SCM
SCM
Financial Improvements
Percent
Financial Indicator Improvement
Improvement in Sales Revenue 13.5%
Working Capital Improvement 12.3%
Capital Asset Reduction 9.2%
Production Cost Reduction 10.5%
Labor Cost Reduction 10.0%
ROA Improvement 10.0%
Logistics Cost Reduction 15.0%
SCM
Some Facts:
SCM
Logistics Cost
Country GDP Logistics
(billions) as %
of GDP
Asian region
China 345 14.5
Japan 3363 10.5
Korea 283 12.4
Singapore 40 20.0
Taiwan 148 13.5
European region
France 1200 11.7
Germany 1566 11.8
Italy 1151 12.6
Netherlands 286 12.2
Spain 527 12.1
UK 1015 12.2
Sweden 237 12.7
North American region
Canada 593 11.8
SCM Mexico 208 14.4
US 5673 8.70
International Comparison of Customer Orientation
Parameters Product Product O n - T i m e A fter-Sales M a n a g i n g
Quality Design Delivery Service D istribution
• Return on Investment
SCM
Supply Chain Model
Company
Design Market
Mgmt Control
SCM
Logistics Management
“Logistics Management is the process of
planning, implementing and controlling
the efficient cost-effective flow and storage of
raw materials, in-process inventory, finished
goods, and related information
from point-of-origin to point-of-consumption
for the purpose of
conforming to customer requirement”.
SCM
Third Party Logistics
SCM
Research Objectives
• To know the scenario of 3PL Practices in Indian
Industry
• To identify Critical Factors for evaluation,
selection and relationship management with 3PL
providers
• To provide a benchmark for Indian firms looking
to optimise their logistics operations
• To project the future trends of 3PL services in
India
SCM
Research Methodology
Consultation Available World-wide Surveys Indian Economic Scenario
Pilot Survey
Academic Study Identification
– Companies
India’s Administration Data Analysis
competitiveness, of Questionnaire
Global Supply Questionnaire Modification
Chain/logistics/
3PL scenario
Administration of Questionnaire (by Post & Personal Visits)
Public Sector
3%
Private
34%
Public Limited
63%
SCM
Participation by Turnover
500 to 1000 cr
11%
50 to 100 cr
13%
100 to 500 cr
36%
SCM
Participation by Industry
Automotive 27.5
Engineering 22.9
Others 21
Metals 4.6
FMCG 4.6
Services 3.7
Telecommunications 2.8
Transportation 1.8
SCM 0 5 10 15 20 25 30
Percentage of Respondents
Themes
• 3PL as a Strategic Tool for Corporate Growth
• 3PL: A Critical Link to Supply Chain
• Logistics Activities Outsourced
• Logistics Cost
• Selection of 3PL provider
• Implementation Issues
• Evaluation of 3PL Providers
• Performance Measurement
• e-Logistics
• Future Trends in 3PL
SCM
Theme 1: 3PL for Corporate Growth
• Corporate Focus
– Higher Profitability
– Increased Sales and Market Share
– Enhanced Customer Service
– Reduced Costs
SCM
Theme 1: 3PL for Corporate Growth
Reasons for Outsourcing
Logistics cost reduction 80.6
SCM 0 20 40 60 80 100
Percentage of Respondents
Theme 1: 3PL for Corporate Growth
Improvement in Business Objectives by using 3PL
SCM 0 20 40 60 80 100
Percentage of Respondents
Theme 2: 3PL A Critical Link to SC
Improvement of the Functions in Selection of 3PL
Sales 64.3
Purchasing 60.9
Finance 50.6
Marketing 50.6
Manufacturing 44.0
0 20 40 60 80 100
SCM Percentage of Respondents
Theme 2: 3PL A Critical Link to SC
Unimportant
Minimally 2%
important
5% Very important
19%
Indifferent
26%
Important
48%
SCM
Theme 2: 3PL A Critical Link to SC
Role of 3PL Services Providers as in Supply Chain Integration
Expected
66%
SCM
Theme 3: Logistics Activities Outsourced
Reduce
Costs
Increase
Globalize
Market
Business
Coverage
Operations
Why to
Outsourcing
Logistics?
0 10 20 30 40 50 60
SCM
Percentage of Respondents
Theme 3: Logistics Activities Outsourced
Major Reasons for not using 3PL Services
Inability to respond to changing needs 84.6
• Transportation costs
• Inventory Carrying Costs
• Order-Processing
• Losses
• Packaging
• Handling & Warehousing Costs
• Customers’ Shopping
SCM
Theme 4: Logistics Cost
Major Components while measuring the Logistics Cost
Packaging 25.2
SCM
0 10 20 30 40 50 60 70 80
Percentage of Respondents
Theme 4: Logistics Cost
Logistics Cost as Percentage of Gross Sales
>50%
20-50%
3%
2%
10-20%
17%
0-5%
39%
5-10%
39%
SCM
Theme 4: Logistics Cost
Percentage of Logistics Outsourced to 3PL providers
>80%
60-80% 7%
8%
40-60%
14%
20-40% 0-20%
7% 64%
Theme 5: Factors for 3PL Selection
• Core Competencies of 3PL Provider
• Cost of 3PL Services
• Information Handling Capability / Compatibility
• Breadth of Services Provided
• Past Experience of your Industry
• Technological Competencies of the Provider
• System Flexibility & Capacity
• Safety & Insurance Cover / Programs
• Geographical Location & Spread
• Company Reputation
• Responsiveness & Service Quality
SCM • Management Structure & Quality of Workforce
Theme 5: Factors for 3PL Selection
Cost of 3PL services 63.1
Reliability 62.2
0 20 40 60 80 100
SCM
Percentage of Respondents
Theme 5: Factors for 3PL Selection
3PL Contract / Agreement
0 10 20 30 40 50 60 70
Percentage of Respondents
Theme 6: Implementation Issues
Critical Success Factors in Implementing 3PL Services
SCM
Theme 6: Implementation Issues
Critical Success Factors in Implementing 3PL Services
0 10 20 30 40 50 60 70 80
Percentage of Respondents
Theme 6: Implementation Issues
Major Challenges in Implementing 3PL Services
Communication 34.8
IT integration 32.9
0 10 20 30 40 50 60
Percentage of Respondents
Theme 6: Implementation Issues
Users & Providers Perception
Controlling costs
5
Customer Service
Information Sharing
4
Monitoring Performance
40.6
Top management 62.9
Middle 38.0
management 35.6
35.6
Lower management
18.3
28.8
Divisional level 39.3
41.0
Corporate level 47.9
40.3
CEOs 49.2
0 10 20 30 40 50 60 70
At partnership As of now
Percentage of Respondents
Theme 7: Management & Partnerships
Perception of Top Management Performance of 3PL Providers
Ineffective
Indifferent
1% Very effective
13%
17%
Effective
69%
Theme 7: Management & Partnerships
How Companies perceive 3PL Services
Collaborative
14%
Non contractual
9%
Contractual
77%
Theme 7: Management & Partnerships
Perception of Relationship with 3PL Providers
6.8
Willing to make long term relations 93.2
0 20 40 60 80 100
Agree Disagree
Percentage of Respondents
Theme 7: Management & Partnerships
User & Provider perceptions of their relationships
SCM
Theme 8: 3PL Performance Evaluation
Performance Measures commonly used
• On time shipment
• Inventory accuracy
• Customer complaints
• Shipping errors
• Backorders
• Warehouse cycle time
• Total order cycle time
• Stock outs
• Fill rates
SCM
Theme 8: 3PL Performance Evaluation
55.0
Non-contractual
45.0
55.0
Contractual
45.0
15.4
Collaborative
84.6
0 10 20 30 40 50 60 70 80 90
Percentage of Respondents
Theme 8: 3PL Performance Evaluation
User Perceptions of Performance measures
Customers' complaints
On time shipment
Shipping errors
Inventory accuracy
Total order cycle time
Stock outs
Backorders
Fill rates
Warehouse cycle time
Volume of Rs. Shipped
0 20 40 60 80 100
SCM Percentage of respondents
Theme 8: 3PL Performance Evaluation
User - Provider Perceptions for Performance Measures
On time shipment
5
3.5
3
Fill rates Inventory accuracy
2.5
SCM
User Perception Provider Perception
Theme 8: 3PL Performance Evaluation
SCM
Theme 9: Performance Measurement
Impact of use of 3PL on Firms
Very positive
14%
Average
29%
Positive
54%
Theme 9: Performance Measurement
Use Perception of Performance Measures
Backorders 52.4
0 20 40 60 80 100
Percentage of Respondents
Theme 10: E-Logistics
Improvement of IT Integration when evaluating and selecting
Not important
Very important 11%
21%
Less important
13%
Moderately
important Important
29% 26%
Theme 10: E-Logistics
IT based services important for 3PL contract implementation
0 10 20 30 40 50 60 70
Percentage of Respondents
Theme 10: E-Logistics
Companies with e-commerce system in place or plan to have it
No
52%
Theme 10: Future Trends in 3PL
Activities planned to be outsourced
Distribution 54.3
0 10 20 30 40 50 60 70
Percentage of Respondents
Financial Improvements
Percent
Financial Indicator Improvement
Improvement in Sales Revenue 13.5%
Working Capital Improvement 12.3%
Capital Asset Reduction 9.2%
Production Cost Reduction 10.5%
Labor Cost Reduction 10.0%
ROA Improvement 10.0%
Logistics Cost Reduction 15.0%
SCM
Comparative Analysis
Parameter USA India
Reasons for not outsourcing Control would diminish (63%) Poor infrastructure of provider (81%)
Service commitment would not be met (48%) Unreliable promised from providers (80%)
SCM
Conclusions & Recommendations
• 55% companies use 3PL services in India one
form or the other compared to 75% globally
• 3PL is the future, should be seen as a support to
corporate growth
• Close to 60 % of 55% uses transportation and
custom clearing & forwarding
• Of the rest 45%, 75% do not use 3PL services
because they are not sure of provider’s
capability
SCM
Conclusions & Recommendations
• Selection of proper 3PL provider is a must
where top management should be involved at
contract stage to avoid conflicts later on.
• Contracts are used more to avoid risks rather
than to develop relationship
• 3PL providers feel that
– Users are unwilling to share information
– Do not show commitment towards the relationship
– Do not want to share rewards
SCM – Do not show interest in continuing the relationship
Conclusions & Recommendations
• View 3PL as an equal partner
• Collaborative relation is a foundation for
success for 3PL services
• Gain sharing between Users and providers
• Use of IT in 3PL services is very low both by
user and provider
• Lower involvement of junior management staff
during implementation process (only 18%
showing high involvement)
SCM
Conclusions & Recommendations
• Company should focus on outsourcing 3PL
services like inventory management, order
processing, labeling & packaging and reverse
logistics
SCM
Drawbacks of 3PL
• Still requires top management's time to manage
relationships & resources
• Unable to cover full range of SC requirements e.g.
logistics information, tech development...
• Lack of shared goals...
SCM
Fourth Party Logistics : 4PL
SCM
Logistics Sourcing Spectrum
100% insourced
All logistics functions
Client
conducted in-house
Logistics operations
Part of SC outsourced to
3PL an external provider
Client
3PL
Client
4PL: long term
4PL 3PL contract, equity or
JV
3PL
SCM 100% outsourced
4PL : differs from 3PL...
• The 4PL organization is often separate entity
established as a joint venture or long term contract
between a primarily client and one or more partners.
• It acts as single interface between the client and
multiple logistics service providers.
• All aspects of the client’s supply chain are managed by
the 4PL organisation.
• It is also possible for a major 3PL provider to form a
4PL organisation within existing structure.
SCM
4PL Set-up
Primary Client 3PL Providers Partners
Contribution: Contribution: Contribution:
Primary 4PL
Client(s) Organisation Partner(s)
SCM
4PL : Key Characteristics
• Hybrid organisation formed from a number of different
entities
• Typically established as a JV or long term contract
• Responsible for management and operation of entire
supply chain
• Continuous flow of information between partners and
4PL organisation
• Potential for revenue generation
SCM
4PL : Primary Client Model
Client limited in numbers
Client
Primary Client
Client
4PL
Organisation
Service Service
provider Service provider
provider
SCM
External service provider
4PL : Industry Solution Model
Product manufacturers Service provider
Company 1
Distribution
service manager
Client
4PL
Company 2 Organisation
3PL
Provider
Company 3
Service
providers
Manufacturers
Public Sector
3%
SCM