This action might not be possible to undo. Are you sure you want to continue?
Under The Guidance Of:
Dr. A Nag
Surbhi Khirbat Roll No: 06-S1-142
IN PARTIAL FULFILLMENT OF POST GRADUATE DIPLOMA IN MANAGEMENT (2006-2008)
INSTITUTE OF MARKETING & MANAGEMENT
This work is originally done by me and not copied from other reports. Based on my knowledge, data and information collected during my thesis work, I have prepared this report and I believe it is true and up to the best of my knowledge.
NO TOPIC NAME PAGE NO 1. 9. 5. 3. 14. 2. 6. 8. 4. 12. EXECUTIVE SUMMARY INTRODUCTION LITERATURE REVIEW CORPORATE OBSERVATIONS RESEARCH OBJECTIVE RESEARCH METHODOLOGY CUSTOMER SERVICE MANAGEMENT DATA ANALYSIS FINDINGS RECOMMENDATIONS LIMITATIONS CONCLUSION BIBLIOGRAPHY APPENDIX QUESTIONNAIRE 1 5 14 89 97 99 102 139 146 149 151 153 155 157 4 .CONTENTS S. 7. 13. 11. 10.
Being successful requires logistics effectiveness. Supply chain management is here. Customers are driving suppliers' practices.EXECUTIVE SUMMARY Today India is fast emerging as an economic super power. Advances in technology infrastructural development and its vast resources have placed it in the global arena of growth. 5 . So in the present scenario we cannot ignore the importance of shipping companies and the logistics companies who are providing transportation facilities to increase the imports and exports of country and directly contributing in development of country. This is an exciting challenge and opportunity for companies who see the potential and make it happen. it is not about making product then pushing it out the door. Logistics involves a wide set of activities dedicated to the transformation and distribution of goods. It is not about shipping orders. Customers. Supply chain management is about developing a process to respond to the different requirements of each customer. from raw material sourcing to final market distribution as well as the related information flows. competitors and vendors are global. The import/export activities have surged to greater heights.
The Thesis involved the study of “factors which enhance customer value in the logistics & supply chain. The report tells about the importance of third party logistics provider in Supply Chain. 6 . Study of business logistics and supply chain management illustrates how supply chain collaboration can create an enabling environment. whilst shareholder value will also increase. The project report is being concluded by conclusion. which I experienced during my Thesis.” The project was carried out by taking appointment from third party operators and meeting them personally and if not able to get appointment then asking question from them through telephone.So we see that logistic provider company plays an important role in efficient working of supply chain for any company. which is the primary source of data collection and also secondary data was collected from articles and www. Survey was carried out through the help of Questionnaire. recommendations and limitations on the basis of learning and analysis. within which service levels will enhance customer value. All the analysis and findings on the basis of questionnaire and secondary data are available in the report.
7 . Bibliography is also given which shows from where I have taken reference while preparing my project report.In the end annexure is given where sample questionnaire is attached.
INTRODUCTI ON 8 .
and sales forecasting. These processes are critical to the success of any operation whether they’re manufacturers. Start to understand what it is. wholesalers. 9 . If you are not in a company being impacted right now by Supply Chain Management or by Continuous Replenishment and do not think that Supply Chain Management affects you. Supply Chain Management is a dynamic paradigm driving through companies. Articles on supply chain management appear in many different publications.INTRODUCTION A production supply chain refers to the flow of physical goods and associated information from the source to the consumer. competitors and suppliers. purchasing. national and international. and the magnitude of the supply chain is very significant. If it does not impact you now. it will. and what it means to you. with different target audience. customer service. the attention SCM is getting is phenomenal. While many of the stories relate to large companies who supply large retailers or grocers. or service providers. The concept is appearing in various industries and is moving to smaller companies. Key supply chain activities include production planning. materials management. then you are wrong. distribution. Add in the global impact of customers.
By having the program driven by the customer. excess costs and excess inventories from the supply pipeline which extends from the customer back through his suppliers and through his suppliers' suppliers and so on back. will be significantly eliminated. it is hoped that inventories.What It Is All About. Now customers tell suppliers how and when they want their inventory delivered. the success of supply chain management rests with logistics. While there are sales incentives to major suppliers with the carrot of category management or similar programs. caused by uncertainties and slow response. The driver behind Supply Chain Management is to remove inefficiencies. both internal and external. The Five Key Issues of Logistics Effectiveness are core to Supply Chain Management-• • • • • Movement of Product Movement of Information Time / Service Cost Integration. both organizations and systems 10 . Supply Chain Management is a reverse of prior practices where manufacturers supplied product to customers and they wanted to.
Forwardbuying strains the capabilities of suppliers to respond and for the distribution department of customers to handle the products. By forcing excess sales through the supply chain. On the surface. internal and external teamwork and demands the use of processes and technology. Supply Chain Management is about what the customer demands.Supply chain management requires a logistics model based on quick order to delivery response. A common practice which causes inefficiencies. The model must meet the customers' demanding and specific requirements. it looked like a way to purchase at a low price. A model which focuses from vendors' doors through to delivery to customers' doors. 11 . higher costs and negative impact throughout the supply chain. But in reality. It is not about what the supplier is capable of doing at present. this practice is inefficient and results in additional. then the hidden costs of manufacturing and distribution valleys. It requires organizational flexibility and responsiveness. excess inventories and high costs is forward-buying. It creates an operational and cost inefficiency for both supplier and customer. after the huge peak caused by the forward-buy can be significant.
the initiator of his supply chain. but they do have certain consistencies to logistics-• Quick response to orders from order receipt through shipment to invoicing • • • Complete and accurate orders / no backorders Delivery windows or appointments Special shipment preparation as to packaging. He earns the reduction in inventories by driving out excesses inventories which he must purchase.The customer requirements may vary by customer. stenciling. but may include:• Fewer orders initially while the customer draws down excess inventories. They may vary. • Small and more frequent orders. initially. etc. slip sheets or pallets. labeling. 12 . store and be responsible for. • • • Bar coding EDI Carrier selection Effects of Supply Chain Management: The initial benefits of supply chain management accrue to the customer. marking. as benefits. The impact of supply chain management to the supplier may be more difficult to classify.
where suppliers are not clear as to their role and what they 13 . no "standard" way of doing business. Higher freight costs for shipping smaller order and more orders. not the customer. Instead as the effects ripple through the supply chain. Adjusting this way challenges traditional management concepts. It is not coordinated through the supply chain. it is more like a "whisper down the lane" impact. There is no "standard" practice. Supply chain management success dictates new ways of doing business for suppliers. • Additional capital expenditure to satisfy the need for information and technology to provide the base for SCM responsiveness. he may have one hundred customer practices. there is a practice for each customer. Impediments: There are impediments to supply chain success. Emphasis is presently on the initial customer-supplier link. Instead.• • • • • Vendor carries inventory. Possible loss of business for not meeting the customer's requirements. Penalties for not meeting the customer's requirements. If a company has one hundred customers. Higher warehousing costs for picking smaller and more orders.
Some costs. show on the P&L.must do.Supply chain management is a leading-edge technique. There are issues which must be recognized and dealt with. Meeting Generally Accepted Accounting Principles is one thing. suppliers may have difficult seeing the cause-effect of supply chain management to them and the gain-sharing benefits as you progress with it. With ABC. such as-• Accounting Silos. And the driver to supply chain management. • Logistics has a difficulty with having its costs properly identified. show on the balance sheet. Some. Activity-Based Costing is the closest approach to measuring the effects of supply chain management on an organization. you can develop cost information based on the activities required to the logistics service. captured and measured properly. As a result. such as inventory. such as freight. Responding to supply chain demands is not easy. does not appear on any financial document. Its goal is customer order-response- 14 . measuring the costs and benefits of logistics and supply chain management is something quite different. service.Supply chain management is a process which requires integrated teamwork. Yet the traditional cost measurements used by companies goes back to the Model A. • Functional Silos.
yet the organization has often dictated that one group be responsible. may not be teamwork enhancers. Each function may have its own internal goals which run counter to effective logistics performance necessary for supply chain management success. it is one of their customers. Look at the underlying driver of supply chain management. Logistics. focus and discipline to make the necessary changes to the way a company does business. In developing a tailored process to meet the needs of each customer. It is not reacting to an order. not a push approach. the customer.satisfaction. Yet traditional organizations. yet supply chain management is a pull. it is 15 . with their responsibilities and goals. • Reactionary Practices.Since supply chain management is a process it takes time. who is responsible for it? Sales-after all. since they are on the front-line for making supply chain management work? Manufacturing who must be able to adapt to the dynamics of point-of-sale or other production drivers? Or consider that the company uses tools such as MRP to drive its production planning. How does this shift in a company's practice be absorbed? Who is responsible then for a company's supply chain management? The answer is everyone in the company is responsible.
while it seems like it is customerfocused. To develop the necessary programs for supply chain management. Instead reacting to crises and other emergencies keeps a company for doing what must be done to implement the needed process for supply chain management. the company is often no closer to implementing the necessary integrated process. Supply chain management is a new concept 16 . decide what logistics must do. "Fighting fires" and other reacting events are anti-process and. give logistics orders and think there will be supply chain success. the logistics organization must be involved in the planning activity from the beginning. • Unclear Mission. Saying the mission is service. If that approach is used.responding to a customer. it is not.Supply chain management requires a rethinking of the company and the logistics mission. • Tactical versus Strategic Role for Logistics.Supply chain success depends upon logistics. Other groups cannot meet without logistics. At the end of day of crises. and then measuring it by cost can cause organizations to lose focus on what must be done. then the likelihood of meeting the customer requirements and implementing the technology and teamwork needed. Is it customer or is it cost? These can be conflicting goals. will not be there.
where it is going and how it wants to get there. 17 .and requires a reassessment of what the company is doing.
LITERATURE REVIEW 18 .
both in the U. And this takes process. and internationally. retailer or manufacturer. flexible and collaborative. make or assemble materials and products from manufacturer to wholesaler to retailer to consumer. These include where warehouses should be located. which is the sequence of organizations and functions that mine. sourced from different cities and many countries. This is true whether you are a wholesaler. people and technology. how orders 19 . There are internal needs too. each with different order and shipment requirements and destinations.LITERATURE REVIEW The planning. Logistics touches every part of a company. stretching between different countries. The driving force behind supply chain management (SCM) is to reduce inventory Supply chain success just doesn't happen. It takes focus and effort across the entire company organization and with outside suppliers and service providers. how inventory is forecast and allocated to each warehouse. Each supplier may require instructions and planning as to lead times. Supply chains can be long and complex. There can be many suppliers. And it is true if you are lean and need to be agile. A firm may have many customers.S. scheduling and control of the supply chain. So supply chain management must be multidimensional in its approach and scope.
are handled and shipments prepared and how production is assigned among plants and suppliers. sourcing. distribution. parts and assemblies. Process has structure. logistics. With that in place. that is a fact regardless your size or industry. such as satisfying customers. The series flows backward--from delivering each customer order each order as demanded back through the performance of suppliers to provide needed finished products. Supply chain process is a flow of activities with the goal of meeting the requirements of a customer. PROCESS: Process means a practice. They need to 20 . Customers demand and expect more from their suppliers. They need to have functional expertise and skills. customer service. standalone transactions. And supply chain management is critical to that customer satisfaction. done for a specific purpose. sales. Process has standardization with its understanding of what must be done. It includes external companies. a series of actions. This compares what some companies call "process" which may be a series of repetitive. it also has flexibility to handle exceptions and changes that are a reality of doing business. manufacturing and accounting. components. PEOPLE: People make organizations and are important to supply chain success. It includes all internal functions.
in terms of technology. Similarly. which is horizontal. create barriers to supply chain process. purchasing. how the company sees itself. logistics. both internally and externally. Software may be "sold" as the answer. inventory. finance and others may work to optimize their role. with their hierarchical design. The culture can be a facilitator of processes or an inhibitor. They need both a tactical view for everyday business and a strategic vision of where and how their function fits in the supply chain and how to make it better. defines itself and operates. to supply chain nirvana. but which may sub optimize the process. then it negatively impacts its ability to respond in all areas required. That can lead to an over expectation by 21 . organizations. TECHNOLOGY: Supply chain management is sometimes define. merchandising. Process can be defined as technology. Organization silos can short circuit the supply chain process. transportation. and not on the purpose of the process. People success is a function also of the corporate culture. If the company has myopia. Even though the focus of the supply chain process is the customer. or incorrectly defined. with an overemphasis on hardware and software. the means. Each silo can have its internal goals that can work cross-functionally to the process.know how to manage and operate warehouses.
people and technology. And that visibility need may be greatest with the inbound part of the supply chain. time zones and business practices the visibility need with a global supply chain can be daunting. Supply chain visibility is a desired means to supply chain effectiveness. It requires people with vision and skills to manage the complexity and to build the collaboration and deal with the flexibility needed as sales and other events change the purchasing 22 . This part of the total supply chain is very complex and involves a significant financial obligation. Supplier management as part of inbound supply chain requires process. which in turn can lead to disillusion with what is required to set up and operate the system and with the results actually achieved. And the pressures in supplier performance are great for all. and various countries and ports or airports can be a significant management challenge. retailers and suppliers. both from the U. wholesalers. This is a vital part of the total supply chain. manufacturers. And it must be aligned with the goal of meeting customer requirements. AN EXAMPLE WITH SUPPLIER MANAGEMENT: Every company has a position in Supplier Management. not a series of purchase order transactions.S. It demands a process. Many purchase orders with many supplier shipping diverse products from multiple plants and warehouses. You are dealing with suppliers and/or you are a supplier.the user. Add in different cultures.
demands. The people need to be linked. 23 . It requires technology to gain the needed visibility of purchase orders. suppliers and transportation of what is going on and to use event management and exception management to deal with all the vagaries that can occur.
The effect is to increase the number of organizations involved in satisfying customer demand. Less control and more supply chain partners led to the creation of supply chain management concepts. As organizations strive to focus on core competencies and becoming more flexible. These functions are increasingly being outsourced to other entities that can perform the activities better or more cost effectively. 24 . certain aspects of the internal processing of materials into finished goods. Several models have been proposed for understanding the activities required to manage material movements across organizational and functional boundaries. Another model is the SCM Model proposed by the Global Supply Chain Forum (GSCF). SCOR is a supply chain management model promoted by the Supply Chain Management Council. while reducing management control of daily logistics operations. The purpose of supply chain management is to improve trust and collaboration among supply chain partners. thus improving inventory visibility and improving inventory velocity.SUPPLY CHAIN ACTIVITIES Supply chain management is a cross-functional approach to manage the movement of raw materials into an organization. and then the movement of finished goods out of the organization toward the endconsumer. they have reduced their ownership of raw materials sources and distribution channels.
and operational levels of activities. scheduling.Supply chain activities can be grouped into strategic. Tactical: Sourcing contracts and other purchasing decisions. including the number. and quality of inventory. to support supply chain operations. including contracting. and planning process definition. and third-party logistics. load management Information Technology infrastructure. including quantity. Inventory decisions. tactical. Production decisions. distributors. location. [[Strategic partnership] with suppliers. direct shipping. Product design coordination. 25 . location. so that new and existing products can be optimally integrated into the supply chain. distribution centers and facilities. Strategic: Strategic network optimization. and size of warehouses. Where-to-make and what-to-make-or-buy decisions Aligning overall organizational strategy with supply strategy. creating communication channels for critical information and operational improvements such as cross docking. and customers.
including all fulfillment activities and transportation to customers. Milestone payments Focus on customer demand. including all nodes in the supply chain. Benchmarking of strategy. including the consumption of materials and flow of finished goods. Sourcing planning. including frequency. Transportation contracting. 26 . routes. in collaboration with all suppliers. Operational: Daily production and distribution planning. including current inventory and forecast demand. Demand planning and forecasting. Production operations. coordinating the demand forecast of all customers and sharing the forecast with all suppliers. Outbound operations. Production scheduling for each manufacturing facility in the supply chain (minute by minute). Inbound operations. and all operations against competitors and implementation of best practices throughout the enterprise. including transportation from suppliers and receiving inventory.
accounting for all constraints in the supply chain. 27 . distribution centers. Order promising. including all suppliers. and other customers. manufacturing facilities.
LOGISTICS FRAMEWORK 28 .
If 29 . What do you want to accomplish and why? What is it that you want to do better? What would it take to do it and do it well inside the company? Why is that option not viable? For example. high freight cost is a derivative of another problem. streamlining operations. Regardless of the reason. outsourcing succeeds when it is well thought out and done properly. with high rates or the carriers used or the methods selected. inventory or supplier problems. strategically positioning the company.OUTSOURCING SUPPLY CHAIN MANAGEMENT-8 ISSUES Outsourcing is done for various reasons. freight can be a symptom of a problem from use of high cost shipping methods because of forecasting. this has been a traditional reason for outsourcing. such as gaining capabilities that are not available internally. Or. Some key points to identify for all parties involved in outsourcing are: *Know and Define Reason for Outsourcing: This may seem obvious. implementing lean programs. In these situations. the reason may be to reduce freight costs. But there are others. The driver can be generating cost reductions and downsizing. But freight cost can be a problem. or improving or adding capabilities to gain competitive advantage. but it can be tricky.
What are you buying for transportation? What are you paying? Why are you dissatisfied? What do you require? Similar comments can be made about outsourcing to manage inventory. The problem may seem to be too much inventory or out-of-stock situations. Freight also has a service factor. But the inventory problem could be the result of a larger problem as to sales forecasting reliability. supplier performance in delivering purchase orders timely and correctly. then the outsourcing will not be successful. or at least as successful as it could be because the reason for the outsourcing has not been properly identified. That has to be understood in order to evaluate the freight cost problem and needs. The reason for 30 . whether it is moving inventory from suppliers. *Evaluate Outsourcing Business Process versus Function: Knowing what is being outsourced and why it is being outsourced then drives the type of logistics service providers to be considered. It could be a need for systems or systems integration to provide visibility of all inventories in the supply chain.the real cause of freight is not identified. between company operations or to customers. whether at warehouses or purchase orders at suppliers or in-transit.
which requires breadth of logistics skill sets. including supplier purchase orders. process versus function. problem and need. Outsourcing a function versus a process can change the type of service provider that should be evaluated. can sub optimize the supply chain effectiveness and costs. Outsourcing the management on the inbound supply chain. this may be the key one. such as inbound transportation and related activities. so the proper logistics service provider was not identified and selected. without fully understanding the process. so the outsourcing solution was not properly identified. but not for the right reason. The need was not clearly understood. if not flawed. Outsourcing may fail. The functional issue overrode the process. because without this the outsourcing selection may be skewed.outsourcing may also direct whether you are looking to outsource a function or a process. A 3PL is often used with functions. 31 . supplier performance and transportation takes a process and transfers it to an outside provider. Outsourcing management of inbound transportation takes a function and transfers it to an outside party. Of the eight issues. Managing a function requires depth of skills sets from the service provider. The point is that outsourcing to optimize a function. A 4PL may be the better choice with managing a process.
*Recognize Seller and Buyer Roles: Each party has a reason to be involved in the outsourcing action. And they bring different confidences and expectations into the effort. He may want the volume to build his own leveraging position with the transport carriers or others he deals with. The point is that the Seller may be focused on his needs and not focused on the Buyer's needs. tailor and manage the relationship accordingly. The company selling its outsource service wants the business for his reasons. He may not listen to the potential buyer's requirements and instead present his capabilities as a stand-alone instead of how it meets the Buyer's requirements. Outsource providers who see the potential buyer as a client will recognize the unique needs and develop. Also see if the Seller views you as a "client" or as a "customer".Also determine if the outsourcing and the desired results require collaboration with any of the company trading partners. He may want the volume to increase the throughput and reduce costs at warehouses or other operations. This is important to defining the needs. Understanding and satisfying the Buyer's unique and complete needs can become subordinate to "getting the business". Those providers who view a prospective buyer as a 32 . identifying partners and designing the needed program.
they may not be as open and receptive to the effort as they should be. The result of such communication can lead to bad decisions by either or by both parties. *Detail Your Operation. Also. Client management differentiates successful outsource service providers. either or both parties may be talking "at" each other instead of "with" each other. And the effort can be in a more in a difficult situation. by whom. both today and as they may change. he is not unique. They may close themselves off to what the company's seeking the business are offering to do."customer" may not pay the attention to the business if and once they have gained it. A customer is one of many customers. the persons. Such a provider is proactive. As a result. Highlight both the strengths and its weaknesses. that should not be underestimated. Laying out a list of "customers" utilizing the service provider is not a critical as his demonstrating how that provider will manage the client's needs. the company. Show and understand interfaces between departments and 33 . how it done. They may be under internal pressures that make them feel they are under attack. more exactly. As a result. seeking to outsource can be very emotional. for both gaining and retaining business. Clearly specify in writing what is done. not reactive. when and why.
Define critical points in the function or process. It will also show gaps or redundancies that may exist. in the financial system. Define those expectations clearly. Detail the cost of the operation. peripheral and "assumed" work that is done and that is beyond the job descriptions and department purpose and responsibilities that outsiders may not know about. Understand "hidden". Yet there is often a cause-effect. The function or process should be mapped. The results should be measurable. freight and other? Recognize any disconnect with some costs. *Set Metrics/Key Performance Indicators and Accountability: The outsourcing is being done for a specific reason with anticipated results. mapping will delineate the cross-functional roles and interfaces. What are the components. These gaps or redundancies may highlight key areas for the 3PL or 4PL that are critical for success. inventory is a balance sheet item. Supply chain management crosses organizational lines. such as labour.how duties and work is handed off between them. between them even if it is not readily reflected in the accounting system. "improving supplier 34 . space. such as transport costs and inventory. "Reducing costs". a connection. Freight is on the monthly profit and loss. The planned results should be tangible. direct and indirect.
The two are tied. benchmark both for the sake of the outsource arrangement and relationship. Benchmark key costs and performance. However do not develop measure for the sake of measures and do not develop too many measures. Focus on the key metrics and performance indicators that relate to outsourcing success. then mutual agreement can be established on the results during an agreed time period. With insights into the present operation and performance. for results beyond the baseline goals? Then drill down into the costs and results for an understanding of cause-effects. The Seller needs to know these to see the realities of accomplishing them. The anticipated results should be clearly set early in discussions as part of the expectations. Does the program include incentives. The mapping work will be of great aid for developing the changes needed for incentives results.performance" or similar goals are vague and can lead to disputes during the contract on whether the outsourcing is successful. Even if the purpose is a cost reduction or service improvement. given the requirements and how and when it will be done. That clearly sets the framework and standard for evaluation of the outsourcer. 35 .
successful. it is a complex. quick resolution involves knowing who is responsible. *Be Aware of Risks. multifunction process that spans states and continents. A single person should be deemed accountable for both parties. Supply chain management has multiple areas of responsibility and accountability. Outsourcing is change management: It may very well be business process reengineering. There are planned benefits. "The best-laid plans o' mice an' men gang aft agley. 36 . quoting Robert Burns. Key points of decision-making should be identified. an' lea'e us nought but grief an' pain for promised joy. Anticipate the various scenarios and the internal and external factors that can impact the program and results. Problems will occur. The time to identify and define responsibilities and metrics is early in the process. before any contract is signed. It runs from suppliers’ right through to customers. ''. The impact of each function on the total process cannot be overlooked nor assumed away. from and for both parties.Accountability and responsibility should be understood too. There is no guarantee that the outsourcing will succeed.
But recognize that there could be. perhaps more importantly. No rose-colored glasses are allowed during the outsource evaluation. there are potential downsides from the outsourcing. Identify real and perceived risks. Work to mitigate risks. Be aware of them. 37 . There will likely be a contract." What if goals are not attained? What if there are service problems that seriously impact the company as to customer deliveries or with purchase orders from suppliers? What if there are inventory difficulties. there is transference of company knowledge. how do you fix it quickly and well? What if it cannot be remedied? Do you terminate the agreement and find another service provider? If so. either stock outs or surges in levels? What if there are unanticipated. how do you do it? How do you transfer from one provider to another? How do you regroup and bring the outsourced service back inside? Can you bring it back? There may be no calamities with the outsourcing. is not working. that is a commitment to the program. practices and resources. Think through the "what ifs.But. significant cost increases? What options will there be then? With outsourcing. for whatever reason. Consider contract length as an option in risk mitigation. If the outsourcing. Do a risk assessment.
Develop the plan and time lines. the service provider and trading partners. problems and successes. before the change is made. 38 . Test accountability. Plan tests. Use the key performance indicators continuously. *Manage the Outsource Operation: Do not assume the contract will manage the logistics service provider and operation. Recognize the outsourcing means that people and departments in the company are giving up ownership of the function or process. to review progress. Assess the relationship. Do not depend on the contract to make the outsourcing work. Understand any customization and reengineering that will be made and how it will be developed and implemented. Look at interfaces and handoffs of work or information between. Identify any opposition and how to overcome it. especially during the implementation.*Plan the Change: Outsourcing is not like turning on a light. There are major tasks to plan and mundane ones that should be considered. Ignore no detail or task. All parties should plan the migration. Make sure that people and systems are ready. Build the relationship during the planning phase. Meet regularly. Provide training. within and among the company. Build teams among all affected parties and have the teams meet to detail what must be done.
Today it refers to the set of operations required for goods to be made available on markets or to specific destinations. while operational changes mainly concern freight transportation with its geography of distribution. revictualling and sheltering of troops. the word is polymeric. but how this freight is moving. 39 . origins and destinations of freight movements. These changes are not merely quantitative (more freight). Structural changes mainly involve manufacturing systems with their geography of production. the science of physical distribution. Logistics involves a wide set of activities dedicated to the transformation and distribution of goods. As such. New modes of production are concomitant with new modes of distribution. The Nature of Logistics The growing flows of freight have been a fundamental component of contemporary changes in economic systems at the global. from raw material sourcing to final market distribution as well as the related information flows. the fundamental question does not necessarily reside in the nature. regional and local scales. In the Nineteenth century the military referred to it as the art of combining all means of transport. but structural and operational. Derived from Greek logistikos (to reason logically).1. which brings forward the realm of logistics.
Physical distribution is the collective term for the range of activities involved in the movement of goods from points of production to final points of sale and consumption. the induced transport segment. It includes production and marketing activities such as production planning. and pipelines). the derived transport segment. inland waterways. storage. Materials management considers all the activities related in the manufacturing of commodities in all their stages of production along a supply chain. freight rail. Physical distribution includes all the functions of movement and handling of goods. in principle. air freight. marine shipping. trade. inventory management). Conventionally. transhipment and warehousing services (e. time and control of the supply chain. particularly transportation services (trucking. all these activities are assumed to be derived from materials management demands.g. demand forecasting. consignment.Logistics is thus a multidimensional value added activity including production. purchasing and inventory management. Activities comprising logistics include physical distribution. and materials management. wholesale and. Materials management must insure that the requirements of 40 . It must insure that the mobility requirements of supply chains are entirely met. retail. location.
distribution and consumption are difficult to consider separately. including packaging (for transport and retailing) and. The functions of production. that these activities are coordinated within distribution capabilities. recycling discarded commodities. Distribution Systems The nature and efficiency of distribution systems is strongly related to the nature of the economy in which they operate. but also. The close integration of physical distribution and materials management through logistics is blurring the reciprocal relationship between the induced transport demand function of physical distribution and the derived demand function of materials management. Contemporary logistics was originally dedicated to the automation of production processes. ultimately. in order to organize 41 . All these activities are assumed to be inducing physical distribution demands.supply chains are met by dealing with a wide array of parts for assembly and raw materials. 2. This implies that distribution. In economies dependent on the extraction of raw materials. logistical costs are comparatively higher than for service economies since transport costs account for a larger share of the total added value of goods. is derived from materials management activities (namely production). thus recognizing the integrated transport demand role of logistics. as always.
The outcome is a specialization of production and a greater variety of products. A milestone that marked rapid changes in the entire distribution system was the invention of the concept of lean management. which can be roughly characterized by the terms of flexibility and globalization: Flexibility implies a highly differentiated. and. primarily in manufacturing. The supply chain bundles together all this by information. Globalization means that the spatial frame for the entire economy has been expanded. replacing the former storage and stock keeping of inventory.and customer-driven mode of creating added-value. communication. In a broader sense distribution systems are embedded in a changing macro. cooperation.and microeconomic framework. One of the main premises of lean management is eliminating inventories and organizing materials supply strictly on demand. last but not least. more 42 . strongly market. with the least cost-intensive combination of production factors.manufacturing as efficiently as possible. implying the spatial expansion of the economy. but increasingly practiced in networks of suppliers and subcontractors. by physical distribution. Contemporary production and distribution is no longer subject to single-firm activity.
distribution and consumption. the distributor (e. including the logistical function itself. the producer. manufacturing.and space-related arrangement of the whole goods flow between supply. the time. The core component of materials management is the supply chain. namely subcontracting and outsourcing. According to macro-economic changes. This was achieved by shifts towards vertical integration. The flow-oriented mode affects almost every single activity within the entire process of value creation.g. While traditional delivery was primarily 43 . a wholesaler. and an intricate network of global flows and hubs. logistics is concerned with reducing time. the retailer. Compared with traditional freight transport systems. the end consumer. Whereas transport was traditionally regarded as a tool for overcoming space. a freight forwarder. demand-side oriented activities are becoming predominant.complex global economic integration. the evolution of supply chain management and the emergence of the logistics industry are mainly characterized by four features: A fundamental restructuring of goods merchandised by establishing integrated supply chains with integrated freight transport demand. Its major parts are the supplier. all of whom represent particular interests. a carrier).
A 3PL is an asset based company that offers logistics and supply chain management services to its customers (manufacturers and retailers).managed by the supply side. It commonly owns distribution centres and transport modes. retailers and third-party logistics providers in view to build a system-wide improvement in supply chain management. a well known concept in transport geography where time was simply considered as the amount of space that could be traded 44 . Geography of Freight Distribution Logistics has a distinct geographical dimension. current supply chains are increasingly managed by demand. which is expressed in terms of flows. More recently. 3. 3PL and 4PL providers benefit from economies of scale and scope by offering integrated solutions to many freight distribution problems. A 4PL integrates the resources of producers. They are nonasset based meaning that they mainly provide organizational expertise. nodes and networks within the supply chain. Space / time convergence. called fourth-party logistics providers (4PL) have emerged. a new category of providers. Logistics services are becoming complex and time-sensitive to the point that many firms are now sub-contracting parts of their supply chain management to what can be called third-party logistics providers (3PL).
Delays were very common on all segments of this chain and accumulated as inventories in warehouses. namely for recycling and product returns. The flow continued via wholesaler and/or shipper to retailer. is being transformed by logistics. instead of a warehouse holding cost intensive large inventories. 45 . ending at the final customer. such as distribution. Reverse flows are also part of the supply chain. are being integrated. implying the producers were not well informed (often involving a time lag) about the extent of consumption of their outputs. Activities that were not previously considered fully in space / time relationships. This procedure is now changing. including travel and transhipment. There was a limited flow of information from the consumer to the supply chain. This implies an organization and synchronization of flows through nodes and network strategies: Flows: The traditional arrangement of goods flow included the processing of raw materials to manufacturers.with a specific amount of time. This facility is increasingly being designed as a flow. with a storage function usually acting as a buffer.and throughputoriented distribution centre. mainly by eliminating one or more of the costly operations in the supply chain organization. instead of several. An important physical outcome of supply chain management is the concentration of storage or warehousing in one facility.
this does not mean the demise of national or regional distribution centres. with some goods still requiring a three-tier distribution system. mainly large ports and major airports. The changing geography of manufacturing and industrial production has been accompanied by a changing geography of freight distribution. particularly the large-scale goods flows are directed through major gateways and hubs. for instance in the manufacturing belt at the North American east coast and in the Midwest. the locations being characterized by a particular connection of regional and long-distance relations. Facilities are much larger than before. However. Today.Nodes and Locations: Due to new corporate strategies. a concentration of logistics functions in certain facilities at strategic locations is prevalent. with regional. Many improvements in freight flows are achieved at terminals. The setting of networks leads to a shift towards larger distribution centres. freight distribution has been located at major places of production. The structure of networks has also 46 . Networks: The spatial structure of contemporary transportation networks is the expression of the spatial structure of distribution. Traditionally. often serving significant trans-national catchments. or in the old industrialized regions of England and continental Europe. national and international distribution centres. also highway intersections with access to a regional market.
which can take many forms and operate at different scales. Most companies consider the use of a 3rd party to help them with their supply chain services when they realise how important it is to have competitive customer service and how costly and difficult it can be to achieve on their own. 47 .adapted to fulfil the requirements of an integrated freight transport demand.
THIRD-PARTY LOGISTICS PROVIDERS/ LOGISTICS SERVICE PROVIDERS- A BRIGHT FUTURE There is a bright future for third-party logistics providers (3PL) and Logistics Service Providers (LSP), for international and/or domestic logistics opportunities. The continuing growth of supply chain management, outsourcing and globalization plus the dynamic effect of ecommerce are driving and will drive growth. We distinguish 3PL from LSP. A 3PL is a division of a company, often asset-based, that provides transport, warehousing, forwarding,
information technology or other logistics or supply chain management related services. 3PL is seen by the parent organization as a way to develop more business for the parent focus. The 3PL also provides higher revenue and higher profit opportunities than the traditional business of the corporation, which is in a commodity-service arena where price is often the key differentiator versus competitors. 3PLs generally are developed to develop profitable business while using the services of the parent company. That can challenge their ability to develop logistics solutions for all possible customers. Not all customers need logistics programs that include the services of the parent company for all or a significant part of the activity.
An LSP is a stand-alone endeavour. With no parent company that provides a transport or other service, the LSP is free to develop and manage tailored supply chain programs for its customers without having to use the parent company as part of its service package. It can position itself to clients as their de facto in-house logistics department. Growth for 3PLs and LSPs will come more in consumer related industries that practice supply chain management (SCM). Slower to develop will be industries that use more traditional traffic and other approaches to logistics. Non-consumer goods industries will still be outsourcing opportunities. Their needs and requirements will differ though. Consumer goods businesses are also more likely to be involved in international with either sourcing and/or sales. The Asia-U.S. trade lane, the largest in the world, is a key outsourcing opportunity. Even more, the dual sword of SCM and globalization creates outsourcing opportunities for companies who do not view logistics as a core competency. Supply chain management is driving customer practices, both directly and indirectly. Asia-US cargoes are very much consumer-goods-type products. And consumer goods companies are key players of SCM. The purpose of supply chain management is to drive inefficiencies out of the system. That means consumers have the products they want and when
they want them. Inventories, as a buffer for uncertainties, should be reduced. Logistics cycle times would be reduced. To drive out inefficiencies and reduce cycle times, an effective supply chain is built from the customer’s door back through his suppliers. This is what SCM is about, and suppliers of companies that practice supply chain management know this. They have to find ways to be both cost and service responsive. Yet sourcing from Asia, with its ocean transport, is a problem link in the supply chain and creates its own issues. How can you be service responsive with a service that could take two weeks or a month or longer in transit? Shippers will continue to demand faster transits. 3PLs/LSPs may create the package to put together service and cost alternatives to meet a shipper’s specific needs. SCM presents a way for 3PLs, who may have an ocean carrier or forwarder as their parent, to break out of their commodity service provider market approach. LSPs can blossom to with being able to meld different carriers and different forwarders, with different services and prices into a flexible program that is responsive to a customer's needs. Being a supply chain partner to shippers will provide a way for 3PLs/LSPs to differentiate them in the marketplace.
realize it is not a core competency. It has many of the same requirements as the supply chain management market. A third-party will be the customer.In international. LSPs/3PLs will become the customers for the steamship lines. it could be a multibillion-dollar global market opportunity. Plus. tailored logistics programs and with moving away as a traditional. how will they? Will they develop their own 3PL division with the ability to market it over the core shipping business? Will they view the 3PL as an extension of their business or a competitor? Will they be able to work with 3PL’s to 51 . 3PLs/LSPs can seize opportunities. forwarders and carriers struggle with the concept of supply chain management. After all. Carriers must look at the 3PL/LSP market and decide whether they can compete in it. there are many forwarders chasing cargo. 3PLs and LSPs will continue to grow and thrive. Consolidation is inevitable. And this same dynamic is and will continue to happen in domestic transportation and warehousing. Corporations will look at outsourcing of their logistics as a way to gain competitive advantage. How do they distinguish themselves from competitors? They are too many forwarders in a very highly fractured industry. commodity freight service provider. If carriers choose to compete. This is creates a dynamic for everyone. With such market turmoil. and reduce costs or whatever drives their decision. with building customer-specific.
from having a wish list and turning into business. or other industries. then the 3PL/LSP is not being a true 3PL/LSP. If the program is not tailored to each customer. It is a much focused business endeavour. Whether a 3PL or LSP is established and growing or just beginning. international or domestic. There are fundamentals to being a third-party. but the size is huge and profitable. from their internal view. they must understand what practices exist and why.develop cooperatively the programs needed by the 3PL or 4PL? This does not mean quoting rates and negotiating volume contracts. 3PLs and LSPs must define their strengths and weaknesses. This is fundamental to knowing what they can and cannot do presently and what is demanded to change. If they want to move into other arenas. they must understand how 52 . Success means having a viable 3PL/LSP strategy as to market(s) and how to penetrate it. customers and market view and competitors view. They must assess their reason for being or wanting to be a 3PL or LSP. Perception can be stronger than reality. Inherently that means having the capability to look at each shipper and his individual requirements and developing a unique solution logistics program for that particular customer. This is important for assessing and defining market opportunities. He is providing a generic commodity service.
E-commerce logistics will be a driver in outsourcing because effectiveness lies outside the core competency of shippers. 3PLs must understand how they can and cannot drive business to their parent without compromising the customer’s specific requirements. 3PLs and LSPs must decide on how they will participate in the Ecommerce. Its growth rate and future development is unfathomable. tracing. Effective 3PLs and LSPs need and have a shipper’s perspective. That is the minimum they must do. how they can tailor to meet a customer’s needs and support their parent and how they cannot do this. Customers must have integrated information to manage their business effectively. warehousing or forwarding. 53 . tracking. E-commerce is here for both B2B (business to business) and B2C (business to consumer). for booking. much more. E-commerce is the "in" word in business. It redefines the traditional business model. They have no option. rates and much. They must understand a customer’s real issues and behind-the-scenes issues. They must have dynamic web sites. Their staff can and does provide the shipper view.supply chain management and logistics differ from their traditional transportation. 3PLS/LSPs must also be able to integrate into their customer's system with management information. We would be remiss if we did not mention E-commerce. not with dumping data files into a customer's computer.
It will evolve as shippers define and redefine their needs. XML and other tools are being developed for this.The Internet also opens up a new way to quickly handling information and managing business. Any company who ignores the Internet should be in a unique business or be prepared for possible extinction. the growth of 3PLs and LSPs will be significant. The web may be the tool and vehicle to really develop logistics effectiveness as it is meant to be. 54 . In conclusion. the Internet will and has. Where EDI (electronic data interchange) never fulfilled its promise. But they will grow. The market will evolve as competitors come and go.
Focus Being able to handle responsibility to "the experts" allows management to focus on the core business activity Investment Why invest in facilities and resources on your own when they can be better utilised and shared with several others Economies of scale Smaller companies don't have the scale or volume to be competitive with those that do.HAVING REVIEWED THE WHOLE PICTURE THEY COME TO REALIZE THAT THERE IS MORE THAN 1 REASON WHY ENTRUST YOUR SUPPLY CHAIN WITH SOMEONE ELSE? Performance Obtaining best practice performance can be allusive and requires expertise and focus on the complete supply chain. Out sourcing remedies this problem 55 .
Outsourcing is an economic way to a regional presence 56 .Local presence Most companies don't have sufficient scale to justify there own regional facilities.
or Managed Warehousing as it is known. customs. The global trend towards outsourcing elements of the supply chain is to achieve superior customer service levels. 57 . It is recognised the importance of cost competitiveness. A contractor will do as they are asked. order fulfilment. and wins or loses on price alone. and most organisations focus great efforts on continuous improvements to efficiency and productivity. distribution. is the function by which the owner of goods (The Client Company) outsources various elements of the supply chain to one 3 PL company that can perform the management function of the clients inbound freight. However. an organisation with superior ability to satisfy customers will be able to command a price premium and still match the competitiveness of a lower cost organisation. meet the specifications but understand little about his clients real business needs. Service based 3 PLs require a change in role from arms length contractor to business partner. and outbound freight to the clients customers.THIRD PARTY LOGISTICS Third Party Logistics ( 3 PL). warehousing.
A business partner. 3 pl provides a simple more cost effective path to economic best practice customer service reliability that is unattainable "in house" Cost benefits Savings arise from better utilisation of shared resources. Clients have come to use our services for a variety of proven reasons: WHY USE 3PL Customer service performance Clients verify our delivery reliability and accuracy on a daily basis. When considering your options it's important to take into account all the issues. 58 . 3PL partners are able to add value through innovation. and understands how to meet the clients business needs better than the client does. Taking this responsibility on your behalf leaves you to focus on your core activities. This partnership guarantees out mutual success. It’s our total focus and reason for being. Supply chain logistics is an essential part of your business. on the other hand has real expertise that the client organisation lacks. Additional benefits from reduced capital investment in facilities and inventory.
59 . Costs fluctuate with activity. All 3 pl clients regardless of their size can share the benefits of scale of activities.Economies of scale Few companies in NZ have the scale of operations to go it alone in the global market place. integrated procedures and systems to minimise the risk of service failure. Volume variable Clients pay only for the resources they consume. There are no fixed costs to cover in the quiet times nor is there a performance shortfall if sudden increases in demand occur. 3 pl cultivates strategic partners. One stop integrated solution 3pl take responsibility for supply chain.
small businesses had the same access to (and same price for) third party transportation as large corporations. This allowed the merchants to keep their stock in a centralized location and avoid the cost of shipping it to the market and/or to customers. this warehousing practice continues today. They provided both transport and storage of goods so that the manufacturer could again focus its effort to its core enterprise. The Interstate Commerce Act of 1887 was passed to ensure that railroad monopolies practiced fair pricing. In pre-Renaissance Italy. known as Lombards. The ships that sailed the oceans were common carriers. A Bible story tells about an Egyptian pharaoh who. the pioneering American spirit was constantly seeking new and creative methods to build wealth. Upon a purchase. took a servant’s advice to warehouse excesses harvests in years of plenty because years of scarcity would follow. This merchandise proxy was the forerunner of paper money.History of 3PL The ideas that drive third party logistics providers are hardly new. in the province of Lombardy they used paper documentation. as receipts for inventory stored in common (3PL) warehouses. Thus. In Latin America. In the United States. haunted by nightmares of plenty and famine. The use of freight cars and railroad depots as warehouse storage points and the construction and use of co-op grain 60 . the customer would take a Lombard from the market to the centrally located warehouse to retrieve the merchandise.
It became possible (and soon. as we know it today. The availability of these public warehouse operations throughout the country provided substantial areas of warehouse storage on short-term arrangements. Consequently. In the 1980s and 90s. particularly in the food industry. allowed manufacturers. The multi-story buildings erected or modified for such use were quickly converted after the war to general purpose warehousing. and businesses were competing to provide logistics services. carriers were needed to transport the various goods from the factory to the warehouse and from the warehouse to the point of sale. revolutionized the way people thought about 3PL and the way we have conducted business ever since. necessary) to deliver almost anything almost anywhere overnight. Federal Express became an overnight success because of its overnight delivery. World War II and the resultant number of disrupted households created a demand for household good storage. Federal Express.elevators to store harvests are prime examples of outsourced warehousing activities. This was the birth of public warehousing on short-term contracts. the need for service-providing specialists was on the rise. The resulting decrease in cycle time continues today in business-to-business (B2B) and business-to-consumer (B2C) transactions. to re evaluate their philosophy of having to maintain their own proprietary warehouse operations in each marketplace. 61 . under CEO Fred Smith.
62 . This and other new methods spread to other retail markets and led to the growth of the super chain. which espoused smaller.g. Third party warehousing and Just-in-time techniques assisted in keeping transportation costs down and inventory fully stocked. more efficient shipments. A diminishing work force. they have a greater incentive to work hard at attracting customers and keeping them happy. and the need for more professionally managed approaches to logistics helped fuel the growth of third party service providers. such as Wal-Mart. Many organizations for which 3PL works want to reduce the number of direct employees and their associated liabilities. In addition. warehousing. says Drucker. unlike warehouse and transportation managers in most corporations. Outside contractors. Thus. particularly at entry level. people who work for third party contractors have a potential to move into senior management positions. must be efficient because they compete in an open marketplace..” the trend among many companies today is toward contracting out their support or accessorial work (e. This gave rise to the theory and application of efficient-consumerresponse (ECR) techniques. and transportation) to external suppliers and focus on their core business competencies.The proliferation of the 3PL concept and 3PL providers affected the grocery industry. As the noted business author Peter Drucker remarked in the article “To Sell the Mailroom.
consumers wanted their products cheaper and quicker. and Better Looming on the horizon during the changes of the 80s and early 90s was the Internet. In automotive. Robert V. as opposed to less than 10 percent in 1992. manufacturers today hire third party companies for only about 12 percent of their logistics.S. but 3PL providers themselves. industrial. Regardless of the actual numbers. With the advent of the Internet. although experts differ on the actual degree of market penetration. This process shapes the way we do business today.Quicker. Substantial increases in outsourced logistics activity can be readily noted. and building supplies industries. The Internet would compel not only retailers and manufacturers to overhaul their practices. Delaney of Cass Information Systems has reported that third parties currently provide more than 20 percent of the principle logistics functions. there is no question that there has been a substantial growth in the use of outsourced logistics services— particularly third party warehousing and transportation. small-package-fulfillment. the movement to outsourcing is significant. Faster. In the past decade. third party logistics gained great popularity. “The outsourcing of logistics has enormous growth potential.” Delaney has said. companies will find it more efficient to outsource as much as 25 percent to 30 percent (of their non-core activities). This shift has 63 . grocery. With increased competition in a global economy. U.
there are a number of national third party logistics operators. In the past few years. One drawback. Today. Less than a decade ago. many of these have banded together to form the core of today’s national offerings. however. 64 . we are seeing the emergence of truly global 3PL companies that provide services across all continents.substantially increased the demands on the third party providers. This continued growth of demand for third party services has stimulated a significant number of new providers. only a handful of third party providers offered any form of national coverage. including business and career-damaging consequences. The road to 3PL as it stands today has been long. These demands are sometimes not being met. and numerous regional operators who are often linked together through service and marketing affiliations. is that the growth of third party providers and the increase in opportunity has encouraged some organizations to enter a field in which they may have had minimal background and experience. and—at times —bumpy. Many developments in business and technology have helped shape the world of outsourcing. and the industry was dominated by strong regional and single-city operators. Presently. It has been an interesting trek to the present explosion of 3PL services and providers today. winding. creating a need for change and the possibility of disappointment.
Many commercial establishments world wide have turned to logistics outsourcing as a way to re-engineer their distribution networks in order to meet the global market demands and also gain competitive edge. One of the biggest challenges in the Global Trade is logistics networking and the ability to manage seamless forward and backward flow of material and information. According to Cap Gemini 2005 annual study. Further the same report revealed that 65 .CHALLENGES IN MANAGING THE 3PL RELATIONSHIP In the last two decades. This is an enormous task and in order to be successful organisations have developed strategic alliances with 3PL (Third Party Logistics) companies all over the world to manage their logistics operations network. North American organisations are planning to outsource in 2008 – 2009. 56% of their Logistics expenditure (49% in 2005) where as Western Europe is panning 81% (65% in 2005) and the Asia Pacific intend to outsource 60% of their logistics spend against 50% in 2005. Globalisation has opened many lucrative avenues to the business world and also posed many challenges to be successful in the global trade. increasing numbers of organisations world wide have recognised the fact that it is necessary to develop products suitable for global markets in order to widen their market network and at the same time source material globally to be competitive in the local as well as overseas market place.
78% of the respondents are outsourcing logistics activities in North America. The first level of outsourcing is transactional outsourcing. In this category the 3PL companies become partners in supply 66 . to facilitate free flow of information and create supply chain visibility. Inventory Financing. 79% in Western Europe and 58% in Asia Pacific Region.7% in manufacturing environment. The second classification is known as Tactical outsourcing. postponement of manufacturing. We can classify outsourcing into three categories. This is considered as a stepping stone for strategic alliances/outsourcing which is the third category. This triggered phenomenal growth in 3PL business world wide. This kind of outsourcing is on long term basis with negotiated contacts in place and with integrated IT systems. cross docking. Strategic outsourcing is based on long term relationships with successful outcomes. This is typically based on transactions and no long term contracts and no bonding between 3PL and outsourcing company. Vendor Managed Inventories. One of the innovative trends used today is the outsourcing of logistics or third-party logistics to manage complex distribution requirements. Reverse and Repair Logistics etc. Kitting or Assembly. One of the Massey University Post Graduate Student conducted survey in 2005 under the supervision of this author (hereafter called as Massey University study) indicated that the NZ rate of outsourcing 3PL activities is around 66.
proper inventory levels and 67 . They must balance the need for low costs. One of the biggest enemies in managing any logistics operation is the time. According to the survey conducted in 2005 17% average business growth is envisaged by the CEOs of 3PL Companies operating in Asia Pacific Region for the next three year period. Very few 3PL companies are able achieve this status with their customers by constantly innovating and maintaining operational integrity. The main reason for the momentous growth in 3PL business is change in the thinking process of outsourcing community. More and more organisations are outsourcing their logistics activities and upgrading their relationships with 3PL companies from transactional to tactical and strategic relations. The Logistics professionals world wide have daunting task of managing a global supply chains and this includes keeping customers or stores properly stocked and deliver the perfect order every time. The Logistics Activities Outsourced and their classification is given in attached annexure is produced by the author based on Cap Gemini 3PL 2005 Annual Study and Massey University Study in order to explain different levels of outsourcing and Logistics activities outsourced to 3PL companies.chain management and complete transactional transparency will be established. Some even follow open book costing method to demonstrate the transparency of the system.
maximum service. Some of these responsibilities are now shared by 3PL companies at tactical level as well as strategic level. Unfortunately these 3PL relationships are always not successful. According to a recent Warehousing Education and Research Council (WERC) pamphlet reported that 55% of logistics outsourcing alliances are terminated after 3-5 years. 68 . In some cases it was noticed that the relationship ended even before completion of the first year of operation.
the involvement of a Third Party Logistics provider is the next key ingredient 69 . Although these are individual concepts in their own right. this article outlines an approach and methodology for investigating. Why would one consider combining these two concepts? Well unfortunately for many reasons. the critical role and importance of the use of Outside Facilitation in both planning and implementing a CoDistribution network of this type cannot be stressed enough as such facilitation is the key to ensuring success. implementing and realizing the benefits apparent in this opportunity. Benefits generated must not only exceed the cost of 3PL fees. defining.3PL LOGISTICS AND SUPPLY CHAIN MANAGEMENT Sweeping changes continue to redefine the consumer products marketplace and to deal successfully with these changes many firms are now investigating and implementing alternate business and logistics support models. some firms have been unable to identify substantial enough benefits to justify moving to outsourcing or Third Party Logistics (TPL). Within this. they must go well beyond this level to offer savings significant enough to justify such a major business change. As mentioned above. Specifically. Two such models which have emerged over the last few years are Third Party Logistics and Co-Distribution. powerful synergies can be developed and harnessed when both concepts are combined under the appropriate circumstances.
A review of the eight potential benefit areas such synergies create will then be reviewed in the final section. the search for a Third party entity would then begin. Next. once the general feasibility hurdle has been cleared this party would carry out a detailed analysis in conjunction with in-house resources from both firms to fully analyze. contract types. significant synergies and potential benefits must be identified. Co-Distribution represents the partnering of two non-competing firms for the express purpose of developing a shared supply chain. This third phase would include the preparation of a detailed RFP document. This would include issues surrounding contractor performance.in the sustainable creation of a Third Party Co-Distribution Network (TPCDN their role in this process will also be discussed in this article. Initially. Once this plan is completed and both firms are prepared to proceed. there are two facilitation roles required to successfully create and rollout the Third Party Co-Distribution Network envisioned within this article and a number of specific steps required. The first is Outside Facilitation or advisory support services provided to the two potential partners in a number of key areas. 70 . As mentioned. Obviously for either party to consider such an undertaking. this party would conduct a high level feasibility analysis to confirm the existence of potential benefits in the areas identified. followed by ongoing management of the RFP Process itself. define and prepare the Co-Distribution Network Plan and Design document.
Finally. In addition. the role of the Outside Facilitator in implementation and ongoing support from direct involvement from concept development right through planning to actual execution is an important continuity to maintain consistency. items such as payment timing and methods would also be reviewed which may have material implications for the firms involved. momentum and stability in the overall relationships surrounding the new network. contract incentives and penalties. 71 .duration. renewal.
services and related information right from the point of origin to the point of consumption (including inbound. implementing and controlling the efficient. effective flow and storage of raw materials. The whole concept of Logistics is based on 7 R's which are:• • • • • • • Right place Right time Right quantity Right quality Right price Right condition Right customer 72 . LOGISTICS is also defined as time related positioning of resources. in-process inventory. What is Logistics? Logistics is "the process of planning. internal and external movements) in order to satisfy customer's requirements. out bound. finished goods.SOME FREQUENTLY ASKED QUESTIONS ABOUT THE LOGISTICS INDUSTRY AND WHICH WILL AFFIRM GRIP ON YOUR UNDERSTANDING OF THE INDUSTRY.
and technology of its own 73 .What is third party logistics? Third party logistics is the activity of outsourcing activities related to Logistics and Distribution. The 3PL industry includes Logistics Solution Providers (LSPs) and the shippers whose business processes they support. capabilities. Companies opt for Third Party Logistics for the following reasons: • • • • • Focus on core competence Resource constraints Cost saving / cost optimization For large and global coverage For more professional and scientific approach to logistical problems • • For improvement in service levels with improved response time Efficient management of inventory resulting in better utilization of working capital. What is fourth party logistics (4PL)? Fourth party logistics provider is a supply chain integrator that assembles and manages the resources.
the overall business strategy is aligned with supply chain strategy to reengineer the supply chain of the participants. with the aid of process and organizational changes. distribution management. procurement strategy. information technology. as applicable. customer support and supply chain technology. A standard 4PL supply chain solution involves four distinct steps: Step I: Reinvention At this level. Step II: Transformation Here the focus is on coordinating specific supply chain functions such as sales and operations planning.organization with those of complementary service providers to deliver a comprehensive supply chain solution to the client. T&D. Step III: Implementation The implementation is done on the basis of recommendations made at the earlier two levels and the transition is put across to the 4PL delivery 74 . etc.
team, taking special care to consider the dimension of human resources and organizational change.
Step IV: Execution
A 4PL provider's scope of responsibility also includes operational responsibility for numerous supply chain functions, besides the traditional transportation management and warehousing operations logistics outsourcing
How is logistics different from transportation?
Transportation is physical movement of goods (inbound and outbound) as well as picking up of products as per customers order and delivering it to the ultimate user whereas Logistics encompasses several activities related to supply chain management such as planning, implementing and controlling the efficient, effective flow and storage of raw materials, inprocess inventory, finished goods, services and related information, in which transportation is a major element in the entire chain.
What is supply chain?
In simple language at the material level, supply chain may be defined as "Flow of materials through procurement, manufacture, distribution, sales and disposal" while at the human level the chain is an "entity of people organized as structures and systems for delivering the desired value and goods".
Supply Chain Management may also be defined as "the integrated management of all linkages and value added activities from the supplier's supplier to the customer's customer in such a way that enhanced customer value is achieved at lower costs.
What are the objectives of supply chain management?
A well designed supply chain is expected to support the strategic objectives of: • • • • • Reduced Costs Shorter Lead Time Best of Quality Flexibility Enhanced Service
Better Product Availability Better Product Reliability
The best configuration of the chain will vary from individual chain to chain and individual organization to organization. But, in all the case the architecture of the chain would include the following three elements System, Technology, Relations.
How is logistics different from supply chain management?
Logistics forms an important element of supply chain management whereas supply chain management is interplay of all the functions and integrates marketing, planning, distribution and purchases with the entire manufacturing process.
Can a transporter provide logistics solutions?
Yes, provided the transporter has a wide network, fleet, material handling, human infrastructure and strong IT support.
What is the pre-requisite infrastructure required to provide logistics solutions? The pre-requisite infrastructure required to provide logistics solutions are: • • • • • • • Land and Building (Warehouse) Trained Manpower Material Handling Equipments Hardware and Software Transport Network Vendors Consultants Does one need any software to provide logistics solutions? Yes 78 .
Logistics plays a key role in Supply Chain Management as there is a strong inter-play of activities starting from raw materials till the finished goods.What does Logistics activities comprise of? Logistics activities. In all the activities there is a flow of goods whether it is raw materials or WIP or semi-finished goods or 79 . as a part of Supply Chain Management comprises of the following: • • • • • • • • • • Purchase and Supply Material Handling Production Planning Production Control Transportation Storage Distribution Product Management Installation and Servicing Strategic Management What is the significance of logistics in manufacturing industry? In a manufacturing industry.
Efficient management of inventory helps to keep a tab on: • • • • Replenishment level ABC analysis of stocks FSN stocks Helps customer to concentrate more on fast moving stocks What are the legal issues involved? The legal issues involved are: • • • • • • Conforming and non-conforming areas Excise Duty Local Taxes Labour Acts Pollution Act Industry Act 80 .finished goods. How do logistics solutions help to reduce the inventory cost? One of the important elements of supply chain management is the management of warehouse and inventory levels. Logistics plays a significant role in the management of entire supply chain.
semi-finished goods.• • Fire Act Sanctions from appropriate bodies What is Warehousing? A warehouse is a point in the logistics system where a firm stores or holds raw materials. warehousing performs a vital function. This warehousing function continues to be increasingly important as companies and industries use customer services as a dynamic. What is Material Handling? Material Handling can be defined as "efficient short-distance movement of goods that usually takes place within the confines of a building such as a plant or a warehouse or between a building and a transportation agency." 81 . In the macroeconomic sense. The proximity of market-oriented warehousing to the customer allows a firm to serve the customer with shorter lead times. valueadding competitive tool. industrial goods and finished products. It creates time utility for raw materials. or finished goods for varying periods of time.
and rapidly preparing orders for shipment to customers. Material Handling improves efficiency by making the logistics system respond quickly and effectively to plant and customer requirements. Firms need to integrate materials handling requirements not only for the company's departmental needs. but also for meeting their customers' needs. locating stock. accurately filling orders. 82 .Material Handling has four dimensions: • • • • Movement Time Quantity Space. materials handling is very important to outbound logistics. materials handling serves company plants in the same way. For efficient movement of goods into the warehouse. In inbound logistics terms.
to enable them to improve supply chain performance. Shippers are requiring that LSPs provide: Enhanced traditional logistics capabilities like enhancing the reliability • Smaller. The 3PL industry includes Logistics Solution Providers (LSPs) and the shippers whose business processes they support. more frequent shipments • Shipments to a greater number of destinations • Coordinated flows of materials through crossdock or merge-intransit operations shippers. Customers of third-party logistics (3PL) companies want more than just transportation services. • Cost-effective flow of goods and information 83 . growing segment of the global logistics industry.CHALLENGES TO 3PL IN 21ST CENTURY Third party logistics (3PL) has established itself as a significant. they want 3PLs to provide the technology that drives the supply chain process Trends in Shippers' Logistics Requirements Shippers are demanding to LSPs to support their increasingly complex business processes.
such as invoicing. retailer or customer Decision-Making Responsibilities: • Mode selection. to LSPs. They may be asked to take on some parts of financial processes. Additional Information: • Shippers are asking for "pipeline visibility" of information visibility of the status of goods in the pipeline from suppliers through intermediary companies and organizations to a factory. credit checks. delivery. at ports. and collection 84 . routing and re-ordering and replenishment decisions. installation and removal activities. This may include.Additional activities that support complete solutions tailored to particular industries and customers • Shippers are asking LSPs to co-locate their activities at the shipper's site • Additional activities at their sites or at new sites outsourced warehouses and/or sorting points • Activities at supplier or customer sites. for example.
and delivers them to the production line.g. to oversee the implementation and execution of complex supply chain solutions. puts them in racks. Coordinating traditional and value-added activities performed by several LSPs who either have the required functional expertise (e.g. Although GM selects the materials vendors.e. 3PL to General Motors' plant in Kansas City.. provides automobile interior doorpanel modules at the exact moment they are needed on the production line. The 3PL then receives the material. the cost of goods sold. warehousing or some form of transportation) or geographic presence 85 . CTI issues the purchase orders and buys the material from those vendors. assembles the modules. Mo. as well as the ICT capabilities. (CTI).. GM receives an invoice from CTI that includes all operating costs. and a profit margin Integration and coordination of activities performed by many entities in support of local and global solutions • Many LSPs are working to position themselves as lead logistics providers who have the relationship and operations management skills. Customized Transportation Inc.
technology providers management consultants. It is emerging as a path to achieve more than the one time operating cost and asset transfers of a traditional outsourcing arrangement. Through alliances between best-of-breed third party service providers.FOURTH PARTY LOGISTICS Fourth Party Logistics (4PL): 4PL is a new concept in supply chain outsourcing. 4PL organizations can create unique and comprehensive supply chain solutions that cannot be achieved by any single provider. 86 .
The 4PL will integrate the client's supply chain activities and 87 . capabilities. Central to the 4PL's success is a "best of breed" approach to providing services and technology to a client. and business process managers to deliver a comprehensive supply chain solution through a centralized point of contact. The development of 4PL solutions leverages the capabilities of third party logistics providers. A Fourth Party Logistics provider is a supply chain integrator that assembles and manages the resources. Fourth Party Logistics is emerging as a breakthrough solution to modern supply chain challenges to provide maximum overall benefit. technology service providers.Next wave of RTSCM While outsourcing third-party logistics is a now accepted business practices. and technology of its own organization with those of complementary service providers to deliver a comprehensive supply chain solution.
the design. a 4PL solution leverages the combined capabilities of both management consulting and third party logistics providers to get the true essence of a RTSC. As illustrated in the 4PL Supply Chain Solutions (Figure 8. with the capabilities of its own organization.implementation and execution.2).supporting technologies across these "best of breed" service providers. 4PL Supply Chain Solutions Management consultants have traditionally focused on the strategic end of supply chain solutions reinvention and transformation. Third party logistics providers have focused on operational issues. These supply chain solutions have leveraged technology to support the strategic imperatives. implementation and execution of a leading edge. uniform technology plan that will meet the needs of the 4PL client is ensured by leveraging the technology 88 . More importantly. client optimized.
capabilities of consultancies, technology providers and third party logistics providers. At the highest level of the 4PL solution is Reinvention. The most likely source of true quantum enhancements in Real Time supply chain performance comes through either synchronization of supply chain planning and execution activities across supply chain participants, or increased collaboration between independent supply chain participants. Reinvention leverages traditional supply chain management consulting skills, aligns business strategy with supply chain strategy, and is facilitated by technology that integrates and optimizes operations both within and across participating supply chains. The second level of the 4PL solution is Transformation. Transformation efforts focus on improving specific supply chain functions. These include sales and operations planning, distribution management, procurement strategy and customer support. At this level supply chain technology becomes critical to the success of the solution. The third level is Implementation. A 4PL implements recommendations including business process realignment, systems integration of
technology across the client organizations and service providers, and transition of operations to the 4PL delivery team. Careful attention is paid to organizational change, recognizing that the "people" factor is a critical driver of success in the transition to the 4PL arrangement. The goal is to
avoid the all too common, ineffective implementation of well-designed strategies and business processes that have limited the effectiveness of solutions and the delivery of projected results. The fourth and final level is Execution. A 4PL provider takes on operational responsibility for multiple supply chain functions and processes. The scope goes well beyond traditional third party transportation management and warehouse operations to include: manufacturing, procurement, supply chain IT, demand forecasting, network management, customer service management, inventory
management, and administration. While an organization can outsource the entire range of its supply chain activities to a 4PL provider, a 4PL solution will more likely be a subset of critical path supply chain functions or processes. In summary, a 4PL responds effectively to the broad, complicated needs of today's organizations by delivering a comprehensive supply chain solution. This solution is focused on all elements of supply chain management, provides continuously updated and optimized technologies, and is tailored to specific client needs.
What is the difference between a 3rd party logistics provider and a 4th party logistics provider?
The term "fourth-party logistics provider" is a trademarked term owned by Andersen Consulting. It refers to the evolution in logistics from suppliers focused on warehousing and transportation (third-party logistics providers) to suppliers offering a more integrated solution. Among other services, fourth-party logistics providers include supply chain
management and solutions, change management capabilities, and value added services in their offering. These companies are basically third-party logistics providers that either add these capabilities to their services or form alliances to provide the services.
RESEARCH OBJECTIVE 92 .
To study the supply chain activities in the international business.RESEARCH OBJECTIVE “STUDY THE FACTORS THAT CAN ENHANCE CUSTOMER VALUE IN THE SUPPLY CHAIN WITH RESPECT TO SHIPPING.” OBJECTIVE 1. To determine the scope of activities this can be efficiently handled by third party operators. 2. 93 .
CORPORATE OBSERVATIO NS 94 .
With Indian corporate houses increasingly outsourcing their logistics requirements to specialised operators. the domestic logistics market is beginning to attract new logistics services providers. India's transport & logistics sector is still in its infancy and is highly fragmented. retail and healthcare sectors. fast-moving consumer goods (FMCG).CORPORATE OBSERVATIONS The Indian logistics industry is estimated at US$50 billion per annum and has good growth potential. Industry analysts say the time is not far off when corporate houses would be demanding more non-traditional services that go beyond the usual inbound/outbound transportation and Customs clearing and forwarding to 95 . Overall India's 3rd-Party Logistics (3PL) market is worth S$16billion and it’s expected to grow to S$ 33 billion by 2008. Key sectors with significant contribution to the logistics market include the automotive. Contributing 13% of India's GDP. manufacturing. particularly foreign players.
will launch its Indian operations in Mumbai on January 27. Swift will be focussing on logistics services covering the Indo-African trade. a subsidiary of the $2. a clutch of Indian players. While foreign players like APL Logistics. a subsidiary of Swift Freight LLC of UAE. inventory management. are also planning to broaden their areas of operation.spill over to services such as reverse logistics. For example. Rhenus AG. by tying up with Hyderabad-based Seaways Shipping Ltd. Seaways Rhenus Logistics will similarly 96 . Panalpina and Maersk Logistics have been operating in India for quite some time. which launched its Indian operations in Mumbai last week. is also setting up shop in India. Each of these players is trying to consolidate their presence in their own core areas of strengths. The latest to join the bandwagon of foreign logistics services providers was Swift." says Mr Mark D'Souza. packaging. as the company has a strong presence in the African market. "We see exciting opportunities in India. Managing Director of Swift. labelling and even order processing. This is encouraging both foreign and Indian players to broaden the syntax of logistics services.4 billion German Major Rethmann Group. The joint venture. Seaways Rhenus Logistics Ltd. which until recently were providing minimum logistics services. as corporates are realising that outsourcing of their logistics requirements to specialised service providers can result in substantial savings.
The study has also shown that less than 55 per cent of the Indian companies subscribe to 3PL (third party logistic) Services. Likewise for the automobile and engineering sectors. A recent study by Transport Corporation of India Ltd. and the Management Development Institute (MDI) has shown that the benefits that outsourcing of logistics requirements had brought to corporate houses range from improvement in delivery schedules and reduction in operation cost to enhancement of their geographic reach and improvement in operational flexibility. healthcare. as compared to over 75 per cent globally. which would act as a single interface between the client and 97 . logistics account for 5 to 10 per cent of their operations costs. meaning that the market will be growing at a brisk pace. a major Indian player in the logistics market. chemicals and consumer goods. while that for FMCG ranges between 3 and 7 per cent. especially as logistics constitute between 10 and 15 per cent of their operating costs. as it gets the benefit of volumes. covering sectors such as automotive. Present trends indicate that the cement sector has reaped the maximum benefits by outsourcing logistics requirements to 3PL service providers. analysts point out. The future trend seems to be towards fourth party logistics (4PL) service providers.be focussing on the Indo-European trade route.
especially in the automotive. Says Mr Manoj Agarwal. are increasingly opting to outsource their logistic requirements to specialised service providers. competitive pressure. increasing global trade and MNCs investments in India. India's leading logistics service provider: "We see a lot of growth from the FMCG sector. Third party logistics service providers in India are gearing up to meet the growth demand. pharmaceutical. manufacturing and FMCG sectors.multiple logistics services providers so as to manage all the aspects of the supply chain. such as transportation of clinical samples for pathological labs and medical institutions and reverse logistics that involve movement of defective products from the dealers back to the factory. Rupa and Wrigley's chewing gum for handling their entire supply chain management. We are in talks with companies such as Emami Ltd. incorporating value-addition in their services and customising their supply chain management solutions." Gati is planning to add new services in its portfolio. Industry analysts say that the key drivers for logistics outsourcing are the corporate trend of focus on core operations. The Indian logistics industry is poised for a significant growth in the coming years as new companies. 98 . Head (Retail) of Gati.
the trend in the industry is towards the third party logistics (3PL) concept — the market size for this category of service was estimated at $280 million in 2006. cement and textiles were identified as the top five contributors to the revenues of the logistics industry. told Business Line that "the global air express industry is also expected to undergo huge transformation in the years to come as a result of increasing spread of e-commerce and the need for vendors to match the speed of electronic ordering with physical delivery of critical inputs for the industry. the automotive. "The market for 3PL services is likely to grow at a CAGR of 20. this industry is expected to represent almost 30 per cent of the global air cargo with an average annual growth rate of 10 per cent. Mr Chris Callen. 99 . FMCG.Echoing similar sentiments.4 per cent during the next five years. metal." Indeed. we feel that by 2020. At present. country manager of DHL. In fact. with the growth being fuelled by the entry of MNCs and export focus of Indian companies. Chemicals. IT hardware and FMCG companies are the major users of 3PL services. with the market likely to grow at a CAGR of 6. In fact.2 per cent during the next five years.46 billion in 2005. a recent study on the logistics market by Frost & Sullivan has estimated that the revenue of the logistics industry from the manufacturing sector alone was $15." says Mr Ganesh Ralekar of Frost & Sullivan.
at DHL. Realising the potential in the outsourced logistics market. Says Mr Agarwal: "We at Gati are constantly re-inventing the company. with such large retailers as Shoppers Stop and RPG expanding to smaller cities. The logistics firms are also focussing on related services such as customer clearing and forwarding. labelling and packaging. 3PL service providers are expanding their basket of services as companies are now looking for more than just transportation of their products and raw materials." Similarly. One sector that is increasingly looking for outsourcing logistics is textiles. The transportation cost accounts for nearly 40 per cent of the cost of production. fleet management. inbound warehousing. We are designing customised supply chain management packages. Also. Analysts say that with large retailers such as Wal-Mart and Target seriously evaluating new suppliers for textiles in India. especially as it is facing the challenges of exacting delivery requirements and multiple export markets. the retail industry is expected to jump into the 3PL bandwagon. against 9 per cent of GDP in the US. with a guarantee of cost savings to our clients.In India the logistics costs are still higher than in the developed markets — it is estimated to be around 13 per cent of GDP. the thrust is 100 . this sector is bound to outsource logistics in the coming years. order picking and inventory management. with more than half the goods in India being moved by road.
Our express agents are being equipped with new generation GSM scanners. which facilitate realtime information in shipments within 15 minutes of pick-up or delivery." Mr Callen pointed out. "We are also making significant investments in IT so that customers can know what is happening with their shipments. 101 . with the company recently inaugurating its first exclusive express handling unit in India at the Delhi airport and acquiring a new fleet of 300 vehicles from Mahindra and Mahindra. Maruti Suzuki and Tata Motors.on expansion.
RESEARCH METHODOLO GY 102 .
DATA COLLECTION There are two types of data collection source that is primary and secondary. Whereas exploratory research means the focus is on discovery of new ideas. In this I am using survey method. In case I am not able to take appointments from them then I can also collect data through telephone. I am also required to visit the three PL operator and try to find out information related to their business operation. In case of primary source of data collection there was questionnaire to be filled by 3pl operator.RESEARCH METHODOLOGY RESEARCH DESIGN I had used both descriptive and exploratory type of research design. Descriptive research means deliberate pattern in collecting information to try and solve the problem. So far secondary data is concerned i got addresses of three pl operator from the company personnel and gathered information about concept of three pl from 103 .
The sample size for my survey is 31 and I used area sampling. SAMPLE SIZE AND TECHNIQUE I am given the area of Delhi and NCR where I have to go to three pl operators and try to take information from them about their businesses. A structured disguised questionnaire is one where the listing of questions is in a prearranged order and where the object of enquiry is not revealed to the respondent. 104 .internet and also gathered information about my first two objective from internet and news articles. QUESTIONNAIRE TYPE I am going to use structured disguised questionnaire.
Questionnaires. Data source C. Survey method. Telephonic interview. Personal interview.The above thing can be summarized as follows: A. Research instruments F. Descriptive and exploratory. Sampling size-31 Primary-questionnaire Secondary-www and articles. Research design D. Research approach E. 105 . Sampling B. Mode of collecting data Area sampling.
CUSTOMER SERVICE MANAGEMEN T .
FACTORS THAT ENHANCE CUSTOMER VALUE PRODUCT AND/OR SERVICE QUALITY: It hinges around whether customer requirements are being exceeded. Therefore. Exceeding customer requirements can lead to winning orders. continuously exceeding customer expectations will lead to a sustainable competitive advantage. Key performance areas for measuring customer quality are in line with . The days of conformance to standards winning orders are long gone. The fundamental principle at stake here is that non-conformance will lead to a product or business being disqualified from a certain market or market segment.
process integrity supported by statistical process control. namely on-time delivery. fitness for purpose. Here. there are only two types of service levels namely 100% or 0%. which are shipped complete with the first shipment. Fitness for purpose in essence refers to conformance to specification. A supply chain either delights a customer or it does not. On time delivery refers to the number of deliveries that meet the customer’s original request in relation to the number of orders received during the same period. refers to the percentage of orders shipped complete on the first shipment. Line fill refers to the percentage of ordered lines. Meeting customer requirements is about so-called perfect orders. In the eyes of the customer. In a supply chain. orders filled completely. one must differentiate between technical specifications and functional specifications. These parameters include meeting customer requirements.many lean manufacturing and being world-class principles. continuous improvement and elimination of waste. . and error free delivery documentation and invoicing. it makes sense to rather specify the functional specification as a customer in the supply chain. and must conform to the following criteria. A perfect order is achieved when customer requirements are met in full. Order fill also known as in-full delivery.
Statistical process control (SPC) monitors conformance to process parameters on line. if the customer specified the required functions that the chair must perform during its operational installation. It follows that collaborating with the upstream supply chain partne. An example of a technical specification is when a customer orders a chair and issues fully detailed technical drawings to the supplier.detailing expected outcomes of the product or service. the customer has no option but to accept it. because the chair conforms to all the technical requirements. Alternatively. using superior specialist knowledge. Process integrity supported by statistical process control refers to the continuous on line monitoring of quality. more customer value can be added by making use of the upstream supply chain partner’s specialist knowledge to design the technical specification that will better meet the expected outcome. If the supplier delivers this chair. . This process supports the proverb that quality cannot be inspected in. and added customer value in the process. but must be built in. and records are kept for later reference. and the chair does not functionally conform to the customer’s requirements. For example. then the chair manufacturing specialist could have designed a more suited solution.
Built into this scheme is SPC. If suppliers do not conform. thus adding customer value. • Teamwork.the Perishable Product Export Control Board (PPECB) approves all refrigerated vehicles that carry products for export purposes. This is in keeping with the ‘Kaizen’ principles listed below: • Personal discipline. To quote another example. . and • Suggestions for improvement. Supply chain partners expect or even demand of their upstream partners to have SPC in place thereby ensuring process integrity. Continuous improvement is about a continuous urge to improve quality and a climate of willingness to do something about opportunities. temperature graphs of the cargo temperature throughout the time in transit are recorded and kept to ensure product quality and integrity. When these carriers transport products for export. • Quality circles. they will simply not be part of the Ford supply chain. Ford Motor Company has embarked on a world wide campaign called the Q1 supplier approval scheme. • Improved morale.
Although the focus of continuous improvement programs such as Kaizen are mainly on the operational level. Suggestions are often a result of a positive business culture or climate. . this will result in a rapid decline in morale and a negative spiral that will result in lower levels of quality.These incremental improvements support the notion of total quality management. A culture of high levels of self-discipline also contributes towards continuous improvement programs being maintained on a sustainable basis. Cooperation and teamwork is required to evaluate and implement suggestions for improvement. as well as high levels of morale. Organisations must embrace speed of change. and focus on changing to become better in all aspects of the organisation. teamwork amongst all levels is a key building block. especially at the operational level. if suggestions are not managed. due to its simplicity and ease of implementation. All five the Kaizen principles work together to create a positive spiral that result in improved business processes. The sustainability of changes at the operational level is key to the organisations long-term success. However. It is here that the Kaizen philosophy could potentially make its greatest contribution. These suggestions for improvement are mainly received at the operational level through quality circles.
some firms have discovered that there is another commitment that can be made to gain true competitive advantage through logistical performance. namely the Elimination of Waste is focused mainly on the reduction in business waste in the operational environment as a result of overproduction. as customers increase their expectations regarding acceptable performance levels. is the continued upward escalation of customer expectations regarding supplier capabilities. waiting time especially at capacity constraints. excess inventory. . SERVICE DIFFERENTIATION: In recent years. This commitment is based on recognising that a firm’s ability to grow and expand market share depends on its ability to attract and hold the industry’s most successful customers. The last key performance area for measuring customer quality. excessive movement and double handling. may result in extreme dissatisfaction the next year.Part of total quality management supported by the philosophy of continuous improvement. Performance which meets customer expectations one year. rejected products.
For example. Key performance areas that are vitally important for service excellence are customer support. Customer support shifts the focus from expectations to the customers’ real requirements. The customer satisfaction platform. This explains why simply meeting expectations may not result in happy customers.The real key to customer-focused marketing lies in the organisation’s ability to use its performance capabilities to enhance the success of those customers. word-of-mouth. is built on the recognition that customers have expectations regarding performance and the only way to ensure that customers are satisfied is to assess their perception of performance relative to their expectation levels. but for the customer to be successful in executing his/her own strategy. . Requirements are frequently downgraded into expectations due to perceptions of previous performance. a 100 percent fill rate on certain stock-keeping units may be necessary. in particular customer support. or communications from the enterprise itself. flexibility to meet customer demands. product support. This focus on customer success represents major commitment toward accommodating customers. a customer may be satisfied with a 98 percent fill rate. and flexibility to meet market changes.
for installation and other technical related queries. internal processes. being the fitment centres as well as for their customer’s customers.Product support is another key performance area vitally important to service levels. how long it takes to resolve them. and how an enterprise makes it up to a disappointed customer. It requires that firms work intensively with customers to understand requirements. the motorist being the end user of automotive glass. Flexibility to meet customer demands is the next parameter to be examined. For example. Claim analysis and procedures is another aspect of product support that adds value to customers. Such commitment cannot be made to all potential customers. their causes. competitive environment. Clearly. thereby enhancing their value proposition to both their customers. Technical product support is critical. especially taking into account the potential value of the ‘augmented product’. has recently developed on-line technical support to glass fitment centres. Claims must be analysed in order to determine trends. The next aspect of product support is the commitment and involvement by suppliers in the development of end technology. a customer success program involves a thorough understanding of individual customer requirements and a commitment to focus on long-term business relationships having high potential for growth and profitability. a leading automotive glass supplier Shatterprufe. and whatever else it takes for the customer to be successful .
whether they are consumers. How those customers deal with their customers is typically not considered to be a problem. The typical focus in basic service and satisfaction programs is that the firm attempts to meet standards and expectations of nextdestination customers. Market changes are imposed onto both business enterprises and their customers alike. The last parameter supporting service differentiation is Flexibility to Meet Market Changes. in many ways a customer success program requires a comprehensive supply chain perspective on the part of logistics executives. Furthermore. intermediate or even internal customers. and develop programs to ensure that nextdestination customers are successful in meeting the requirements of customers down the supply chain. it requires that an organisation develop an understanding of how it can utilise its own capabilities to enhance customer performance. They must understand the entire supply chain. The response to these imposed market changes is important. If all supply chain members adopt this perspective. a customer success program explicitly recognizes that logistics executives must alter this focus. then all members share in the success. From a supply chain perspective.in his/her own competitive arena. the different levels of customers within that supply chain. . industrial end users.
conversion. or during the redesign or reintroduction of existing products or services. the more possibilities can be accommodated. The later the changes. For example. inventory and total cost of ownership will be discussed. This is a value-adding service that is offered by upstream supply chain partners. Using technical specifications when only functional specifications are required can potentially erode much customer value. a trade-off between the following cost aspects namely design and engineering.TOTAL LOGISTICS COST: Total logistics cost consists of many aspects. It must be encouraged at all times to use the skills of the upstream value adding partner in a supply chain to take ownership of the detailed technical specifications. Another important point to take into account is the effect of Design and Engineering changes on costs. This is particularly applicable in the development of new products or services. quality. The earlier the changes are made known. distribution. the fewer the opportunities and the more expensive it becomes to effect changes. and the lower the cost when making the change. but for the purposes of this study. The cost of a design change is dependent on when the change is implemented during the life cycle of the product. if a motorcar .
Form utility is created when material changes in form and / or function. even something as insignificant as the wiper blades. inspection costs or sometimes quoted as quality control costs. Aspects that are critical to take into account are demand alignment. However. especially when the full cost of nonconformance is taken into account. It will be very costly to change anything. this conversion process must be aligned with the rest of the supply chain in order to add maximum customer value. location of the value adding facility. Conversion cost is where the form utility is created. because of all the re-work and inventory redundancy cost. and can become significant. and the cost of non-conformance which often results in corrective action costs. to mention a few. The material is worth more once it has changed its form. For example. . and process capability. individual ingredients used during the production of cold drinks are not worth much to a potential consumer of Coca Cola. Quality costs are made up of prevention cost also know as quality assurance cost. lot quantities.manufacturer plans to launch a new model. Quality costs are normally expressed as a percentage of sales. specifications. they obviously need to stock up their dealer network.
but there are many hidden costs that will influence the total cost. From inventory analysis one can learn that for some stockkeeping units one could have many years of inventory cover. Measuring inventory levels can therefore be compared to measuring the blood pressure of a supply chain. whilst other items run out-of-stock regularly. material handling costs. information systems costs. transportation costs. and it is common belief that most of them carry too much inventory. and the total cost of ownership is ignored. picking costs.Distribution costs are made up of warehousing costs. Reverse distribution of non-conforming products will form part of non-conformance costs. Inventory is the life-blood of any supply chain. . and the cost of reverse distribution especially when recycling the product. the focus falls on the acquisition price. Figure below is a diagrammatic presentation that shows the total cost of ownership depicts an iceberg. Often. inventory carrying costs. The last aspect of total logistics costs is Total Cost of Ownership. Most of the companies that produce commodities carry inventory. The acquisition cost is visible.
and inventory management throughout the supply chain. the key performance areas that need to be managed regarding lead-time management are time to market. from concept to delivery and from order entry to delivery. response to market forces. . The first key performance area namely Time to Market can be spilt into two construct.LEAD TIME: Product availability is critical if an organisation is to compete in an ever more demanding environment.
Concept to delivery time deals with the lead-time to develop a product and /or service from inception until the end user can benefit from it. The development stage straddles from the design stage to the development of delivery concepts. Figure illustrates three phases namely the investigation phase. The investigation phase overlaps with the design stage. development phase and delivery phase. The delivery phase focuses mainly on the integration of the converted service offering to the end user. . engineering stage and the conversion stage. The key aspects that directly influence the time from concept to delivery are design time. engineering time. conversion time and delivery time.
There are many possibilities to investigate during the design stage, and the cost to change during the design stage is relatively low. During the design stage of product or service development, all concepts are developed in concept only with the view to test their respective compatibility with the conversion and delivery processes, as well as to determine their respective contributions to the business objectives.
During the engineering stage, the number of concepts is reduced to only a few viable options, and the focus is on detailed product and / or process design with the view to gain maximum compatibility with the other business processes and maximum competitive advantage from the product or service.
The conversion stage focuses on aspects such as prototype developments, advanced development models, pre-production samples, and pilot or trial runs. Products and / or service offerings are tested under realistic operating conditions in order to test their compatibility with business processes and their respective contribution to customer value.
The last stage in the development process is the delivery stage. This stage focuses on launching the product or service, ensuring high product availability and awareness, and customer support training aspects.
It is clear that time to market from concept to delivery is a very complex process, and could lead to a substantial competitive advantage, if it is done well.
The other component of time to market, namely from order entry to delivery, is less complex and easier to manage. Diagrammatic representation of a customer’s perspective of the total order cycle is given below. All these steps are largely under the control of the business enterprise, and can therefore be managed.
Response to Market Forces is essentially a philosophy, but must be supported by competent people and adequate business processes, capable of responding to market needs. Shorter product life cycles make response
time critical. Thus, Late entrants or slow responders to market opportunities run the risk of including obsolete inventory in their supply chains, because the market demand might have dropped off by the time that their product reaches the market. Therefore, strategic Inventory Management is critical to lead time management. Having inventory available at the right place in the supply chain is the key. An enterprise’s demand and supply parameter defines their logistics concept, and these business parameters influence the extended enterprise’s macro inventory strategy.
Under conditions where the market is predictable and long lead times are acceptable, one would adopt a lean manufacturing approach. In lean manufacturing, one would eliminate waste as much as possible, and optimise one’s manufacturing economies of scale by minimising set-up cost and maximising economic run lengths. One would typically not carry any finished goods inventory, but rather accept a logistics concept of ‘purchase and make to order’.
Under conditions where the market is unpredictable but relatively long lead times are acceptable, one would adopt a strategy of postponement.
This logistics concept is called ‘assemble to order’ and can accommodate mass customisation as experienced in the automotive industry of late. but the finished goods inventory is kept centrally. . whilst maintaining very low levels of finished goods inventory. Under conditions where the market is unpredictable but the market also demands relatively short lead times. Many of the leading automotive manufacturers make subassemblies like body-. assemble the right engine and interior trim commensurate with the customer requirements. One would not carry finished goods inventory. whilst finished good inventory is centralised and relatively low.Postponement is when one delays the decision to integrate the assembly into its final form. thereby reducing the risk of obsolete inventory. so that these can be assembled into the right configuration as required by the customer. interior parts and then paint the body. Once the sales centres conclude a sale. With this logistics concept. one would adopt a strategy of agile replenishment. they will then notify central distribution who will deliver. responsiveness is high. engine-and. Agile replenishment is associated with a logistics concept of ‘make to central stock’ and is used for example in the ‘white goods industry’ where demonstration models are being displayed at the sales centres. but rather carry sub-assemblies or component parts.
one typically follows an inventory strategy such as this in the fast moving consumer goods (FMCG) industry where product must always be available at arms length. and the results are that inventory is normally kept at decentralised inventory control locations. otherwise customers might switch to competing brands. . The trade off is made between the inventory carrying cost and the cost of lost sales due to nonavailability. Under these market conditions. one would adopt a strategy of continuous replenishment.Under conditions where the market is predictable and demands relatively short lead times. thereby guaranteeing availability. This inventory strategy is complimented by a ‘make and ship to stock’ logistics concept.
DATA ANALYSIS .
DATA ANALYSIS FUNCTION PERFORMED AS 3PL PROVIDER All of Above Transportation & Distribution. Installing. Mat handlg. Material handling. storage 38% . planning 7 Transportation. Material handling. Material handling.Installing. Storage 12 Transportation.storage Transportation.Distribution. planning 23% Transportation. Prod. storage Total 7 31 5 Functions Preformed by 3PL provider All of Above 23% 16% Transportation & Distribution. Distribution. Distribution.Distribution. Prod.
INDUSTRY SERVED Auto Oil Auto & Oil Auto & Retail Garment & Auto 13 1 2 4 11 Industry Served Auto 35% 43% Oil Auto & Oil Auto & Retail 13% 6% 3% Garment & Auto .
ADVANTAGES OF THIRD PARTY LOGISTICS TO CLIENTS Customer Service Performance 16% 6% 23% very important important Average 19% 36% less important not important Cost Benefits very important important Average 32% 23% less important not im portant 13% 16% 16% .
Economies of Scale very important 23% 16% important 19% Average less important 16% 26% not important Volume Variable very important 19% 13% important 23% Average less important 39% 6% not important One Stop integreted solution very important 29% 29% important Average 6% 23% 13% less important not important .
Transport.M HE.Transport.Trained Manpower.M HE.Trained Manpower.Trained M anpower.Trained M anpower. Consultants .MHE.MHE.Transport.Transport Network L&B.Transport Network 12 L&B.MHE. Vendors L&B.Transport Network All of them L&B.Vendors Frequency 5 L&B.M HE.MHE.Transport Network All of them 10% 13% 16% 23% 38% L&B.M HE.Consultants Total 3 31 7 4 Infrastucture required for 3PL L&B.Transport.Trained Manpower.INFRASTRUCTURE REQUIRED TO START 3 PL L&B.Trained M anpower.
REVENUE MODEL Brokerage Commission Depends upon customer all of them Brokerage & commission Total Frequency 4 14 3 2 8 31 Revenue Model Brokerage 13% 26% Commission Depends upon customer 6% 10% 45% Brokerage & commission all of them .
both organizations and systems • The most important supply chain activities in business are: • Material Handling • Transportation • Stock management • Purchase orders • Processing • Warehousing • Distribution .FINDINGS • The Five Key Issues of Logistics Effectiveness are core to Supply Chain Management-• Movement of Product • Movement of Information • Time / Service • Cost • Integration. both internal and external.
• The third party operator basically caters to auto industry in my survey it was found that 43% operators serve the auto industry. • The important infrastructure required to start the third party logistic business are land and building(warehouse). . Material handling. Distribution. transport network. in sample of 31 operators 12 told that they basically perform these four major functions.trained manpower. storage are the major function which are performed by third party operators.• Transportation. • The revenue model used by third party logistic operator is either commission or brokerage and many of them basically use commission as their revenue model. • The main advantage to clients or the customer is one stop integrated solution and cost benefits which they get from third party operators. material handling equipment.
As from my survey I had found that they basically perform four process of supply chain i. while I was going through my Thesis I came to know about many things of which I was not aware earlier. Also while I was conducting interviews. Distribution. I came to meet many peoples who had given me much useful information which have helped me in developing my knowledge base. I had a very good experience of learning both the things that is exposure of the fieldwork that is through research work and the other of in-house . Material handling.e. the time is not far away when all the supply chain works will outsourced to them.CONCLUSION The way third party logistics operator business is growing. In particular it has really enhanced my knowledge of shipping industry and the different activities and process performed in that industry. Transportation. storage but the time is not far away when they will look into other process like Purchase orders. There is immense opportunity for third party operators not only in shipping industries but they can also provide there services to other industries like FedEx and DHL are doing Thesis has helped me a lot in going in to the deep of the subject matter.
Both of them taught me how to handle situations outside as well as inside. .job that is collecting data through secondary sources.
RECOMMENDATI ONS .
SPG shipping can also look forward for 4 pl business as this is a new concept and it can be exploited by the company . and technology with SPG shipping so it will be easy for company to enter into this field. if SPG shipping wants to establish him in this field then it has to concentrate on above things. Company should first try to go for sectors like auto and garments as these are the major sector which uses third party logistic service. As there is availability of manpower. So.RECOMMENDATIONS There is business opportunity for SPG shipping in third party logistic business as there are many big shipping lines operating in this field like MAERSK and P&O. Only company has to make arrangement for warehouse. The company can generate a lot of revenue from entering into third party logistics business. Generally a company goes to third party to increase its efficiency and concentrate on core business activities and to minimize fixed cost. capital.
• As I was required to do survey by going to the third party operators and collecting information related to their business. etc. like how we behave in corporate world. The first problem I faced was difficulty in taking appointment.LIMITATIONS • Working on Thesis is a good experience because you have to go in deep of the subject matter. but there are various problems being faced by us while going through all these things. • I learnt a lot about practical aspects of life as my project was live project. who does not allow meeting the concerned person. By listening that we have come for the survey the gatekeeper does not allow us to enter the company. how to put forward our point in front of them. even I was facing lots of difficulty in taking appointment through telephone. . how we talk to executives. I came to know about many things which I didn’t know earlier. If we are able to convince the gatekeeper the next problem comes with the receptionist.
is busy and would not be able to meet. Before we ask anything they start asking questions from us like why are you collecting this information. If are able to meet them then they are reluctant to give information by saying they do not have authority to tell these entire thing about company or they are very busy that they cannot answer all the questions. gone out of the city. etc. etc? .• If all the barriers are over then comes the main problem that is the concerned person himself. He/she might be in the meeting. what is the purpose.
BIBLIOGRAP HY .
com • http://www.logisticsfocus.com http://www. G.financialexpress. collecting primary data.com • http://www.maxwell.com http://www.com • • • http://www.nz . sampling design 79.indiainfoline.138 page numbers respectively.findarticles.keepmedia.co. Website: • • http://www.com http://www.92.BIBLIOGRAPHY Kotler Philip \Marketing Management \prentice hall of India private limited \ eleventh edition \identifying the market segment \ 278 page number.etstrategicmarketing.C Beri \ Marketing search \ Tata McGraw-hill publishing company limited \ 2000 edition \ secondary data.
com http://www.tata.redprairie.ltdmgmt.tcil.com • • http://www.• http://www. .com • Reference from research work in the library.com • http://www.
Material Handling c. Garment b. Transportation f. Strategic Management 2) Which specific industry you serve? (tick) a. Storage g. Installation and Servicing j. Auto . Product Management i. Distribution h. Purchase and Supply b.APPENDIX QUESTIONAIRE Company name1) What are the functions you perform as third party logistics provider?(tick) a. Production Control e. Production Planning d.
Vendors g. Retail 3) What are the advantages of third party logistics to clients? (Rate them on the scale of one to five) a. Hardware and Software e. Brokerage . Volume variable e. One stop integrated solution 4) What are the infrastructures required for third party logistics? (tick) a. Land and Building (Warehouse) b. Consultants 5) What is the revenue model for you? (tick) a. Oil d. Cost benefits c. Customer service performance b. Economies of scale d.c. Material Handling Equipments d. Trained Manpower c. Transport Network f.
Part of profit d. Depends upon customer . Commission c.b.
This action might not be possible to undo. Are you sure you want to continue?
We've moved you to where you read on your other device.
Get the full title to continue listening from where you left off, or restart the preview.