Supply Chain Relationships

SCM-I
 Introduction
• Logistics is basically the concept of how to deal with the
movement and storage of materials with highest consumer
satisfaction
• Most developed countries, the costs of logisitcs management
are steadily growing
• Logistics costs have become an important part of the value of
products
• Logistics management is regarded as an important role in the
international competitive market
 Introduction
• Logistics outsourcing is one of the issues that a firm has to
consider about the efficiency and benefit outsourcing brings
to the company
• The decision to outsource logistics activities are use of other
companies to handle logistics affairs such as transportation
and warehousing
• The role of logistics providers is changing both in content and
in complexity and brings about the development of new
logistics providers who offer various services to their
customers
• Logistics outsourcing is not a new trend.
 History of Outsourcing
• In the 1950s and 1960s, transportation and warehousing were
commonly outsourced.
• By the 1970s, as companies began to emphasize cost reduction and
improved productivity, they started to look for multicompetency
providers for outsourcing.
• In the early 1980s, companies began to emphasize supply chain
optimization, but it was mostly restricted to isolated operations
within their own organizations.
• In the 1990s, by the advent of Internet and the emergence of global
sourcing, logistics industry introduced a new generation of LSPs.
Types of Logistics Parties
 3PLs
• Third-party logistics are activities carried out by a logistics
service provider performing at least management and
execution of transportation and warehousing.
• Logistics outsourcing, logistics alliances, third-party logistics,
contract logistics, and contract distribution have been used to
describe the same meaning.
• Other activities like inventory management, information
related activities, value added activities, or supply chain
management can be managed by the logistics service
provider.
• The length of the cooperation should be at least one year.
 3PLs
• The total logistics market in 2013 in the United States was
$910 billion and the 3PL market was around $65 billion.

• A survey of 221 US companies reported that 78% of them are

using 3PLs for logistics services and spending 49% of their
logistics expenditure on outsourcing.

• The 3PL business is developing as a result of the increasing

demand of advanced logistics services, including globalization,
lead-time reductions, customer orientation, and outsourcing.
 Activities of 3PLs
• transportation • traffic management and
• warehousing fleet operations
• freight consolidation and • freight payments and
distribution auditing
• product marking • cross docking
• labeling and packaging • product returns
• inventory management • order management
• carrier selection • packaging
• rate negotiation • reverse logistics
• logistics information
systems
 Detailed 3PL activities
• Planning Functions • Equipment Functions
a. Location selection a. Selection
b. Supplier selection b. Allocation
c. Supplier contracting c. Sequencing
d. Scheduling d. Positioning
e. Inventory control
f. Ordering
g. Repair
 Detailed 3PL activities
• Terminal Functions • Handling Functions
a. Gate checks a. Pickup
b. Location control b. Consolidation
c. Distribution
• Warehousing Functions d. Expediting
a. Receiving e. Diversion
b. Inventory control f. Transloading
c. Reshipment
d. Cross Docking
 Detailed 3PL activities
• Administrative Functions • Pre/Post Production
a. Order management a. Sequencing
b. Document preparation b. Assorting
c. Customs clearance c. Packaging
d. Invoicing d. Postponement
e. Inventory management e. Marking
f. Performance evaluation • Transportation Functions
g. Information services a. Modal coordination
h. Communications b. Line-haul services
c. Tracking and tracing
 According to survery conducted in 2010

The users of 3PLs

• warehousing management (56%)
• transportation services (49%)
• shipment consolidation (43%)

 The use of traditional logistics services offered by 3PLs has

remained relatively stable in recent years.
 There is an emerging interest from manufacturers for
nontraditional applications of 3PLs.
 Pros of 3PL
• Save time
• Share responsibility
• Reengineer distribution networks
• Focus on core competencies
• Exploit external logistical expertise
• Reduction in inventory levels, order cycle times, and lead
times
• Economies of scale and scope
• Not need to invest: trucks, training, development
• Improved efficiency, service, and flexibility
 Cons of 3PL
• Poor searching efforts
• Poor coordination efforts
• Poor information sharing
• Loss of control
• Poor service performance
• Inadequate provider expertise
• Inadequate employee quality
• Loss of customer feedback
 Types of 3PLs
Third-party logistics providers can also be classified to asset-
based and non-asset based 3PLs.

• Asset-based 3PLs:own some assets, especially transport-

related assets such as trucks and warehouses

• Non-asset based 3PLs: do not own assets, and they usually

work with subcontractors. This type of 3PL may possess only
desks, computers, and freight industry expertise

Examples: AEI, Kuehne & Nagle, Fritz, Circle, C. H. Robinson, Hub

Group
 Other Types of 3PLs

• Transportation Based
Examples: Ryder, Schneider Logistics, FedEx Logistics, UPS
Logistics

• Warehouse/Distribution Based
Examples: DSC Logistics, USCO, Exel, Caterpillar Logistics, IBM

• Financial Based
Examples: Cass Information Systems, CTC, GE Information
Services, FleetBoston
 Fourth-Party Logistics
• The terms fourth-party logistics (4PLs) and lead logistics
provider (LLP) were introduced in 1996

• “A 4PL is an integrator that assembles the resources,

capabilities, and technology of its own organization and other
organizations to design, build, and run comprehensive supply
chain solutions”
 Fourth-Party Logistics
• One of the significant evolutions in supply-chain management
• 4PL is the shared sourcing of supply-chain spanning activity
with a client
• Selected teaming partner under the direction of a 4PL
integrator
• 4PL is advertised as a refinement on the concept of 3PL
• A firm that provides outsourced or 3PL services to companies
for part or sometimes all of their supply chain management
functions
3PL and 4PL relation
 What is the Difference?

• A 4PL organization is often a separate entity established as a

joint venture or long-term contract between a primary client
and multiple LSPs.
• A 4PL organization acts as a single interface between the
client and multiple LSPs.
• All aspects (ideally) of the client’s supply chain are managed
by the 4PL organization.
• It is possible for a major 3PL provider to form a 4PL
organization within its existing structure.
 Models of 4PL
• 4PL-3PL partnership: a 4PL and 3PL work together to market
supply chain solutions that fulfill the needs of both
organizations

• Solution integrator: The 4PL operates and manages a

comprehensive supply-chain solution for a single client. This
type of 4PL provider uses its resources, capabilities, and
technology and also the services of other LSPs to provide a
comprehensive supply-chain solution for a single organization.

• Industry innovator: a 4PL organization develops and runs a

supply-chain solution for multiple industry players with
special focus on synchronization and collaboration.
 Fifth-Party Logistics
• 5PL is a new concept in outsourcing
• It is the management of all parties of the supply
chain in conjunction with e-business
• 5PLs uses an e-logistics network focusing on global
operations
 Fifth-Party Logistics
• Bridges the gaps left between 3PL providers and 4PL
providers.
• 4PLs attempt to provide supply-chain solutions with their own
optimization software and the capabilities of 3PL resource
• 5PLs use the buyer’s (first party’s) existing technology and
infrastructure to optimize the supply chain by transforming
into a virtual organizations
 Future Trends
• Logistics parties looking forward to shape their logistics
departments.
• Zero-party logistics is the elimination of 3PL and 4PL
organizations using 5PL disciplines to transform a company
into a virtual organization
• The traditional logistics departments become nothing more
than an integrated information chain between buyers and
carriers
• All planning is performed using either a company’s own
resources or 5PL services
 Future Trends
• The concept of seventh-party logistics (7PL) has emerged,
resulting from hybridizing the 3PL domain with the concept of
4PL
• The effective fusion of physical and process expertise of 3PLs
with the enhanced knowledge-based macro-strategic
consulting and IT capabilities of 4PLs
• Newer versions of logistics parties are not yet deeply
investigated and applied
• They are expected to grow and be familiarized in the near
future
 Selecting the Right 3PL

• A service provider’s quality could be judged based on

experiences using it as a 3PL. In most cases, the service
quality is even more important for the shipper than the
service cost.

• A 3PL must also have a cost-control system with a clearly and

logically composed tariff structure. It must be prepared to
clearly state which performances and actions are covered in
the tariff. The financial strength of the 3PL is an important
factor for selecting the appropriate 3PL.
 Selecting the Right 3PL

• The 3PL’s skillfulness at having discussions with the shipper on

the regular basis is of great importance. These discussions
include agreements about liability, supplementary to standard
transport liability for errors, negligence, and carelessness.

• The throughput rate and delivery reliability of the goods can

be decisive. The 3PL must have a high degree of flexibility in
place, time, volume, quantity, and product.

• Also, qualitative factors such as supplier reputation,references

from clients, and response to information requests can be
useful
Factors Considered in 3PL Provider Selection
 Purchasing 3PL Services

1. Identification of the need to outsource logistics

2. Development of feasible alternatives
3. Evaluation of candidates and selection of the
supplier
4. Implementation of services
5. Ongoing service evaluation
 Theoretical Models
There are several models for selection of the right 3PL
• Analytic network process (ANP)
• The multi-attribute approach based on the technique
for order preference by similarity to ideal solution
(TOPSIS) technique
• The analytic hierarchy process (AHP)
 Penske Logistics
Penske Logistics is a wholly owned subsidiary of Penske Truck
Leasing, which was founded in 1969.
As a 3PL, Penske Logistics provides the following solutions:
• Supply-chain management
• Transportation
• Distribution center management
• International transportation management

• http://www.penske.com/
 Top 3- 2010 year
• Inbound Logistics recognizes top 10
– Uses its readers to conduct vote
– Over 300 companies nominated with 3,000+ votes
– Top 3 this year:
• 1) UPS Supply Chain Solutions
• 2) Schneider Logistics
• 3) C.H. Robinson