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Business Logistics – LOGT 3232
Dr. Stephen M. Rutner 1
Chapter 11Logistics Relationships &
Third Party Logistics (3PL)• Types of Relationships
– Make/Buy
• Core Competencies• 3PL
– Definition– Activities– Benefits/Weaknesses
• 4PL
Effectiveness of Supply Chain Relationships
7% 8%
22% 21%
48%42%
20%23%
2% 4%
0%
10%
20%
30%
40%
50%
Poor Fair Average Good Exceptional
Suppliers Customers
Per
cen
tage
Business Logistics – LOGT 3232
Dr. Stephen M. Rutner 2
Relationship Perspectives
“Trigger Events” to Third Party Decision• Capacity (Space) Constraints• Cost Pressures• Lack of Needed Expertise• Labor Issues• Changing Customer Requirements• New Products and Markets• Mergers and Acquisitions• Organizational Change; Reengineering
Business Logistics – LOGT 3232
Dr. Stephen M. Rutner 3
What is Third Party Contract Logistics?• Use of outside distribution companies (carriers,
warehouses, or third-party freight managers) to perform all or part of a company’s material or product distribution functions
– Transportation– Storage– Inventory control– Customer service– Logistics information networks
• Terms contract logistics and outsourcing are sometimes used in place of 3PL.
Outsourcing Alternatives
NoOutsourcing
IndividualLogisticsActivities
MultipleActivities
MultipleActivities
AllActivities
Single Source3rd Party
Contract Log.(Integrated)(Non-Integrated)
Business Logistics – LOGT 3232
Dr. Stephen M. Rutner 4
Outsourcing AlternativesCore Capabilities
• Transportation– LTL and TL– Dedicated– Intermodal– Global sourcing / distribution
• Warehousing• Inventory Management
and Control • Consulting Assistance
• Information Systems– Order Processing &
Logistics systems
• Consolidation and Distribution
• Freight Management Services– Carrier selection and rate
negotiation– Freight bill auditing and
control
What Does It Take to Have an Area of Core Competency?
StrategicFit
Expertise
Business Logistics – LOGT 3232
Dr. Stephen M. Rutner 5
Outsourcing AlternativesValue-Added Capabilities
• Pick and Pack
• Marking, Tagging, and Labeling
• Product Returns and Reverse Distribution
• Packaging and Repackaging
• Salvage and Scrap Disposal
• Telemarketing
3PL Buying Process Model for Forming Logistics Relationships
& Involved FunctionsFunction % Finance 48% Manufacturing 42% Marketing 29% Information Systems 52% HRM 19%
Business Logistics – LOGT 3232
Dr. Stephen M. Rutner 6
Types of Third Party Contract Logistics Suppliers
Transportation(Non-leveraged)
Transportation(Leveraged)
Shipper(Management)
Based
Financial/Information
Based
Third-Party Logistics (3PL): Types of 3PL Providers
• Transportation-Based– Services extend beyond transportation to offer a
comprehensive set of logistics offerings.– Leveraged 3PLs use assets of other firms.– Nonleveraged 3PLs use assets belonging solely
to the parent firm.– Ryder, Schneider Logistics, FedEx Logistics,
and UPS Logistics are examples of 3PLs.
Business Logistics – LOGT 3232
Dr. Stephen M. Rutner 7
Third-Party Logistics (3PL): Types of 3PL Providers
• Warehouse/Distribution-Based– Many, but not all, have former warehouse
and/or distribution experience.– Transition to integrated logistics has been less
complex than for the transportation based providers.
– DSC Logistics, USCO, Exel, Caterpillar Logistics, and IBM are examples of warehouse/distribution-based 3PLs.
Third Party Use by Key Market Type
Auto Chemical Computer Consumer Medical
54.5
78.686.8
7564.4
0
20
40
60
80
100
Auto Chemical Computer Consumer Medical
Percent Using orConsideringThird Party
Source: 1996 University of Tennessee Study
Business Logistics – LOGT 3232
Dr. Stephen M. Rutner 8
Strengths and Weaknesses ofThird Party Logistics
• Advantages– Buyer can concentrate on its core business– Cost reduction– Flexibility - seasonality, geography, test new markets– Gain management expertise and dedicated resources– Permit off-balance-sheet financing
• Disadvantages– Loss of internal control– Lack of acceptance - mgt and labor– Possible increase in costs
Benefits Resulting from Outsourcing Efforts
0% 10% 20% 30% 40% 50% 60% 70%
Operating costreduced
Service levelimproved
Focus on corecompetencies
Employee basedreduced
Capital costsreduced
Benefits Percent of Study Respondents
Source: University of Tennessee Study
Business Logistics – LOGT 3232
Dr. Stephen M. Rutner 9
Example Third Party Relationships
Customer SupplierApple Computer Skyway Freight System
Libby-Owens-Ford Roadway LogisticsHershey Exel Logistics
Target Stores C.H. RobinsonCoca-Cola Foods Cass Logistics, Inc.
Saturn Corporation Ryder/Averitt ExpressSears Leaseway
Nat’l Semiconductor Federal ExpressEtonic Caterpillar Logistics
2004 Top 25 3PLs
(all Revenue US$ Millions)2,625Expeditors Intl13
350Maersk Log252,892Menlo12
465SebCorp Log243,000NYK Logistics11
606FedEx SC Services233,614CH Robinson10
805Wilson Log224,000Nippon Express9
975APL Log214,153UPS8
1,170UTI Worldwide204,268Panaplina7
1,800Caterpillar Log194,700TPG/TNT6
1,872Schneider Log184,800P&O Nedllyod5
1,877Ryder175,700DHL4
2,171BAX Global166,400Schenker3
2,171Eagle Global Log156,900Kuehne & Nagel2
2,499Penske148,120Exel1
2003 Rev.3PL2003 Rev.3PL
Source: Armstrong & Assoc., Traffic World Sept 27, 2004, p.25
Business Logistics – LOGT 3232
Dr. Stephen M. Rutner 10
Shippers Using
Multiple 3PLs
25
19
15 IBM, Wal-Mart
14 HP, P&G, Sears Logistics
11 DuPont
10 Chrysler
8 AlliedSignal, Coke, Compaq, GE, Kimberly-Clark, Motorola, Philips, Pillsbury, Toyota, Xerox
7 3M, Anheuser Busch, Goodyear, Honda, Kmart, Kraft Foods, Nabisco, Nestle, Sun Microsystems
6 Colgate-Palmolive, Georgia Pacific, Monsanto, Nissan, Quaker Oats, Reynolds Metals, Sam’s Club
5 Abbott Labs, Digital Equipment, Frigidaire, Frito Lay, Glaxo Wellcome, John Deere, Kellogg’s Kroger, Lever Brothers, Lucent Technologies, Nortel, Westvaco, Whirlpool
7
Source: Armstrong & Associates, Inc., American Shipper, Nov. 99, p. 40
Contract Logistics Success Stories• Toyota (Georgetown, KY)
– Ryder Distribution Resources provides “turnkey”consolidated delivery of auto parts from key U.S. manufacturers
– Includes a wide range of material management activities:• Transportation, Verification of correct orders, Inventory control
• Land Rover (North American operation)– Caterpillar Logistics Service: world wide parts warehousing
and distribution services to dealers, including guaranteed 48-hour expedited deliveries
• Motorola (emergency parts)– Skyway Systems, Inc.: critical parts logistics center in L.A. to
ship parts air freight to technicians nationwide
Business Logistics – LOGT 3232
Dr. Stephen M. Rutner 11
Did You Get What You Paid For?(Answer = Yes)
Asset ReductionReduction in EmployeesExpand Geographic CoverageRisk ReductionCost ReductionSpecialized Services
96.0%89.887.884.483.683.3
Percent Experiencing Business Objective Improvement
Did You Get What You Paid For?(Answer = Not as Much)
Improved Information Systems
Move from “Push” to “Pull”
Faster Implementation
45.3%
51.4
58.5
Percent Experiencing Business Objective Improvement
Business Logistics – LOGT 3232
Dr. Stephen M. Rutner 12
Customer Evaluation of Outsourcing
Neither/ or somewhat
unsuccessful10%
Extremely succesful
38%
Somewhat successful
52%
21%
37%
35%
2%
5%
0% 5% 10% 15% 20% 25% 30% 35% 40%
FALLS FAR BELOWexpectations
FALLS BELOWexpectations
MEETS expectations
EXCEEDS expectations
GREATLY EXCEEDSexpectations
Satisfaction with 3PLs3PLs in 2003 Warehourse Benchmarking Survey
Almacenar Operador Logistico, Anthar Logistics, APL Logistics, Atlanta Bonded Warehourse, BLJC, Camion Transport AG, DANZAS, DIAKINISIS SA, Excel, F&M Logistics, Genco Distribution Systems,
General Warehouse, Green Field Agencies, Inprax, J.D. Smith and Sons Ltd., Kenco Logistics, Linfox Pty Ltd, Menlo Logistics, Peoples
Services, Power Logistics, REWICO, Shenzhen ST-Anda Logistics Co. LTD, Sunland, Tibbett and Britten, TNT Logistics Malaysia, USCO
Logistics, Zust Ambrosetti Group
Source: Edward H. Frazelle Ph.D.- 2003 TLI/ WERC Warehouse Benchmarking Survey
Business Logistics – LOGT 3232
Dr. Stephen M. Rutner 13
3PL Customer Evaluation of Outsourcing (Yearly Comparisons)
90%83% 86% 88%
82%
54%
0%
20%
40%
60%
80%
100%
1996 1997 1998 1999 2000 2001
Perc
ent S
ucce
ssfu
l
Source: CBL, Figure 11-12
Third-Party Revenues (in Billions)
$ 3 0 . 8$ 3 4 . 2
$ 3 9 . 6$ 4 5 . 3
$ 5 6 . 6$ 6 0 . 8 $ 6 5 . 0
$ 0
$ 1 0
$ 2 0
$ 3 0
$ 4 0
$ 5 0
$ 6 0
$ 7 0
1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 0 0 0 2 0 0 1 2 0 0 2Source: Bob DeLaney State of Logistics, 2003
Business Logistics – LOGT 3232
Dr. Stephen M. Rutner 14
Top Six Outsourcing LogisticsServices: 2001
TABLE 11-3 Outsourced Logistics Services: 2001
Percent OutsourceWarehousing 73.7%Outbound transportation 68.4Freight bill auditing/Payment 61.4Inbound transportation 56.1Freight consolidation/Distribution 40.4Cross-docking 38.6Product marketing/Labeling/Packaging 33.3Selected manufacturing activities 29.8
TABLE 11-3 Outsourced Logistics Services: 2001 Cont.
Percent OutsourceProduct returns and repair 22.8Inventory management 21.0Traffic management/Fleet operations 19.3Information technology 17.5Product assembly/Installation 17.5Order fulfillment 15.8Order entry/Order processing 5.3Customer service 3.5
Note: Figures refer to percentages of users indicating use of specific 3PL services.
Source: C. John Langley Jr., Gary R. Allen, and Gene R. Tyndall, Third-Party-Logistics Services: Views from the Customers (Atlanta, GA: Georgia Institute of Technology, Gap Gemini Ernst & Young and Ryder System, Inc., 2001).
Business Logistics – LOGT 3232
Dr. Stephen M. Rutner 15
3PL Measurement:Implementation and Continuous Improvement
Relationship StrategiesHigh Involvement
Low Involvement
Third party / contract logistics
Preferred partner
Preferred supplier
Limited partner
Neutral
Arms length
Adversarial
Business Logistics – LOGT 3232
Dr. Stephen M. Rutner 16
Fourth-Party Logistics (4PL): The Next Evolution?
• Thought of as supply chainintegrator, a firm that“assembles and manages the resources, capabilities, and technology of its own organization with those of complementary service providers to deliver a comprehensive supply chain solution.”12
• 4PLs manage and direct the activities of multiple 3PLs, serving as an integrator.
Fourth-Party Logistics (Registered Trademark of Accenture, Inc.)