the permission of product characteristics and

delivery time. In addition, this strategy means co-distribution.

Combining all orders in one region or cooperating with other DCs

decrease the distribution costs.

Standardization strategy means truck loading capability is increased

because of more use of standard packaging of products. For example,

the difficulty of distribution will be increased if combined transport of

products and promotion products, because the volume and size of

promotion products are normally not standard.

Order period improvement strategy means customers try to order

goods at the same quantity and the fixed time in one area. For

example, transportation contract rate of company AB with its 3PL isRMB 200 per ton, and the transportation distance is over 300KM. But

due to the unstable orders with different quantities and the key is

company AB has no plan and fixed time to make orders every week,

sometimes its 3PL can not satisfy the needs of on time delivery. If 3PL

could persuade the end-users to agree with the fixed time order and

comparative FTL in one week, 3PL is willing to cut down at least 20%

of the transportation rate with company AB.

Meantime, good and smooth communication between 3PLs and customers

shows great importance in distribution costs reduction. For example,

customer will not consider the 3PLs difficulties to order goods erratically

when they try to increase their sales. Rule-less orders make against the


42/51

Page 42 of 51

distribution cost optimizing. 3PL should fully communicate with customers

to understand their real purpose to choose full truck load (FTL) and avoid

less truck load (LTL) to guarantee goods on time delivery and decrease the

distribution costs. Besides, customers can directly benefit from 3PL s

accurate distribution planning.

5.3.5 Establishment of Excellent Management Team

The process of 3PL distribution is unique, because the employees of 3PL

have frequent and direct contact with customers when they receive orders,

make transportation plans and deliver goods. This frequent contact plays an

important role in winning the customer satisfaction.

Logistics technology is constantly developing, and 3PL has to innovate and

develop itself during the use of logistics technology process and at the same

time it asks for high quality management team. They should have the same

idea on providing customers with utmost satisfaction, establishing the

thought of win-win situation with customers

5.3.6 Continuous Distribution Process Monitoring

Feedback loop for monitoring continuous improvement is essential. 3PLs are

suggested to provide quick feedback to customers new requirements,

marketing strategy and even complaints. Some key performance indicators

(KPIs) must be set up and weighed during the whole distribution process,

such as on-time delivery rate, desired market reach, forecasting accuracy

rate, inventory accuracy and so on.

It easily can be found that the 3PL distribution optimization can be reached

by integrated suggestions, not one suggestion independently. 3PL services an integration of transportation, warehousing, and distribution activities

demand a well-developed and synchronized infrastructure to boost their

revenues. Furthermore, they require ample support in the form of favorable

government initiatives and regulations. Hereby, 3PL enterprises must also

focus on building their knowledge repositories, skill sets and should cultivate

a long-lasting relationship with the customers.


43/51

Page 43 of 51

6 FINDINGS

In a word, China has many types of 3PLs, and 3PL distribution operation

structure and modes have been elementarily formed. 3PLs must provide the

reasonable comprehensive logistics service from the customerspoints of

view and must be acquainted with the development of enterprise logistics

activities, and have the logistics system development and creative ability.

The relationship between 3PL and enterprise is the alliance relationship.

After the long-term business alliance relationship, 3PL and customer may

both reach the goal of win-win situation.

The task before logistics people is to grow on profound understandings on

3PLs. According to own actual situation, company should improve its owncore competence and creatively develop logistics business. 3PLs help to

provide comprehensive and high level excellent logistics services.

For those enterprises established in planned-economy times, facing the

challenges of capital restructure and enterprise re-establishment, it is the

best time for them to adjust its logistics business and offer it to professional

3PL. For those new-established enterprises, they should operate in social

collaboration according to market economy model, and out-source its

logistics operation to 3PL. These reforms form the solid basis and wide room

for China 3PL development. Seizing the opportunity, overcoming the

problems, consequentially, Chinas logistics prospective future is coming

soon.


44/51

Page 44 of 51

7 CONCLUSION

Based on the first-hand research and statistics from some authorized

institutions, the dissertation shows major factors affecting Chinas 3PL

distribution, and also presents the ways of improving and optimizing the

operations for readers.

Although 3PL Providers have led the way in logistics outsourcing, drawing on

its core business, whether it be forwarding, trucking, or warehousing, they

moved into providing other services for customers. It presented a way for a

commodity-service logistics provider to move into higher margin, bundled

services, but the power of 3PLs is limited. And obviously it could not

integrate all logistics resources in the society, settle the bottlenecks to reach

the highest efficiency of the whole region, country and even the whole world.Therefore, Fourth Party Logistics (4PL) appears and it emerges as the times

requires. 4PL is a Business Process Outsourcing (BPO) provider. This leads

logistics provider will bring value and a reengineered approach to the

customers need, realize the benefits of logistics out-source to the utmost

Regarding the advantages and disadvantages, as well as the concrete

operations of 4PL, the dissertation leaves room for the future further

research.


45/51

Page 45 of 51

8 Table of acronyms and abbreviations

ABBREVIATIONS EXPLANATION

AGV Automatic Glided Vehicle

CMST China National Materials Storage and

Transportation Corporation

COSCO China Ocean Shipping (Group) Company

DC Distribution Center

EDI Electronic Data Interchange

EOS Electronic Order System

GPS Global Position System

ICT Information and communication technology

IT Information System

KPI key performance indicator

LC Logistics Center

LLP lead logistics provider

SMS Short Messaging Service

WMS Warehousing Management System

3PL or TPL Third Party Logistics

4PL Fourth Party Logistics


46/51

Page 46 of 51

9 REFERENCE

Fang Guangluo, Third

Date post:	04-Apr-2018
Category:	Documents
Upload:	motabha
View:	222 times
Download:	0 times

3 Rd Party Logistics

Documents