Prof. Abhijit Nag

• LOGISTICS: ‘Logistics’ as we all have seen, is a process of strategically managing the procurement, movement and storage of materials, parts and finished inventory through the organisation and its marketing channels in such a way that the current and future profitability are maximised through the cost-effective fulfillment of orders.

• INBOUND LOGISTICS (UPSTREAM LOGISTICS): Generally activities associated with receiving, storing and disseminating inputs to the product, such as material handling, inventory control, inbound inspection, scheduling, returns to suppliers etc are part of the inbound logistics function.

• OUTBOUND LOGISTICS (DOWNSTREAM LOGISTICS): Activities associated with collecting, storing and physically distributing the product to buyers such as finished goods, order processing, warehousing, material handling, delivery vehicle operations, scheduling, shipping etc are part of the outbound logistics function.

• SUPPLY CHAIN & LOGISTICS: Supply chain is the network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate/finished products and distribution of these finished products to customers. Its about Backward Supply Chain (procurement of materials) Operations and Forward Supply Chain (distribution of finished products to customers) Operations.

• There are four major decision areas in Supply Chain Management. They are:  Location.  Inventory.  Production.  Transportation/Distribution.

• Probably the trend of outsourcing various activities started with outsourcing of Transportation/Distribution. In Indian context, transportation generally accounts for nearly 50% of the total logistics cost. • Today, logistics cost profoundly influences all the four decision areas of the supply chain management.

• Buoyed by the initial success, companies are outsourcing most the activities in supply chain. • Companies are lowering their investment in fixed assets by leasing and renting plants and warehouses while outsourcing manufacturing and transportation processes.

• INVENTORY: It is said “Operational efficiency of a company depends not only on how effectively it manages its working capital but also on how the company helps its suppliers and customers manage their working capital”. In other words, it is the efficiency of overall supply chain, from customer’s customers to supplier’s suppliers, not just the lead firm’s efficacy which gives a competitive edge.

Till Japanese in general and Toyota, in particular, with its widely acclaimed Toyota Production System (TPS), of which Just In Time (JIT) and Kanban are the two operating principles demystified the concept of inventory buffer, world viewed inventory as assets and used it as hedge against uncertainties of demand & supply and non-seamless information flow across the supply chain.

The new understanding in holding inventory is an evil. In manufacturing companies, nearly 50% of total assets are in the form of working capital (current assets). One important area of cost minimisation programme in procurement is the inbound transportation expense. With competitors becoming more aggressive and customer focused, with growth flattening, managing this cost centre, viz. Inventory, became the priority.

• Today, inventory turnover is a leading metric for working capital efficiency. In short, the overall performance of supply chain significantly affects the financial health of both P&L A/c and Balance Sheet.

• SHRINKING PRODUCT LIFE CYCLE: Ever changing preferences of customer’s are making products obsolete much faster than before. This fast changing customer preference has compelled the companies not to carry excess inventory. This has resulted in companies insisting on suppliers supplying only required quantity. Practices of procuring huge quantities at a time gave away to procuring small quantities frequently. This required perfect coordination between procurement and production.

With shorter Product Life Cycles (PLC) companies were forced to sell quickly what they produced. With shorter PLC, the problem of obsolete inventory increases dramatically. With the decrease in the prospects of offering one product to entire market, companies were forced to look for unfulfilled customer needs and innovative ways of fulfilling them. These developments rattled up the old supply chain. Procuring and shipping in small quantities as frequently as possible to and from diverse locations became the order of the day.

• FORWARD VISIBILITY: Though only material flow is highlighted in supply chain, information and cash also flows equally vigorously within the supply chain. Material flow is mostly uni-directional (rejections, damaged goods etc are exceptions) information flow is two way and cash flow again is mostly uni-directional in reverse order (from channel partners – lead firms – suppliers). For a long time, each link in supply chain functioned in isolation. Information flow was many times not present and at times if present, was untimely and accurate.

• Experts attribute creation of inventory buffers, which are pure cost centres, to lack of forward visibility arising out of lack of information flow within the supply chain. Communication was the chief culprit in on-time delivery failures. However, developments in Information Technology (IT) entranced the pace of information flow within the supply chain IT allowed managers to see operations more effectively and most instantaneously.

Fig. 1: Typical Links and Flows in Supply Chain

• Enterprise Resource Planning (ERP) brought about inward integration, mostly linking various functions within a company, instantaneous. Internet brought about a paradigm shift. It made possible real time information sharing across the chain. This gave enormous visibility to everyone in the chain, thus drastically reducing the need to hold inventory. But this put enormous pressure on the logistics function of the company. The global visibility enabled by the internet, provided many companies with access to new markets. Customers started demanding shorter lead-times, higher reliability and real time visibility into suppliers systems.

Table 1: Value Chain Benefits
• Value Chain survey respondents indicated the above as the ‘Major Benefit’ from sharing information with partners:

Improved visibility across the supply chain has generally resulted in the following benefits:  Improved customer service through on-time deliveries of complete orders to customers.  Reduction in inventory carrying (cost 9cost of holding excess inventory plus stock-out costs), decreased chances of holding obsolete inventory, reducing the cost of sales.

 Since accurate and timely information about requirements are provided to the suppliers, relationship between the company with its suppliers improved. Operating efficiency scaled up by reducing both the suppliers inventory and overall supply chain inventory.  Faster pace of the inventory flow resulted in the improvement of operating cash flow.  Return on Assets (ROA) improves substantially, since non-operating assets like warehouse, distribution centres, trucks etc. would be optimally handled.

• The key battleground in the value chain seems to be the concept of time. The focus is to make the cycle time as fast as possible by taking out redundant steps as well as appropriate logistical interventions from supplier’s supplier to customer’s customer, as this would improve efficacy, productivity, cost keeping the price competitive and yet making more profits. What this essentially means is shifting the epicentre of competition from price and broad-basing it.

• With a responsive supply chain in place, a company can compete:  In terms of delivery time.  Reduced obsolescence.  Being more responsive to changing customer needs. What started off in a small way has hit crescendo today. Outsourcing of transportation, warehousing requirements to a specialist is now an everyday matter. In India, the total market for logistics services is estimated to be about 5000 million and is growing at about 30-40% every year.

Table 2: % of Companies Outsourcing Supply Chain Applications to Logistics Firms
• Freight payment/accounting: • Transportation planning/optimisation: • Warehouse Management: • Shipment Tracking: • International Documentation: • Supply Chain Planning: • Order Management: 46% 46% 27% 19% 19% 6% 4%

BASE: 65 Fortune 500 Logistics Managers. SOURCE: AMR Research

• A recent study by consulting firm Accenture and Northeastern University says that more than 70% of the Fortune 500 companies have outsourced at least one major logistics function. • This double-digit growth in logistics business has attracted many players to the business with diverse backdrops.

• Some of them operating in India are as follows:  Upgraded truckers, viz., GATI, Transportation Corporation of India (TCI).  Upgraded couriers, viz., Safexpress.  Multinational Companies, viz., UPS, Elbee, Bax Global etc.  Large number of companies from the unorganised sector. Each one of them come with different set of competencies and different business experiences.

• Traditionally the supply chains are tuned to handle forward movement of goods. However, there is an increasing pressure in these days to fine-tune the supply chain to handle the reverse flow of materials too. In general, reverse logistics is about handling:  Products returned by customers.  Products to be recycled.  Reusable products/Packaging materials.  Products to be repaired.  Products damaged in transit etc.

• In fact with the emergence of e-commerce, there is more pressure to put in place a smoothly functioning reverse logistics network than ever before. In a recent survey by BizRate, 89% of the online buyers have responded that return policies, not the product or price influence their decision of from whom to shop with. In the coming years, probably reverse logistics would emerge as a new source of competitive advantage.

• Fig. 2 shows the forces behind emergence of current logistics practices, followed world-wide.

• Emergence of internet as a medium to carryout business has meant a lot to logistics in particular. It is a well-known fact that when doing business on internet, time and distance are irrelevant. e-business has changed the traditional model of doing business from BuyStore-Sell model to Sell-Source-Ship model. This new way of doing business requires highly responsive supply chain and logistics network.

• Fig: 3 below shows a typical schematic diagram of e-logistics: New Paradigm.

• It is necessary to have a real-time knowledge of business events to manage distribution challenges proactively. • e-Logistics upgrades the distributors from merely taking orders and procuring them to collaborating with suppliers and customers to make fullest use of the business opportunities on net.

• e-Logistics has even dramatically altered the way traditional functions like receiving inventory, inventory location, picking, replenishment, shipping and inventory management. • Companies that have succeeded in pulling in place a working e-logistics networks have gained enormously as the new model intends to totally eliminate the inventory holding (store) function since the products would be shipped directly to the customer from the sourcing point.

• With the initial hype settling down and people more, or, less convinced of the benefits of outsourcing various logistics functions, outsourcing has really gained momentum. • Today more and more supply chain functions are outsourced than before. • “Logistics alliances are making US industry more efficient and thus more competitive.

• It appears we are about to ride one more wave in logistics services 4PL(fourth-partly logistics). • A practice where a Lead Logistics Provider (LLP) would take care of host of supply chain activities on one behalf by outsourcing some of the activities to 3PL providers, or, specialist outfits, i.e., lead logistics provider to whom a company outsources various logistics functions, in turn would outsource some of the logistics services from other service provider.

• Infact, Auto and Retailing industry were the first ones to understand and appreciate the importance of logistics function. • Problem of dealing with too many suppliers and too many components coupled with frequent product changes at regular intervals in case of Automobile industry and fast changing fashion trends and the necessity to respond to these changes in a very short time in case of Retailing industry compelled them to seriously look into their logistics practices.

• But today, more, or, less there is across the industry recognition of the importance of logistics. This recognition has also meant demand for better and innovative services from the user industry. And companies have recognised that success in the market place depends on the efficacy of the supply chain. With increasing number of supply chain would depend on not only how effectively the lead firm performs its core activity but also on the efficacy of the logistics provider. Therefore, given this it is natural to expect the logistics provider to play a crucial role in the days to come.

• More Domestic 3PLs Emerging From the Ranks of Shippers:  Large shippers look to leverage their logistics assets and generate new revenue streams.  These shippers have the capability to offer the gamut of logistics services, including warehousing, inventory management, information systems, order fulfillment, call centres, demand forecasting and planning, transportation and so on.  They are also well positioned to integrate vertically in the supply chains in which they participate.

• The Formation of Global 3PL Companies via Mergers: • A number of major providers have made acquisitions to expand or strengthen their international scope. • Foreign-based 3PLs acquiring U5 3PLs fuelled the latest wave of activity in this area. • Mergers and acquisitions are creating 3PLs that can provide one-stop shopping for logistics services and that can manage global supply chains for their clients.

• Top Ten 3PL Services Used: •Direct Transportation Service: •Warehouse Management: •Freight Payment: •Shipment Forwarding: •Carrier Selection: •Customer Brokerage: •Rate Negotiation: •Tracking/Tracing: •Order Fulfillment: 63% 60% 52% 48% 44% 41% 38% 33% 33%

• Criterion in Final 3PL Selection:

• The intense level of competitive activity encountered in most markets has led to a new emphasis on measuring performance not just in absolute terms, but rather in terms relative to the competition, and beyond that to ‘best-practice’. • In the past it was usually deemed to be sufficient simply to measure internal performance. In other words the focus was on things such as productivity, utilisation, cost per activity and so on. Whilst it is clearly important that such things continue to be measured and controlled it also has to be recognized that such measures only have meaning when they are compared against a relevant ‘metric’ or benchmark. What should be the metric that is used in assessing logistics and supply chain performance?

• There are in fact several dimensions to the measurement problem. The first key point to make is that the ultimate measuring rod is the customer, hence it is customers’ perceptions of performances that must be paramount. Secondly, it is not sufficient just to compare performance to that of immediate competitors. We must also compare ourselves to the ‘best in the class.’ Thirdly, it is not just outputs that should be measured and compared but also the processes that produce that output. These three ideas lie at the heart of what today is termed as competitive benchmarking.

• Competitive benchmarking might simply be defined as the continuous measurement of the company’s products, services, processes and practices against the standards of best competitors and other companies who are recognised as leaders. The measures that are chosen for the comparison must directly or indirectly impact upon customers’ evaluation of the company’s performances.

• One of the earliest firms to adopt benchmarking was Xerox Corporation, who used it as a major tool in gaining competitive advantage. Xerox first started benchmarking in their manufacturing activity and it was focused on product quality and feature improvements. Following success in the manufacturing area, Xerox top management directed that benchmarking be performed by all cost centres and business units, and by 1981 it was adopted company wide.

• Initially there was some difficulty in performing benchmarking in departments such as repair, service, maintenance, invoicing & collection and distribution, until it was recognized that their ‘product’ was, in fact, a process. It was this process which organisations. By looking at competitors’ processes step-by-step and operations-by-operation, Xerox were able to identify best methods and practices in use by their competitors. • Initially benchmarking activities were concentrated solely on competitors until it become clear that Xerox’s objective in achieving superior performance in each business function was not being obtained by looking only at competitors’ practices.

• The objective of creating competitive advantage involves outperforming rather than matching the efforts of competitors. This, together with the obvious difficulties in gaining all the information required on competitors and their internal systems and processes, led to a broader perspective on benchmarking being adopted. Thus benchmarking was expanded from a focus solely on competitors to a wider, but selective, focus on the products of top performing companies regardless of their industry sector.


• Xerox have successfully used this broader perspective on benchmarking as a major element in increasing both quality and productivity. Collaborative cooperation between firms in non-competing industries offers significant opportunity in this regard. For example, in the Xerox logistics and distribution unit, annual productivity has doubled as a result of benefits obtained from non-competitive collaborative benchmarking.


• Today Xerox is a world role model for quality improvement with some 240 different functional areas of the company routinely involved in benchmarking against comparable areas. Gains can come from widely different industries. Table 1.1 shows five practices relevant to improving productivity gains in Xerox that were identified from such widely disperate businesses as photographic film manufacturers and drug wholesalers.

Table 1.1: Practices uncovered by Xerox via Noncompetitive Benchmarking
Type of Company • Drug Warehouse: • Appliance Manufacturer: • Electrical Components Manufacturer: • Photographic Film Manufacturer: • Catalogue fulfillment Service Bureau: • • • Practice Electronic ordering between store & distribution Centre. Forklift handling of upto six appliances at once. Automatic in line weighing, bar code labelling, & scanning of packages. Self directed warehouse work teams. Recording of item dimensions and weight to permit order-filling quality assurance based on calculated compared with actual weight.

• •

Company has identified a number of benefits a company derives from benchmarking. These includes:
• It enables the best practices from any industry to be creatively incorporated into the processes of the benchmarked function. • It can provide stimulation and motivation to the professional whose creativity is required to perform and implement benchmark findings. • Benchmarking breaks down ingrained reluctance of operations to change. It has been found that people are more receptive to new ideas and their creative adoption when those ideas did not necessarily originate in their won industry. • Benchmarking may also identify a technological breakthrough that would not have been recognised, and thus not applied, in one’s own industry for some time to come, such as bar coding, originally adopted and proven in the grocery industry.

What to Benchmark?
• One useful framework for benchmarking is that devised by a cross-industry association – The Supply Chain Council. Their model, known as SCOR (Supply Chain Operations Reference), is buil around four major processes: o Plan o Source o Make o Deliver

….What to Benchmark?
• These four covers the key supply chain activities from identifying customer demand through to delivering the product and collecting the cash. The aim of SCOR is to provide a standard way to measure supply chain performance and to use common metrics to benchmark against other organisations. A summary of the SCOR process elements is shown in Table 1.2.

Table 1.2: Supply Chain Council’s Integrated Supply Chain Metric Framework
Metric Type Customer Satisfaction/ Quality Outcomes 1. Perfect Order Fulfillment. 2. Customer Satisfaction. 4. Product Quality. 1. Order Fulfillment Load Time. Diagnostics 1. Delivery to Commit Date. 2. Warranty Costs, Returns, & Allowances. 3. Customer Inquiry Response Time. 1. Source/Make Cycle Time. 2. Supply Chain Response Time. 3. Production Plan Achievement.



1. Total Supply Chain Costs. 1. Value-Added Productivity.


1. Cash-to-Cash Cycle Time. 1. Forecast Accuracy. 2. Inventory days of Supply. 2. Inventory Obsolescence. 3. Asset Performance. 3. Capacity.

Benchmarking the Logistics Process
• Many organisations now recognise the need to improve processes if outputs are to be enhanced. In the same way that, some years ago, manufacturing managers found that the kay to quality was not to inspect the output but rather to control the process, so too in logistics we are coming to recognise the importance of process improvement and process control. This is the underlying philosophy of logistics process benchmarking.

….Benchmarking the Logistics Process
• The key to success in quality improvement is not to rely upon inspection of the output of the process but rather to improve the process itself. Imagine that this process is a ‘pipeline’ that begins with suppliers, runs through our own business (whether it involves manufacturing or any form of value-adding activity) through intermediaries and on to customers. To ensure that customer satisfaction is achieved at the end of the pipeline requires that everything that happens in the pipeline must be carefully monitored and controlled.

….Benchmarking the Logistics Process
• The first step in improving performance in the service pipeline is to understand the structure of the process. Unlike in oil pipeline, the network of materials and information flows, activities and procedures that link suppliers with end users, is complex. A recommended approach to defining the pipeline structure is to flowchart the steps along the chain which begin with a customer’s order and ends with delivery. A greatly simplified example is shown in Fig 1.3. The detailed flow chart from which this summary was taken covered a very large sheet of paper.

Fig: 1.3: The Path of a Customer’s Order

….Benchmarking the Logistics Process
• The next step is to identify the critical points where, if something goes wrong, the entire process will be affected – for instance, a stockout in the warehouse, or, a failure to meet a production plan. These critical points are where process control must be applied and where benchmarking against the ‘best in class’ companies – in any industry – can bring significant benefits.

….Benchmarking the Logistics Process
• If we think of the chain of events from source of material through to the end user as a series of supplier/customer relationships then it will become clear that what we are advocating is the benchmarking of process and performance at each of the supplier/customer interfaces. • Fig. 1.4 provides an example of a series of monitors of service level from the source of supply through to the end user which involved to be continuously appraised.

Fig. 1.4: Process Control & Service Quality

Mapping Supply Chain Processes
• Flowcharting supply chain processes is the first step towards understanding the opportunities that exist for improvements in productivity through reengineering those processes. A critical concept that underpins such reengineering opportunities is the idea of ‘valueadding’ time versus ‘non-value-adding’ time. • Value-adding time is the time spent in doing something which creates a benefit for which customer is prepared to pay. Thus we could classify manufacturing as a value-added activity as well as physical movement of the product and the means of creating the exchange.

…Mapping Supply Chain Processes
• The old adage “the right product in the right place at the right time” summarises the idea of customer value-adding activities. Thus any activity that contributes to the achievement of that goal could be classified as value adding. • On the other hand, non-value-adding time is time spent on an activity whose elimination would lead to no reduction of benefit to the customer. Some non-value-adding activities are necessary because of the current design of our processes but they still represent a cost and should be minimised. • The difference between value-adding time and non-value adding time is crucial to an understanding of how logistical processes can be improved. First, one has to flowchart.

….Mapping Supply Chain Processes
• The processes and then involve managers in those processes to debate and agree exactly which elements of the process can truly be described as value-adding. Agreement may not easily be achieved as no one likes to admit that the activity they are responsible for does not actually add any value for customers. • The next step is to do a rough-cut graph highlighting visually how much time is consumed in both non-value-adding and value-adding activities. Fig. 1.5 shows a generic example of such a graph.

Fig: 1.5 Production, Storage & Transport Costs & The Time Cost of Money

….Mapping Supply Chain Processes
• Fig. 1.6 shows an actual analysis where the total process time was 40 weeks and yet value was only being added for 6.2% of that time.

Fig. 1.6: Value-Added Through Time

….Mapping Supply Chain Processes
• It will be noted from this example that most of the value is added early in the process and hence it is more expensive when held as inventory. Furthermore, much of the flexibility is probably lost as the product is configured and/or packaged in specific forms early in that process. Fig 1.7 shows that this product started as a combination of three active ingredients but very rapidly became 25 stock-keeping units because it was packaged in different size, formats etc and then held in inventory for the rest of the time in the company’s pipeline.

Fig. 1.7: Variety Through Time

….Mapping Supply Chain Processes
• Longest period is spent at the maximum variety level. • Greatest flexibility is available when the product is generic. • Throughput efficiency in a supply chain can be measured as:
Value-Added Time/End-to-End Pipeline Time x 100

….Mapping Supply Chain Processes
• As we have noted this can be as low as 10%, meaning that most time is spent in a supplychain in non-value adding. To begin, to make significant improvements in throughput efficiency first requires a detailed understanding of the process and activities that together comprise the supply chain. A useful tool here is supply chain mapping (or, the value stream mapping). • A supply-chain map is essentially a time-based representation of the processes and activities that are involved as the materials, or, products move through the chain. Simultaneously, the map highlights the time that is consumed when those materials, or, products are simply standing still, i.e., as inventory.

….Mapping Supply Chain Processes
• In these maps, it is usual to distinguish between ‘horizontal’ time and ‘vertical’ time. Horizontal time is spent in process. It could be in-transit time, manufacturing or assembly time, time spent in production planning or processing and so on. It may not necessarily be time when customer value is being created but at least something is going on. The other type of time is vertical time, this is time when nothing is happening and hence, material or product is standing still as inventory. No value is being added during vertical time, only cost.

….Mapping Supply Chain Processes
• The labels ‘horizontal’ and ‘vertical’ refer to he maps themselves where the two axes reflect process time and time spent as static inventory respectively. • Fig. 1.8 depicts such a map of e manufacture and distribution of men’s underwear.

Fig 1.8: Supply-Chain Mapping – An Example

….Mapping Supply Chain Processes
• From this map it can be seen that horizontal time is 60 days. In other words the various processes of gathering materials, spinning, knitting, dyeing, finishing, servicing and so on take 0 days to complete from start to finish. This is important because horizontal time determines the time that it would take for the system to respond to an increase in demand.

….Mapping Supply Chain Processes
• Hence, if there were to be a sustained increase in demand, it would take that long to ‘ramp up’ output to the new level. Conversely, if there was a downturn in demand then the critical measure in pipeline volume, i.e., the sum of both horizontal and vertical time. In other words, it would take 175 days to ‘drain’ the system of inventory. So in volatile fashion markets, for instance, pipeline volume is a critical determinant of business risk.

….Mapping Supply Chain Processes
• Pipeline maps can also provide a useful internal benchmark. Because each day of process time requires a day of inventory to ‘cover’ that day then, in an ideal world, the only inventory would be that needed to cover the process lead time. So a 60-day total process time would result in 60 days inventory. However, in the case highlighted here there are actually 175 days of inventory in the pipeline. Clearly unless the individual processes are highly time variable, or unless demand is very volatile, there is more inventory than can be justified.

….Mapping Supply Chain Processes
• It must be remembered that in multi-product business each product will have a different EndEnd pipeline time. Furthermore where products comprise multiple components, packaging materials, or, sub-assemblies total pipeline time will be determined by the speed of the slowest moving item, or, element in that product. Hence, in procuring materials for and manufacturing a household aerosol air freshener, it was found that the replenishment lead time for one of the fragrances used added to the total pipeline.

….Mapping Supply Chain Processes
• Mapping pipelines in this way provides a powerful basis for logistics reengineering projects. Because it makes the total process and its associated inventory transparent, the opportunities for reducing non-value-adding time become apparent. In many cases much of the non-value-adding time in a supply chain is there because it is suf-inflicted through the ‘rules’ that are imposed, or, that have been inherited. Such rules include: economic batch quantities, economic order quantities, minimum order sizes, fixed inventory review periods, production planning cycles and forecasting review periods.

….Mapping Supply Chain Processes

• The importance of strategic lead-time management is that it forces us to challenge every process and every activity in the supply chain and to apply the acid test of “does this activity add value for a customer, or, consumer, or, does it simply add cost?”

• Outsourcing, listed by Harvard Business Review as one of the most important management concepts of the past 75 years, has become a readily accepted means of increasing performance of non-core supply chain activities. Outsourcing allows organisations to focus on there core competencies, to provide a differential level of customer service and to take advantage of greater operational flexibility.

• While outsourcing often provides solid one-time cost reductions, it does not deliver the continuous ongoing savings that business desire. • The next significant evolution in supply chain management has emerged, and it is called fourth-party logistics, or 4PL. Fourth-Party logistics enables companies to respond to today’s supply chain requirements more effectively.

What is Fourth-Party Logistics?
• Fourth-party logistics is the evolution of supply chain outsourcing. The convergence of technology and the rapid acceleration of ecapabilities have heightened the need for an over-arching integrator for supply chain spanning activities. Fourth-party logistics is the shared sourcing of supply chain activities between a client and select teaming partner, under the direction of a 4PL integrator. • In essence, the fourth party logistics provider is a supply chain integrator that assembles and manages the resources, capabilities, and technology of its own organisation with those of complimentary service providers to deliver a comprehensive supply chain solution.

….What is Fourth-Party Logistics?
• As conceptually illustrated and examined in Strategic Supply Chain Alignment by John Gattorna, supply chain evolution has occurred, with the organisations moving from insourcing to outsourcing to 4PL arrangements (Fig.1). According to Gattorna, “While outsourcing thirdparty logistics is now accepted business practice, fourth-party logistics in emerging as a breakthrough solution to modern supply chain challenges….to provide maximum overall benefit.”

Fig. 1: Evolution in Supply Chain Outsoucing

….What is Fourth-Party Logistics?
• Central to the 4PLs’ success is the ‘best of breed’ approach to providing services to a client. The development of 4PL solutions leverages the capabilities of 3PLs, technology service providers, and business process managers to provide the client organisation with greater cross-functional integration and broader operational autonomy.

…What is Fourth-Party Logistics?
• Two key distinctions make the concept of 4PL unique and set it apart from other supply chain outsourcing options available to the market today:  A 4PL delivers a comprehensive supply chain solution;  A 4PL delivers value through the ability to have an impact on the entire supply chain.

Is 4PL Right For Your Organisation
• In determining whether your organisation should further investigate a 4PL arrangement, consider the following key questions:  Do you consider the supply chain critical to your organisation’s success but not every supply chain process a core competency?  Does your organisation struggle to manage increasing levels of supply chain complexity?  Do your customers’ supply chain demands exceed your organisation’s capability to deliver?

…..Is 4PL Right For Your Organisation
 Do you have the technology capabilities to integrate across your supply chain processes? Across your logistics service providers?  Can you make better use of the capital that is now dedicated to supply chain assets?

Supply Chain Value Proposition
• The second key distinction between 4PL and current approaches to supply chain outsourcing is 4PL’s unique ability to deliver value to client organisations across the entire supply chain. • The 4PL approaches the concept of supply chain integration through four key drivers of shareholder value: increased revenue, operating cost reduction, working capital reduction and fixed capital reduction (Fig. 2). Traditional approaches have tended to focus only on operating cost reduction and asset transfer.

Fig. 2: The 4PL Value Proposition

….Supply Chain Value Proposition
• Revenue growth is driven by enhanced product quality, product availability and improved customer service. Experience has shown that customer service measures, such as stockouts and ship complete, can be improved in excess of 100%. With the 4PL focusing on the entire supply chain – not just the efficiency associated with warehousing, or, low-cost transportation – dramatic customer service improvements can be attained.

….Supply Chain Value Proposition
• Operating cost reductions of upto 15% are driven through operational efficiencies, process enhancements and procurement savings. Savings are achieved through the complete outsourcing of the supply chain function – not just components – and economies of scale. Synchronisation of supply activities by supply chain participants leads to operating cost reductions and a lower cost of goods sold, due to integration of processes and improved planning and execution of supply chain activities.

….Supply Chain Value Proposition

• Working-capital reductions of upto 30% can be realised through inventory reductions and reduced order-to-cash cycle times. The proactive use of technology to manage the order and SKU movement throughout the pipeline minimizes. The amount of inventory required, and increases item availability to reduce cycle times.

….Supply Chain Value Proposition

• Fixed capital reductions result from capital asset transfer and enhanced asset utilisation. The 4PL’s logistics service providers can take ownership of physical assets, thus freeing up assets. This allows the client organisation to invest in its core competencies (e.g., research and design, product development, sales and marketing), rather than in bricks and mortar.

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