Lecture 7 Logistics service providers Upload

MTT045 Lecture 7: Logistics Service ProvidersMTT045 Lecture 7: Logistics Service Providers

Kostas Selviaridis

Lund University / Department of Industrial Management and Logistics 1

International Physical Distribution: The ’Red Thread’ of the Course

Vehicle routing

Shipment size & modal choice

Network design & planning

Operations

& modal choice & planning

Road Airconsignees

Performance objectivesS it / i k i

Logistics service providersRail Sea

I t d lit

Modes Security/risk issuesSustainability challengesInternational trade issuesHumanitarian aid distribution

MarketsInfrastructure

Intermodality Terminalsconsignors


Learning Objectives

• Understand the main types and roles of logistics service providers

• Understand and explain the concepts of third/fourth party logistics (3PL/4PL)

E l i h h i i d ff i f h l b l l i i i• Explain the structure, characteristics and offerings of the global logistics service industry

• Understand key marketing models and the sales process of logistics service providers


Agenda

• Classifications and roles of logistics service providers

• Logistics service industry structure, characteristics and offerings

• Logistics service marketing models and the sales process


Examples of Logistics Service Provider Firms...


Activity-based provider classification 1/2

•Transport-based: expertise in freight movement via one or multiple transport modes

•Distribution-based: origins in public or contract warehousing

•Forwarder-based: non-asset based operators facilitating movement of goods


Source: Coyle et al., 2010 (pp. 399-402)

Activity-based provider classification 2/2y p

•Financial-based: focus on monetary and financial flows

•Information-based: using information systems and web tools to provide logistics solutions

•Consulting-based: providing logistics and SCM expertise and solutions



Logistics asset-oriented classification of providersg p

• Asset based providers- Owns assets and resources to perform services (e.g. vehicle fleets, terminals,

handing equipment, IT systems, labor force)f f- Benefits: capacity, expertise, direct freight control, visibility

- Concerns: high fixed costs, bias towards internal assets

• Non-asset based providers- Does not own logistics assets, contracts with carriers and DCs to buy capacity- Perform management-oriented, brokerage and information servicesg , g- Benefits: flexibility, innovation and cost reduction- Concerns: capacity limitations, freight control/visibility



CASE V l L i tiCASE: Volvo Logistics

GöteborgGöteborg

Göteborg, Sweden

area

Stockholm area

Malmö area

Dealers

Gent


Gent,Belgium

Beehive

• What roles do the different logistics companies assume in the Volvo example?• Discuss in pairsDiscuss in pairs• 2 min

Prepare to give an answer!Prepare to give an answer!


The third party logistics (3PL) conceptThe third party logistics (3PL) concept

•Third party logistics refers to ”outsourcing of logistics activities to p y g g gspecialised service providers as an economically viable method of achieving productivity and/or service enhamcements”

(Stalk & Daugherty, 1997:53)

•”Logistics outsourcing”, ”logistics alliances”, ”contract logistics” and ”contract distribution” as terms often used interchangeably

•Transportation and physical distribution services a major part of 3PL service offerings...but they do much more than that!!


The third party logistics (3PL) concept

•Third party logistics as ”the third party to a transaction other than the buyer (first) and seller (second) which performs logistics activities that could be performed by the p g p ybuyer or seller”

(McGinnis et al, 1995:93)

Supplier Buyer

•Transportation•Transport planning•Cross-docking•WarehousingWarehousing•Inventory manegement•Product assembly•Etc...

3PL provider


Initially 3PLs conceptualised as freight forwarders...

Third party logistics evolved out of ”intermodal marketing companies (IMCs)” in p y g g ptransportation contracts in the 1970s

Shipper CarrierIMCs

Shipment consolidationFreight forwardingCarrier tenderingRate negotiation


Source: Council of Supply Chain Management Professionals, 2010

Definitions of third party logistics

•”Third party logistics services are multiple distribution activities provided by an externalThird party logistics services are multiple distribution activities provided by an external party, assuming no ownership of inventory, to accomplish related functions that are not desired to be rendered and/or managed by the purchasing organization”

(Sink et al., 1996:40)

•”Third party logistics as activities carried out by a logistics service provider on behalf of a shipper consisting of at least management and execution of transport and warehousing....additional activities include inventory management, information related activities such as tracking and tracing, value-added activities such as secondary assembly and installation of products, or even supply chain management”

(van Laarhoven et al., 2000:426)


The Fourth Party Logistics (4PL) Concept

•Originally developed by Accenture™ to describe an organisation integrating resources and capabilities of various firms to provide comprehensive supply chain solutions (a.k.a. L d L i i P id )Lead Logistics Provider)

•Single point of contact in the client’s supply chain

• Often non-asset based business model with emphasis on supply chain planning, consulting and information management capabilities

•Sub-contracting and managing physical logistics activities through a network of specialist 3PL providers


Source: Selviaridis & Spring, 2007

Case: The IKEA meatballs supply chain

•Purchasing•Supplier management

•Carrier selection• Inbound transport mgmt

•DC management•Inventory ownership•Stock management•Stores order system

•Carrier selection• Outbound transport mgmt

•Invoicing & payment• After markety g t • After market service to IKEA stores


Different views of 4PL/LLPDifferent views of 4PL/LLP…

1. Holistic responsibility for the client’s supply chain (suppliers, customers, p y pp y ( pp , ,contract manufacturers, logistics providers) through information integration

2 Coordination of multiple 3PL contracts on behalf of the client plus2. Coordination of multiple 3PL contracts on behalf of the client plus information management services

3 P j t b d j i t t li d biliti t id3. Project-based joint ventures pooling resources and capabilities to provide specific logistics solutions (e.g. GM and Menlo Logistics forming Vector SCM)



The UPS Approach to 4PL (Extreme Version)

Suppliers

Client

CustomersSuppliers Customers

Contract4PL provider

Contract manufacturers

Transport provider

Warehousing provider

Administration services


Source: van Hoek et al., 2001

CEVA Logistics: 4PL/LLP Business Modelsg

1. 2. 3.

LLP

3PL 3PL 3PL3PL

LLP LLP

3PL 3PL 3PL

LLPLLP LLP

CustomerCustomer Customer Customer Customer Customer Customer

Industry group

Asset based solution

E.g. Fiat, BMW

Non-asset based solution

E.g. Global event management for GM and Thomson Electronics

Community solution

E.g. Newsfast


GM and Thomson Electronics

Source: CEVA Logistics, 2007

Historical evolution of the logistics services market...

1. In the 1980s: transport and warehousing firms developed into 3PLs by bundling and scaling their services • Economies of scale and scope• E.g. Exel Logistics, Frans Maas

2. In the early 1990s: express parcel delivery and post operators enter the market• Leveraging extensive distribution networks• E.g. DHL, TNT, UPS

3. In the late 1990s: firms from the financial, IT and consulting service industries enter the market•Supply chain planning and information management expertise•Consulting services•E.g. Accenture, Capgemini, GE Capital



Agenda





The global market for 3PL services

•Large and growing market$487 billi 3PL di l b ll f 2008- $487 billions 3PL spending globally for 2008

- $170 billions in Europe (2008)- $143 billions in the U.S. (2008)- Lots of room for growth: $6.2 trillions the global logistics spending

•Fragmented market despite ongoing consolidation trend•Fragmented market despite ongoing consolidation trend-Still many SME logistics companies exist at national/regional level- 25 largest 3PLs have 56% of outsourced logistics revenue

•Low margins for transport- and warehouse-related services - Service differentiation attempts (value added service offerings) Se ce d e e t at o atte pts ( a ue added se ce o e gs)


Source: Coyle et al., 2010 and Rushton & Walker, 2007

Main 3PL Service Activities and Offerings

Activity clusters ServicesActivity clusters Services

Transportation •Transportation service•Shipment consolidation •Carrier selection & evaluation•Fleet managementFleet management•Merge in transit•Order fullfilment•Product returns/reverse logistics •Track and trace

Warehousing •Warehousing•Inventory management•Order processing•Relabelling/repackaging

Freight forwarding •Freigth forwarding•Freight bill auditing•Freight payment•Rate negotiation•Customs brokerageCusto s b o e age

Value added services •Procurement•Supplier management•Contract manufacturing•Product assembly•Product testing•Product installation•Logistics information systems•Supply chain design & planning•Logistics consulting


Logistics consulting•Financial services

Based on Lieb & Bentz, 2005 (p. 8)

Primary Transportation Service Offerings

Activity clusters Services

Freight Movement •For hire carriage•Contract carriage•Contract carriage•Expedited service•Time definite service•Intermodal transport service

Freight Management •Carrier selection, routing and scheduling•Carrier contract compliance•Freight bill auditing and payment•Transporation management systems (TMS)

Intermediary services •Surface forwarding•Air forwarding•Freight brokerage•Shippers associations• Intermodal marketing• Intermodal marketing

Specialty services •Dedicated contract carriage•Drayage•Pool distributionM i t it•Merge in transit

•Household goods movement


Source: Coyle et al., 2010 (p. 403)

Industry-specific capabilities of 3PL providers

•Service providers often emphasise specific industries/market niches...

-Automotive: GEFCO, Geodis-Food/Beverages: Wincanton, DHL-Exel-Chilled/Fresh: Bring (formerly FringoScandia) ACR LogisticsChilled/Fresh: Bring (formerly FringoScandia), ACR Logistics-Fashion logistics: Logwin, Hellman Logistics

•’Spin-offs’ of large manufacturers/retailers with sophisticated logistics and distribution systems



3PL growth strategies – cost reduction and differentiation...

1. Organic growth- Trend towards expanded and integrated services following market deregulation- Value added services to combat declining margins for basic services

2. Mergers and acquisitionsg q- Continuing industry consolidation trend - Scope economies, expanded geographical coverage, special expertise and high asset

investment as key reasons

3. Strategic alliances/joint ventures- Access to complementary resources/capabilities to serve markets- Vertical (3PL-shipper) and horizontal (among 3PLs) alliances

4. ’Piggybacking’ggy g- Following large customers in foreign markets (e.g. China, Latin America)



Porter’s Competitive Strategies Model

Broad target 1. Cost leadership 2. Differentiation

Competitive Scope

Narrow target Cost focus Differentiation focus

3. FOCUS STRATEGY

Narrow target Cost focus Differentiation focus

DifferentiationLow cost

Competitive


Competitive advantage

Beehive

• How would you market the following logistics services based on Porter’s competitive strategies model? p g

• Discuss in pairs



Beehive...

Cost leadership Differentiation G d t t ti

Broad target

Cost leadership Differentiation Goods transportationBulk goods transport (rail)Carrier selectionProduct repairsFashion goods warehousing

Competitive

g gChilled food transportLaptop repairsCall centre serviceShipment consolidationProduct installationScope Cost focus Differentiation focusProduct installationRelabelling/repackagingSupply chain consulting

Narrow target


Competitive



Agenda





3PL service marketing trends

•Shifting provider emphasis towards high value-add service offerings (but lowg p p g guptake thus far!)

•Information technology solutions and supply chain consulting bundled intoInformation technology solutions and supply chain consulting bundled intothe 3PL service package

•Multiple roles for logistics providers in supply chains (e g integrators)•Multiple roles for logistics providers in supply chains (e.g. integrators)

But much confusion remains in the market…not everyone can doeverything!!!



Key Dimensions for 3PL marketing modelsKey Dimensions for 3PL marketing models

• Extent of service customisation & asset specificityp y- Dedicated vs. shared-user (standard network) solutions

• Asset intensity- Asset vs. non-asset based providers

• Service complexity - Basic transport vs. complex/high value-add services

• Shipper performance focusd i i ff i- Cost reduction vs. service effectiveness



A 3PL marketing framework

Service developerHigh Customer developer

Integrators e.g. Fedex, TNT

Customised solutions for each client (consultancy role)

Customer adaptorStandard 3PL providerGeneral problem-solving ability ppsolving ability

St d d T t 3PL firm as partStandard Transport Operator

3PL firm as part of customer organisation

LowHighLow

Customer adaptation


Source: Hertz and Alfredsson, 2003

Beehive...

HighBasic logistics providerg pAdvanced networkLogistics integratorSpecialised provider? ?

Service l it

Multi-client warehousing

Dedicated car distribution

Service complexity complexity

Newspaper distribution hub

? ? Special-purpose supply chain information system

? ?

LowHighLow

Asset specificity


Asset specificity Asset specificity

Beehive

• How would you position the following logistics provider types and services based on ”service complexity” and ”asset specificity”? p y p y

• Discuss in pairs



The 3PL provider sales process

Enquiry Data analysis

Solution design

Costing Service proposal

Contracting Implement Account mgmt

• Sales departments often organized based on targeted client industries• Sales departments often organized based on targeted client industries

• Cross-functional teams working on RFP projects

• Responsibility transfer from Sales to Operations Department after contracting

•Key account management structure for large customers (dedicated solutions)


Source: Selviaridis, 2008

3PL sales process 1/3

Projectplan

Dataanalysis

SolutiondesignEnquiry

Deliverables Deadlines Involvement

Understand data provided by customer

Where can we add value

Benchmark

Lead Prospecting RFI / RFQ

internal organisation

Send any draft

Agree terms of reference

Manage customer

Operational sign-off

Compare with

Evaluation BD Database Review

contract to Commercial Manager & Legal

expectations Quality and profile

of data may

other solutions Awareness of

spare resources

creditworthiness Address any

specifics raised in Counsel influence charging

mechanismRFI

Confidentiality Agreements



PrepareProposal NegotiationCost

projectCommercial

Checks Prepare “selling”

document Case studies

Letter of Indemnity / Heads of Agreement

Resource modelling

Standard cost

Identify Show stoppers

Suggest Not legally

binding Assumptions

Contract preparation and legal drafting

model incl. cost elements

Commercial

Suggestcharging mechanisms

Review solution Legal

terminology Formal Sign-off

Negotiation of the Contract -supported by BD,

review using standard cost model

Operations and Legal



P tCli t Postproject

ClientdebriefImplementContract

Account Mgmt Continuous

improvement

Continuous improvement

Competitive

Plan and budget Lead by Operations Phased out

Capex approval Review Risk

Assessment Service Level

Agreement Profitability assessment

situation Generation of

new leads

involvement of BD Most critical part of

the business

Questionnaire Arrange signing

of contract Internal and external

communication Variations to the

Also done when business is lost

Review financial performance

Contract Rate reviews


Thank you for your attention!!Thank you for your attention!!

l i idiKostas Selviaridis

Email: [email protected]: 046-2224878

Fax: 046-2224615

Office Hours: Thursdays, 13-15. My office is located at the M Building, 4th Floor, Room 4114.


Marketing 3PL services based on Porter’s competitive strategies

Cost leadership Differentiation

Broad target

Cost leadership Differentiation

Goods transportationRelabelling/repackaging

Product repairsCall centre serviceP d t i t ll ti

Competitive

Carrier selection Product installationSupply chain consulting

Scope Cost focus Differentiation focus

Bulk goods transport (rail) Laptop repairs

Narrow targetu goods t a spo t ( a )

Chemicals consolidationChilled food transport

p p pAutomotive parts assemblyGarments finishing


Competitive



3PL Strategic Positioning Framework

Advanced networkHigh Logistics integrator

Special-purpose supply chain information

Newspaper distribution hub

Specialised providerBasic logistics providerService complexity

system

Multi-client h i

Dedicated car distributionwarehousing distribution

LowHighLow

Asset specificity


Source: Based on Persson and Virum, 2001

Documents

Lecture 7 Logistics service providers Upload