THIRD-PARTY LOGISTICS

HAKAN GULTEKIN

OUTLINE

• Introduction and definitions

• Literature review

• Future research

INTRODUCTION

Outsourcing: Contracting of the management functions and operational control of the logistics functions to unrelated third-party companies

• Began in 1990s

• Grown at an 25% annual rate since

INTRODUCTION

Reasons of Outsourcing:

• Turning non-core functions over to external suppliers in order to:

- Leverage resources

- Spread risks

- Concentrate on issues critical to survival and future growth

INTRODUCTION

Reasons for Outsourcing:

• Overcoming lack of internal capabilities

• Reducing inventory

• Improving service

• Improving operations

INTRODUCTION

Third Party Logistics (TPL) Providers:

• External providers who manages, controls, delivers logistics activities in behalf of a shipper

• The activities performed can include all or a part of the logistics activities but at least management and execution of transport and warehousing should be included

• Non-core functions are outsourced

• Core versus non-core differs by company and industry

• Non-core can be important and critical but does not define the company

INTRODUCTION

Functions usually outsourced:

• Inbound and outbound transportation

• Warehousing

• Distribution

• Information systems

• Reverse logistics

• E-commerce

INTRODUCTION

INTRODUCTION

Functions usually not outsourced:

• Supplier management

• Demand management

• Inventory ownership

• Strategic planning

• Cost control

• Lack of quantitative analysis

• Most conceptual and empirical

• Murphy and Poist give an extensive survey on the growth of TPL market

• Sheffi: reasons for the growth of TPL in USA: Core business, better transportation, cost saving, improved service, need for more professional logistics services

LITERATURE REVIEW

• Wang and Regan considered risks of using TPL providers

- Possibility of inefficient management

- Loss of logistics innovative capacity

- Hidden costs

- Dependence on TPL provider

- Conflicts of culture

LITERATURE REVIEW

• Leahy et al. Examined the determinants of successful TPL relationships from the provider perspective

• Roberts considered the choosing process for logistics provider: Cost, quality of the people and level of service provided

LITERATURE REVIEW

• Reverse logistics can be extremely complex

• Many companies with limited resources outsource reverse logistics

• NetReturn: An Internet system that FedEx has developed for reverse logistics management

LITERATURE REVIEW

• Companies using TPL for reverse logistics could reduce up to 10% of annual logistics costs. (Krumweide)

• K-Mart uses TPLs like GENCO Distribution System.

• Krumweide provides a decision making model for possible implementation of reverse logistics by TPLs.

LITERATURE REVIEW

• Spicer and Johnson considered TPLs as an approach for Extended Producer Responsibility (EPR).

• EPR: A policy to promote total life cycle environmental improvements of product systems by extending the responsibilities of the manufacturer especially to take-back, recycling and final disposal of the product.

LITERATURE REVIEW

• For many product categories TPL take-back is shown to be the most effective way to meet the goals of EPR programs.

• Third party warehousing has an increasing trend.

• Operational efficiency of TPW has important implications for the success.

LITERATURE REVIEW

• Chen et al. considered TPW as a space provider.

• Demand for space is a random variable

• Multi-period contracts - initial commitment on space

• Adjustment during the contract period according to realization of the demand

• Simple form solutions are found

LITERATURE REVIEW

• Goh et al. also considered warehouse sizing issues

• TPW usually lease in discrete chunks of gross floor area

• Piecewise linear total warehousing costs

• Closed from solutions for optimal warehouse size that minimize the total cost of ordering, holding and warehousing

LITERATURE REVIEW

• Cetinkaya and Lee considered a supplier and a TPW

• TPW holds inventory and responsible for outbound transportation cost

• For economies of scale TPW consolidates many small shipments into one large shipment.

• During this time customers wait

LITERATURE REVIEW

• Parameters that determine

- how often to dispatch a truck

- how often and in what quantities the

stock should be replenished at the

TPW

are tried to be found

• Closed form expressions are obtained.

LITERATURE REVIEW

• Need for quantitative analysis

• Quantifying benefits of using TPL providers

• Evaluating different TPL providers and selecting the best one to work with:

- Different lead times

- Different service level guarantees

- Different operating characteristics

FUTURE RESEARCH

Specific Problem to be Analysed:

• Supplier, retailer and TPW

• Third party is responsible for warehousing and outbound transportation

• For economies of scale TPW consolidates many small shipments into one large shipment

• Retailers use periodic review order policy

FUTURE RESEARCH

• Customers may wait for some time with penalty wr to the retailers

• For such cases retailers charge wt penalty to the TPW

FUTURE RESEARCH

FUTURE RESEARCH

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QUESTIONS?