3PL & 4PL Session 16 -17**ITS, UC Irvine

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OverviewDefine Third Party LogisticHow 3PL is different from transportation providers Why businesses use 3PL Services provided by 3PL companies How to choose a 3PL for your business The move to 4PL: what is new, what is next, changes, etc

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SCM Process FootprintPLANSOURCEMAKEDELIVERSUPPLY CHAINProduct Life Cycle ManagementProcurementSourcingTrading Partner ManagementSupply chain designDemand forecastingInventory planningDistribution planningProduction planningCapacity planningTransportation PlanningShop schedulingManufacturing FlexibilityProduction ManagementManufacturing Flow ManagementOrder FulfillmentWarehouse ManagementInventory ManagementTransportation managementVisibility, Event Management & Track & TraceReverse LogisticsTrade ManagementFrom a process perspective the supply chain can be viewed as set of processes used to produce and deliver goods and services to customers

ITS, UC IrvineThird Party LogisticsThird-party Logistics is simply the use of an outside company to perform all or part of the firms materials management and product distribution function.-- Simchi-Levi (2000)

A relationship between a shipper and third party which, compared with the basic services, has more customized offerings, encompasses a broad number of service functions and is characterized by a long-term, more mutually beneficial relationship-- Murphy & Poist (1998)

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*Logistics Service ProvidersA 3PL(logistics provider)is a company which has expertise in logistics management(transportation, warehousing, inventory management, distribution, customer support and service). They are in the business of supplying / coordinating the logistics function across multiple links in the supply chain.

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Logistics Service ProvidersThey would have invested in technology that would allow them to manage information on consignment movement, billing, auditing and payment efficiently.

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3PL Vs. Transportation Services

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Why Use 3PL?

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Third Party LogisticsIn-house Logistics DepartmentShipperTransportationIT supportWarehousingOthersIn-house OperationOutsourced Operation3PLShipperShipperShipperTransportationWarehousingIT supportSC integrationOthers**ITS, UC Irvine

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Industry EvolutionThird Generation( 2000 and beyond)First Generation(1970s - 1980s)Second Generation(1980s - 1990s)Broader more integrated services Transportation / warehousing Freight forwarders / brokers Shippers agents Non asset-based companies Asset-based companies increased service offerings Online freight marketplaces Web-based 3PLs Increasing supply chain integration**ITS, UC Irvine

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IM5M/KSSM*Logistics Service ProvidersAsset owning 3PL :Advantages : Economies of scope and scale due to the infrastructure and systems in place and large customer base and human resources Disadvantages : They may tend to favor their own divisions in awarding work, be somewhat bureaucratic and longer decision making cycles.

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Logistics Service ProvidersNon asset owning 3PL: Advantages : More flexible and able to tailor services and the freedom to size and match providers. They may also have low overhead cost and specialized industry expertise. Disadvantages : Limited resources and lower bargaining power.

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IM5M/KSSM*Outsourcing in SC: 3 PL and 4 PL Warehousing TransportationDelivery Inventory control Special Handling Requirement Cost Control Customer Service Supply Chain Optimization Value added Service Change Management + Activities carried out by a traditional distributorActivities carried out by 3 PL + +Activities carried out by 4 PL

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IM5M/KSSM*3PL Successes KPI Gains- Dell*

IM5M/KSSM

ITS, UC Irvine Characteristics of 3PLPerform outsourced logistics activitiesProcess management / Multiple activitiesMore customized servicesMutually beneficial and risk-sharing relationshipLong-term commitments (1~ 3 years)

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*ITS, UC Irvine*Third-Party Logistics (3PL): Definitions3PLs are external suppliers that perform all or part of a companys logistics functions, including:TransportationWarehousingDistributionFinancial servicesTerms contract logistics and outsourcing are sometimes used in place of 3PL.

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*ITS, UC Irvine*Third-Party Logistics (3PL): Types of 3PL ProvidersTransportation-BasedServices extend beyond transportation to offer a comprehensive set of logistics offerings.Leveraged 3PLs use assets of other firms.Nonleveraged 3PLs use assets belonging solely to the parent firm.Ryder, Schneider Logistics, FedEx Logistics, and UPS Logistics are examples of 3PLs.

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Trigger Events to Third Party Decision

Capacity (Space) Constraints Cost Pressures Lack of Needed Expertise Labor Issues Changing Customer Requirements New Products and Markets Mergers and Acquisitions Organizational Change; Reengineering

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*ITS, UC Irvine*Types of 3PL ProvidersWarehouse/Distribution-BasedMany, but not all, have former warehouse and/or distribution experience.Transition to integrated logistics has been less complex than for the transportation based providers.DSC Logistics, USCO, Exel, Caterpillar Logistics, and IBM are examples of warehouse/distribution-based 3PLs.

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*Third-Party Logistics (3PL): Types of 3PL ProvidersForwarder-BasedEssentially very independent middlemen extending forwarder roles.Non-asset owners that capably provide a wide range of logistics services.AEI, Kuehne & Nagle, Fritz, Circle, C. H. Robinson, and the Hub Group are examples of forwarder-based 3PLs.

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*Third-Party Logistics (3PL): Types of 3PL ProvidersFinancial-BasedProvide freight payment and auditing, cost accounting and control, and tools for monitoring, booking, tracking, tracing, and managing inventory.Cass Information Systems, CTC, GE Information Services, and FleetBoston are examples of financial-based 3PLs.

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Information BasedSignificant growth and development in this category of Internet-based, business-to-business, electronic markets for transportation and logistics services. Examples: Transplace, NistevoTypes of 3PL Providers

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Contract Logistics Success Stories

1. Toyota (Georgetown, KY) Ryder Distribution Resources provides turnkey consolidated delivery of auto parts from key U.S. manufacturers Includes a wide range of material management activities: Transportation, Verification of correct orders, Inventory control2. Land Rover (North American operation) Caterpillar Logistics Service: world wide parts warehousingand distribution services to dealers, including guaranteed 48-hour expedited deliveries3. Motorola (emergency parts) Skyway Systems, Inc.: critical parts logistics center in L.A. toship parts air freight to technicians nationwide

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*On the Line: Trade TeamExcel, the largest provider of brewery distribution services in Great Britain, and Bass, the industrys low-cost producer, formed Trade Team, the UKs leading independent logistics provider to the beverage industry.Annual sales of $200 million; 280 million gallons of beer and other beverages to over 27,000 retail customers; 40-50% market share.Has capability to move other products.

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*Third-Party Logistics Research Study: Industry DetailsOf 93 responding executives, 71 percent indicate a current or possible use of 3PLs.Overall percentage of companies using 3PLs is steady, but the computer and peripheral and consumer products industries tend to exhibit higher use (90 and 85 percent, respectively).Less use in automotive, chemical and retail (50 to 60 percent usage range).

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Current use of 3PL by industry

Percentage of 3PL use in different industriesIndustryComputerConsumerRetailChemicalMedicalAutoSource "What's ahead for 3PLs Modern Materials Handling, April, 2000**ITS, UC Irvine

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Current State -- Market Size3PL market is growing ( $ Billions )**ITS, UC Irvine

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Armstrong & Associates (2003)3 PL Segment2003 Gross Revenue ($ Billion)Dom. Trans Mgmt Asset based9.2Dom. Trans Mgmt Non - Asset based21.4Intl. Trans. Mgmt.23.5Value Added Warehouse/ Distr.19.8Software 3.0----------------------------------------------------------------Total76.9----------------------------------------------------------------

*ITS, UC Irvine*

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Segment wise Growth of 3PL Ind. In IndiaSegment2003-042002-03Growth %----------------------------------------------------------------Transport Services2,8002,32221.0Shipping Services 7,3005,68428.0Transport support3,3003,00411.0ServicesCourier services780800-3.0Warehousing1,4001,08929.0Total**15,16012,89918.0** Excl. Airlines, Listed Companies only.

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*Figure 11-13 3PL Factors for Selecting and Evaluating 3PLs

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*Third-Party Logistics Research Study: Industry DetailsQuantifiable measures of 3PL success:Logistics costs reduced by 8.2 percent.Logistics assets reduced by 15.6 percent.Average order cycle length changed from 10.7 to 8.4 days.Overall inventories reduced by 5.3 percent.

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*Third-Party Logistics Research Study: Industry DetailsReported problem areas:Service level commitments not realized.Strategic management skills lacking.Cost reduction goals not realized.Cost creep and price increases occurring.Improvements and achievements lacking.Control of outsourced functions diminished.Consultative, knowledge-based skills lacking.Technology capabilities not being delivered.Time and effort spent on logistics not reduced.

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Niche Markets Online Logistics ProvidersOnline Freight MarketplacesSpot marketAuction and RFQExchangeMeta-marketplaces (A cluster of closely related goods and services that center around a specific consumption activity)Application Service Providers (ASPs)Purchasing Consolidation MarketInfomediaries

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The Freight Transportation Industry is Ideally Suited e-commerceHigh Fragmentation of Shippers and CarriersMany IntermediariesComplex Supply ChainsHigh Search CostsSignificant Opportunities for Economies of Scale Several Models EmergingOnline Logistics Providers-Opportunity

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JetEx LogisticsJetEx Logistics is one source for all transportation, shipping and distribution services. JetEx Logistics is an asset based 3PL provider offering the latest in technology, equipment and services to ensure your products and shipments arrive on time, every time, across town or across country. As an asset based 3PL provider we use a combination of both owned and contracted assets with access to over 200,000 trucks (LTL & Truckload Carriers) nationwide and will provide you the best possible resources to facilitate your transportation and distribution supply chain needs.

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A Note on Fourth-Party Logistics The 4PL is a SC integrator that assembles and manages the resources, capital, tech, and capabilities of all SC partners that provide complementary services to design, build, and deliver a comprehensive solution.4PLs manage and direct the activities of multiple 3PLs, serving as an integrator.

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Two key distinctionsWhy 4PL is unique:A 4PL delivers a comprehensive supply chain solution and;A 4PL delivers value through the ability to have an impact on the entire Supply Chain.

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4 PL MarketBuoyed by these trends, the 4PL market as a whole is expected to witness considerable revenue growth from approximately EUR 4.7 billion in 2002 to about EUR 13 billion by 2010. The 4PL market in western Europe is set to make its presence strongly felt in the chemicals, electronics/high-tech and automotive sectors.

*ITS, UC Irvine*

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*Figure 11-15 Fourth-Party Logistics (Registered Trademark of Accenture, Inc.)

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5 PL 1. TRANSPORTATION

Courier, Air, Rail, Road, Inland Waterways, Ocean orMulti-modal- Service provider details- Services offered- Market rates- Different routes- Transshipment points- Transit times- Insurance coverages- Imbalance of containers

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5 PL cont2. TECHNOLOGY:-- Global positioning system- Swipe card system- Bar coding- Packaging3. IT:-- Specialised softwares (e.g.. Fleet Management)- Tailor-made softwares

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4. STATUTORY INFORMATION:-- Road permits- Central Govt./ State Govt. taxation- Overloading rules- Pollution control rules5. REFERENCE DOCUMENTS:-- Cabotage laws- Service tax manuals- Concor manuals- ICD/ CFS manuals

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Questions?

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