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distribution of a manufacturing or service firm to a logistics service provider so that the manufacturing company can focus on its core competencies of new product development, manufacturing them and marketing the products Companies opt for 3PL Improved strategic focus : Using 3PL‟s companies can concentrate on their core tasks and improve customer satisfaction Resource constraints Lowered costs: According to research reports companies can reduce their inventory management costs by around 15-30 percent. Also 3PL service providers invest large sums of money in developing processes that aim to achieve logistical excellence, which are unavailable to other companies Expansion of Market: Outsourcing logistical activities to 3PL‟s allow companies to get into new businesses, new markets or a new channel of distribution quickly and with a limited outlay of cash For more professional and scientific approach to logistical problems For improvement in service levels with improved response time For efficient management of inventory resulting in better utilization of working capital Increased flexibility: A 3PL contract provides for relatively short term commitments as compared to building and maintaining the same resources by the company itself, thus freeing up resource for other uses Infrastructure required for a 3PL Warehousing Fleet of Vehicle Hardware and Software to take care of information needs Advanced material handling capabilities Good team of consultants Trained manpower Reach in terms of geography Steps while considering a 3PL service provider Knowing where to go: Companies should define their logistics management goals and attempt to visualize their organization status after they have outsourced their logistics activities. Knowing the needs and objectives: The manufacturing company should clearly know its objectives for outsourcing their logistical activities. Objectives of the outsourcing function should be a cross functional activity with participation of key personnel from all critical departments of the company such as information systems, finance, marketing, production, field staff, HR and SCM Calling for proposal or request for quotes from the short listed LSP ( logistics service provider) 3PL implementation – all the parties involved in the transaction are integrated and coordinated properly for effective implementation.
technology and resources of its own organization and other organizations to design. capabilities and technology of its own organization and other organizations to design. build and run comprehensive supply chain solutions” 4PL must have exhaustive skills in investing and maintaining the infrastructure and resources that makes it the manager of multiple 3PL service providers crucial to the client organization Fourth-party logistics The concept of Fourth-Party Logistics (4PL) provider was first defined by Andersen Consulting (Now Accenture) as an integrator that assembles the resources.Nervous System IT system integration IT infrastructure provision . Architect/ Integrator Change Leader Supply Chain Visionary Multiple customer relationship Deal shaper and maker Supply Chain re-engineers Project Management Services. Whereas a third party logistics (3PL) service provider targets a function.Comprehensive plan and periodic check should be conducted to ensure that the implementation is on track FOURTH PARTY LOGISTICS ( 4PL) Fourth Party Logistics was a term coined by Accenture Consulting in the mid 90‟s. essentially taking responsibility of a complete process for the customer. build. indicated that 3PL service providers were not up to the mark Accenture coined the term 4PL with the following definition “An integrator that assembles the capabilities. a 4PL targets management of the entire process. Implementation Process . truckers. and run comprehensive supply chain solutions. custom house agents. Extensive survey and feed back from organization on customer satisfaction. forwarders. systems and information integrator Continuous innovation Control Room ( Intelligence ) Decision Makers Experienced Logisticians Optimization engines and decision support Neutral positioning Manage multiple 3PL‟s Continuous improvement Supply Chain Infomediary Information . Some have described a 4PL as a general contractor who manages other 3PLs. and others.
property facility Manufacturing – outsourcing Procurement service Co.packing service Measuring and Evaluating Logistics Transportation On – time shipment : Percentage of shipments that leave on the designated time/ date as against the total number of deliveries On – time deliver : Percentage of shipments that reach the customer location on the designated date as against the total number of shipments Transportation cost per mile : How much it cost to transport unit per mile against the previous in-house process or against industry standards Warehousing Percentage of orders that the 3PL ships in exact quantity as against specified on the shipping order Per unit cost of warehousing Cost of warehousing including the overheads Ability of moving the goods from one dock to another within specified time period Number of cases handled per hour or per employees Picking accuracy : Percentage of line with errors vs total number of lines. Real-time data tracking Convert data to information Provide info to a point of need Technical support Resource Providers Assets Transportation asset provider Warehouse. Order Fulfillment Inventory accuracy : Number of errors in reporting inventory in warehouses Loss and Damage : Loss and damage resulting from contractor negligence Cost Service costs: The number of times the service provider meets the targeted reduction in costs Cost reduction : Service provider initiatives to cut costs quarter to quarter Quality Reports : Ability of service provider to supply reports to manufacturing firm with the requirement information Process improvement: Initiatives jointly developed by the manufacturing firm and the 3PL to improve process performance Availability Customer Satisfaction: Customer satisfaction surveys for the customers serviced by the 3PL Handling routing: Excess/ shortage of inventory in the warehouse indicating improper warehousing . cross-dock.
the industry has seen continual change and expansion of services to cover specific geographic regions. The corporate buyers keep watch on the ordered data and perform order pushes for the items they are responsible for The created purchase orders will be communicated to the vendor using the EDI 850 document Vendor looks at the inventory and decides on the order fulfillment If product available. modes of transport. we are fortunate to work with the very individuals who drive the economic engine of our country. expertise. I consider myself privileged to have served the logistics community for many years. and hence may not realize any gains in the first one or two years. the financial stability of the service provider is also crucial to the success of the alliance Sales are forecasted in their replenishment (refill/renew -supply) systems using the historical sales data. technology. high integrity. fleet etc.. and the people who make this country great. participating in what I consider one of the greatest service industries in America. and most importantly. the product is shipped to the retailer‟s warehouse or store and an “ Advance Shipment Notice” is sent to the retailer Vendor sends invoice to the retailer Upon receiving the product.Some of the other factors Flexibility : Ability of the 3PL to make changes in the processes according to the requirement of the manufacturing company Support of Top management The top management of the service provider plays a crucial role in making a commitment to a long term relationship Investment in infrastructure The 3PL should also make considerable investment on the IT and communication front Financial Stability A 3PL contract calls for a major investment s by the service providers in the initial years for warehouses. relationships. freight carriers. technology companies. the retailer does the invoice matching and payments are made through their account payable systems A 3PL Paradigm Change The evolution of the third party logistics (3PL) company dates back to the 1970‟s and 80‟s. Hence. Those entrepreneurs. our responsibility as a 3PL is to streamline processes. CFO‟s and the mainstay of America‟s workforce that drive efficiencies and production while moving goods both domestically and internationally. through deregulation. as manufacturers and retailers began outsourcing logistics services to third party entities. . and increase savings to our customers and providers through the culmination of experience. Since then. operations managers. As always. As a logistics provider. and commodities. The retailers/ customers tracks sales information and inventory information (usually on-hand and available quantities) and forecast the orders. provide efficiencies.
with the gradual evolution of the 3PL industry. LTL carriers. who 3PL companies depend on daily. then becoming an auction house for their freight. Auction House. They are evolutionary. truly formalized. Worst of all. 3PL companies have held carriers hostage for years by developing relationships with key people in the customer‟s organization. Standardize and Enforce. Changes to the industry will not happen overnight. The culmination of those select low integrity operations and general distrust between 3PL companies and LTL carriers has created unnecessary obstacles for quality 3PL companies (which there are many of) in the marketplace. This avoidance of any meaningful program and relationship hinges on the fact that it would limit the 3PL company‟s ability to do business with any prospective client or provide any carrier in the marketplace. which allows many unqualified individuals to create a business with very little capital and a limited vision beyond simply making money for themselves. None more so than the relationship with Less Than Truckload (LTL) carriers. with little support or faith in the system. Many 3PL companies offer very limited services beyond this cost reduction process to justify their payment. It is possible to provide both carriers and customers value as a 3PL company. This low barrier to entry also allows individuals with minimal respect for the business process to become a “legitimate” player in the 3PL industry. this relationship has become damaged and counterproductive for all parties involved. No True Partnership. The following three topics are just a few of many ideas that could be discussed and acted upon to draw out the discourse and inefficiencies all parties are encountering: Make a Choice.”) This type of sell bears nothing but distrust and apathy. It is for these reasons that a paradigm shift must occur in this industry. and instrumental in providing the best possible support to each and every customer. Carriers should select a limited amount of 3PL companies with which to work. which leaves carriers and customers disenfranchised. Carriers have the ability to set the terms of the engagement. customers feel the strain in this relationship and are left caught in the middle. Carriers are going to have to decide who fits and who doesn‟t. Unfortunately. Their start-up business is often funded by customers‟ freight they bring with them from a previous logistics job. Once the auction is complete. I can get you a lower rate with the exact same carrier you are using. Its continual evolvement is paramount for the health and longevity of this industry. LTL carriers have been taken advantage of and 3PL companies find it difficult to navigate the LTL future due to the actions of some of their counterparts. We must initiate open dialogue on this topic to repair and protect the relationship between 3PL companies. There are many 3PL companies that avoid vested carrier relationships because it is simply easier to earn a profit by making the easiest sell ever (… “Client X. and feel comfortable with the others walking away. Numerous factors have fostered the inefficient and ineffective relationship between many 3PL companies and LTL carriers: Low Barrier to Entry. Programs between carriers and 3PL companies are rarely. and customers. if ever. There is a hesitancy by 3PL companies to make a carrier their primary carrier and truly develop a mutually beneficial relationship. Why not standardize terms and pricing with the 3PL companies the carrier selects as their partners? Let the best value provider and sales team as a 3PL .The relationships nurtured by a 3PL company are a vital lifeline for the successes or failures we see. There is minimal regulation and low barrier to entry into the 3PL marketplace. the 3PL company keeps a portion of the savings. which often results in more earnings to the 3PL company than the carrier who has acquired 100% of the risk involved. not revolutionary changes.
Given the facility and information capabilities. lane fit. Bottom line. Taking into account the length of the agreement. 3PL companies should limit the carriers in their portfolio. Let‟s continue the evolution. Examples of true collaboration: 3PL companies and carriers reviewing together the freight characteristics in detail to understand the best fits for the carrier and customer. Back solicitation and late payment could be enforced much stronger in our industry. both parties are limiting the potential of the relationship and reinforcing the negative divide and atmosphere currently clouding our industry. work-in-progress or finished goods. TRANSPORTATION MANAGEMENT Transportation is one of the most visible elements of logistic operations. assemblies. It moves the product up and down the value chain. type of freight. However. without a paradigm change.company win. Def: . Holding joint sales calls with 3PL company prospects in order to help secure the business for both parties and project a unified front to the customer with joint support. Carriers assisting in training the 3PL operations and sales teams on their unique and specific product lines. it‟s time to start the discussion. and customer. transportation is the operational area of logistics that geographically positions inventory. This is because vehicles make rather expensive storage facilities. it makes sense to use it as a storage facility in the following instances: . This will eliminate trolling for pricing with the carriers. Both carriers and 3PL companies can offer much value to one another. Do 3PL companies really need eight national carriers and 40 regional carriers with whom they work? Why not limit the carriers and deepen the relationship that exists? The carrier. tracking interfaces. 3PL company. etc. Product Storage 1. 2. components. Functionality Two basic functions 1. The best carriers should partner with the best 3PL companies and drive the best solutions. there will be a much higher ratio of „win‟ to bid for the carrier which also greatly reduces the cost of doing business. and payment processes to drive down costs. Product Movement 2. However. Whether the product is in the form of materials. and customer would all benefit from the carrier and 3PL company working closer together. Product Storage – This is a less common function of transportation. Automating pick-ups. Limit the Carriers.Transportation in a simple language can be defined as a means through which goods are transferred from one place to another. These are but a few suggestions to open the dialogue. transportation is necessary to move into the next stage of manufacturing process or physically closer to the ultimate customer. 3PL company. Product movement – It is a primary transportation function. With a partnership. Enforce breaches in rules of engagement. Enhancing electronic communication between the carrier.
Water & Pipe Line as the modes of Transportation. the government and the public. Air. Pipe Line : Used by oil sector companies for mass movement of Petroleum products including gases. In such circumstances where warehouses space is limited a circuitous route is taken to increase the transit time that is greater than it would be in case of direct route. the consignee (destination party or the receiver). food grains. to decide the appropriate mode of Transportation. for making scheduled delivery. Where the in-transit products require to be moved shortly and the cost of unloading and reloading the goods will be more than the charge of storage in the vehicle. cement. Road. Due to quite low operating cost it is one of the preferred mode of transportation. product type. Waterways 5. usually not connected by any other mode of Transportation. It is also suitable for emergent item to be imported for some specific requirement. lead time etc. Rail : Used for delivery of a wide range of goods including coal. Railways 2. A logistics expert needs to understand these modes based on priorities. Road : Used by suppliers to deliver goods in a cost effective manner and best suited for short distances. Pipelines Modes of Transpotation in Logistics In order to transport material from one place to another Logistics Managers are using Rail. fertilizers. This mode is ideal for transportation of heavy and bulky goods and suitable for products with long lead times. packaging etc. mostly conducted in containers of varied size. Many transport companies have expertise for fast delivery. steel. airways 4. Water : Used by firms for delivery of goods from distant suppliers. Where the origin and destination warehouse space is limited. Roadways 3. the courier. iron ore. petroleum products and other heavy goods. Cost of storage in vehicle + Cost of unloading + Cost of reloading + Cost of warehouse Participants in Transportation The shipper (originating party). . Air : Used mostly for delivery of high value and tow volume goods from distant suppliers. Transportation Formats Private Fleets Contract Carrier Common Carriage Dominos Pizza Delivery ABT Parcel Services Public transportation (Indian railways) Modes of Transportation There are 5 modes of transportation 1.
The freight bill may be either pre paid or collect. An increased density product allows more units of the product to be loaded into a fixed cube of the vehicle. In case of loss. traffic volume. SPEED & CONSISTENCY Other factors Distance – Distance is the major difference on transportation work since it directly constitutes to the variable cost such as labor. Density – Weight and space consideration. The manifest lists the stop. The designated buyer in the bill of landing is the only bonafide receiver of the goods.Freight Bill represents a carriers method of charging for transportation services performed. Odd sizes and shapes.Each mode is used depending upon the geographical location and product to be transported. Volume – Greater the load lesser will be the cost per unit of weight. Handling – Some material are fragile which require maximum handling. Roadways would be better in such product or materials. The digest of the manifest is to provide a single document that defines the contracts of the total load without requiring a review of each individual bill of landing. . Freight Bill . Each shipment requires a bill of landing. It serves as a receipt and documents the commodities and quantities that we shipped. TRANSPORTATION DOCUMENTS Bill of Landing – It is a basic document for using transportation services. the bill of landing is the basis for damage claim. Storability – It It refers to the product dimensions and how they effect the vehicle space utilization. fuel and maintenance. it is not possible to increase the amount carried even if the weight of the product is light. weight and case count for each shipment. For single top shipments. Accurate description and count are essential. excessive length and weight consume more space. Decision Factors 3 Fundamental factors to transportation performance are COST. Shipping Manifest – The shipping manifest lists individual consignees where multiple shipments are placed on a single vehicle. It is developed using information contained in the bill of landing. damage or delay. It dose not begin at origin because of fixed cost associated with the shipment pickup and delivery regardless of the distance upward moving at a decreasing rate. The relative importance of each mode can be measured in terms of system mileage. revenue and nature of traffic composition. transportation cost is usually quoted (in terms of rupees per unit of weight) once the vehicle is full. Greater the distance more efficient is the utilization of fuel and labor and hence there is lower cost per unit distance even if the total cost increases. bill of landing. the manifest is the same as the bill of landing.
the supplier and not the retailers is responsible for managing and replenishing inventory using an integral part of VMI. the retailer can reduce the costs on forecasting and purchasing activities . The vendor sends the shipment notices before shipping the product to the retailer‟s store/ warehouse. It can be seen as a mechanism where suppliers creates the purchase orders based on the demand information exchanged by the retailer/ customer VMI can provide the benefits of smoother demand. increased sales. lower inventories and still reduced costs of lost sales to the other industries VMI activities is forecasting and creating the purchase order and are performed by vendor/supplier and not by the retailer. the retailer is free of forecasting and creating the orders as the vendor generates the orders The vendor is responsible for creating and maintaining the stock plan for the retailer. thereby increasing end-customer satisfaction 2. They work close together and strengthen their ties Supplier Benefits Reduced inventory : 1. The vendor sends the invoice to the retailer Upon receiving the product. Reduced stockouts The supplier keeps track of inventory movement and takes over responsibility of product availability resulting in a reduction of stockouts..VENDOR MANAGED INVENTORY (VMI) It is a streamlined approach to inventory and order fulfillment. the retailer does the invoice matching and handles payment through their account payable systems VMI is a backward replenishment model where the supplier does the demand creation and demand fulfillment It‟s a methodical way to transfer the ownership of the inventory to the vendors but still ascertaining the smooth material flow as and when required Dual Benefits Data entry errors are reduced due to computer-to-computer communications. EDI. Reduced forecasting and purchasing activities : As the supplier does the forecasting and creating orders based on the demand information sent by the retailers. Speed of the processing is also improved Both parties are interested in giving better services to the end customer. Having the correct item in stock when the end customer needs it. benefits all parties involved A true partnership is formed between the manufacturer and the distributor. With it. by electronic transfer of data over a network. EDI ( Electronic data interchange) is an integral part of VMI process and takes a vital role in the process of data communication The retailer sends the sales and inventory data to the vendor via EDI or other B2B and the supplier creates the PO based on the established inventory levels and fill rates In VMI process. ie.
The overall service level is improved by having the right product at the right time 6. Vendor can see the potential need for the item before it is actually ordered and right product is supplied to retailer at right time improving service level agreements between retailer and supplier 4. customers will find the right product at right time.A reduction in distributor ordering errors ( which in the past would probably lead to a return) 7. mistakes. can be avoided and can come down 3. Increase in sales : Due to less stockout situations. Improved visibility results in better forecasting: VMI process. Visibility to stock levels helps to identify priorities Challenges and Limitations of VMI Manufacturing stocks without leveraging customer specific data effectively for production planning . Reduces PO errors and potential returns: Supplier creates the order. which improves the visibility and results in better forecasting 2. Planning and ordering cost will decrease due to the responsibility being shifted to the manufacturer 5. Customers will come to the store again.3. Promotions can be more easily incorporated into the inventory plan 6. thereby reflecting an increase in sales 4.The manufacturer is more focused than ever in providing great services Purchasing Speeds transactions Streamlines communication between customer and supplier Eliminates paper-to-computer data entry Improves data accuracy Frees up staff to work on more productive activities Inventory Management Delivery as needed cuts storage Helps you reduce inventory levels Reduces inventory obsolescence Improve inventory turns Improve fill rates Decreases lost sales Receiving Advance Ship Notice speeds up receiving Bar coding cuts warehousing costs Error Reduction Data entry mistakes are avoided Information flow is continuous Manufacturers Benefits 1. Encourages supply chain co-operation: Partnerships and collaborations are formed that smooth the supply chain pipeline 5. the retailer sends the POS data directly to the vendor.
particularly for store level VMI. some vendors reserve inventory resulting in shortages to other customers Insufficient level of system integration results in incomplete visibility High expectation from retailers Resistance from sales forces due to concerns of loosing control. active sharing of information. creates operational challenges due to limited visibility into inventory and orders Another disadvantage is that retailers have higher expectations of VMI because the pipeline is more visible and the manufacturer has more control Overcoming the limitations Redefining incentives programs based on partnership building instead of sales volume Build strong partnerships with management‟s commitment to effective communication. In order to provide priority service to VMI partners. commitments to problem solving and continued support Conduct simulations and pilots before actual implementation Organize training sessions before launching VMI program Set reasonable targets for benefits of VMI Establish agreements on service levels and process to handle exceptions . affecting sales based incentive programs Lack of trust and skepticism from employees The overall level of collaboration is limited The level of detail for planning is still generally high Lack of integration of systems.