3PL in Supply Chain Management
Supply chain is one of the key trade enabler and is of a connected network of operations/partners. The 3rd party logistics (3PL) partners play a key role in gaining the supply chain efficiency and in optimizing it. More & more organizations are using 3PLs through outsourced supply chain services. Hence having some of the basic knowledge about 3PL operations and factors influencing in Supply Chain Management are critical. This short article is trying to address the supply chain & 3PL service areas briefly, which will help to articulate the current trends and environments.
Content
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3PL in Supply Chain Management
Jaishankar K S ([email protected])
Supply Chain Systems Consultant, Solutions Delivery, DHL Customer Solutions & Innovation, Singapore Abstract - Supply chain is one of the key trade enabler and is of a connected network of operations/partners. The 3rd party logistics (3PL) partners play a key role in gaining the supply chain efficiency and in optimizing it. More & more organizations are using 3PLs through outsourced supply chain services. Hence having some of the basic knowledge about 3PL operations and factors influencing in Supply Chain Management are critical. This short article is trying to address the supply chain & 3PL service areas briefly, which will help to articulate the current trends and environments. Index Terms – Supply Chain Models, Supply Chain Management, SCM, 3PL Services I. INTRODUCTION
Historically, the Supply Chain Management was dependent on the individual business entity and was “Point-To-Point”. There was a frequent changing hand in the supply chain that means it was not an EndTo-End connected network, in other words very much disconnected network. This was essentially an “entity centric” model, which involved higher inventory and the operations are characterized as capital intensive with long cash-to-cash cycles [1]. The development of applied computing technology and introduction of computers in business was a paradigm shift. This enhanced & introduced end-to-end view of overall operations of an organization. With this development, the globalization and initiatives of productivity gain within the global organizations, increased outsourcing of their supply chain activities. The last two decades saw increased contract logistics or buying services from 3rd Party Logistics (3PL) service providers. The globalization, growth oriented economic development and its market opening further increased the necessity of end-toend view of the operations and a special management practice i.e., Supply Chain Management (SCM) evolved. The initial involvement of 3PL was on Freight Forwarding and Customs Brokerage. Some of the large organizations dealt this with directly asset owned carriers (e.g., Ocean/Sea Carriers with Vessels) and local agents for customs clearance. Others used Freight Forwarders i.e., organizations used Non-Vessel Operator (NVO) or Non-Vessel Operating Common Carrier (NVOCC). The NVO / NVOCC facilitated the transportation coordinating with the transporting organization and the Ocean-Carrier / Ocean-Liners. Similarly for the Air-Freight, Air-Liners, Freight Forwarders & Customs Brokers were involved and this involved usually Port-To-Port transportation and Export & Import Customs Clearance. In pre-globalization, limitations in market access, the activities like warehousing and domestic distribution to the wholesale and/or retail chain are basically managed by the importers in the importing
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country. However, the globalization and opening of economy attracted the global organization to have local offices to gain market share and establish themselves in the growing economy/market. All the above global economic changes created the need for distribution centers (warehouses) and domestic transportation services. The importance of tightly connected network with extended/outsourced SCM models increased. The competition, graining quick access to the market and for efficient supply chain, organizations looked at 3PL services through contract logistics. The contract logistics extended the scope of 3PL activities, from international (port-to-port) transportation, customs brokerage to warehousing, domestic transportation and various other value-added logistics operations. II. SUPPLY CHAIN MANAGEMENT The logistics and supply chain professionals increasingly use “Supply Chain” to refer to “the process and/or effort in producing and delivering the finished product to a given market or customer segment” [2]. It is essentially a “connected network” that involved various parties (e.g., supplier, transporters, logistic service providers, manufacturers, distributors, retailers, customers, government agencies, commercial agencies, financial institutions etc., Supply chain management evolved focusing on gaining efficiency and synergies within the internal functional management [3]. Various models aim to have better utilization and coordination of the internal corporate functions. The globalization/global economy and customer expectations (on product’s quality, usability/function, cost and services) are 2 key drivers for the increased demand for efficient supply chain models [4]. The value of supply chain greatly correlated with “Supply Chain Profitability” [5]. SCM deals with the management of supply chain network to maximize the total supply chain profitability. Inventory Control Systems (ICS), Bill of Materials (BOM) and Material Requirement Planning (MRP), MRP II, Enterprise Resource Planning (ERP), Electronic Data Interchange (EDI and standards like ANSI X.12, EDIFACT, RosettaNet etc.,) and other computing/business solutions have been helping organizations to better manage the supply chain. Below diagram (Figure-1) shows some of the developments in this area [1];
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IT
Information Technology Development
• Communication Technology • PBX & Virtual PBX • eFAX, Email • VoIP, IVR • Use of Computing Technology • Internet • EDI: RosettaNet • Oracle Fusion, GXS, axway, IBM WebSphere & DataStage TX, webMethods, SAP NetWeaver. TIBCO • I2 Technologies, Manugistics, ILOG etc., • Seibel, Ariba etc., • IBM Cognos, SAP BusinessObjects, etc., • TransPro, Class, Optiant, Demantra • RFID, GPS, Pick to Light/Voice etc., • IT Applications • ERP, SCM, CRM, WMS, TMS, BI Applications
• Widely used Fax Technology • Use of Computing Technology • EDI: ANSI X.12, EDIFACT etc., • SAP R/3, BAAN, JD Edwards, Oracle, Peoplesoft, • Barcoding • FMS / TMS & WMS
• International Trade Governance and/or Pacts / Agreements and Trade Associations • Supply Chain Management: • MRP II, CIM, ISD • TQM, ERP • Freight & Inventory Management
• Globalization: Increased Free Trade Agreements & Trade Associations • Increased Outsourcing • Supply Chain Management: • Outsourced SCM & Business Analytics • JIT & VMI, MIT, Cross-Dock, Kitting • Direct Factory Shipments • Faster Networks (Time-To-Market) • eCommerce & eProcurements • Models: I2M, FG, SPL, CLS/Service Logistics, Recalls / Emergency • Trade Compliance • Optimization & Integration • Data Analytics and BPM & BAM Analytics
Business Processes
Time 1971 To 1990
1991 To 2010
Figure-1: Information Technology in Supply Chain (1971-2010)
The ERP deployment alone was not able to fulfill the complex supply chain management in the interconnected network. Specialized solutions evolved and were applied in Operations/Execution, Tactical and Strategic management levels. Below diagram (Figure-2) [1] shows the strategic fit of Supply Chain Systems.
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Strategic Strategic Fit
NO
IO
WD
TO
SCM Value Analysis
Tactical
Collaborative Planning, Forecast & Replenishment (CPFR) / Demand Chain Management (DCM)
Supply Chain Visibility System Integration
OMS TMS FMS XDS WMS
Supply Chain Management (SCM)
Operations / Execution SRM PCM PLM HRM CFM CPM CRM
Enterprise Resource Planning (ERP)
Upstream Supply Chain
•
•
Downstream Supply Chain
•
SRM – Supplier Relationship Management, PCM – Procurement Contract Management, PLM – Product Life Cycle Management, HRM – Human Resource Management, CFM – Corporate Financial Management, CPM – Corporate Performance Management, CRM – Customer Relationship Management OMS – Order Management System, TMS – Transport Management System, FMS – Freight Management System, XDS – Cross-Dock System, WMS – Warehouse Management System SCM is supported by the critical supply chain optimization tools • NO – Network Optimization, IO – Inventory Optimization, WD – Warehouse Design, TO – Transport Optimization
Figure-2: SCMs Role in achieving strategic-fit
It is ultimately the efficient operational process that can optimize and make use of the available Supply Chain Systems at best. The Supply Chain Council’s Supply Chain Operations Reference (SCOR) is of the model that can be utilized to define and establish best supply chain operations process. The SCOR model depicts the connected network in a simplified way as below (Figure-3) [6] and provides a framework in establishing better supply chain operations, thus maximizing the profitability.
Figure-3: SCOR Model – Scope & Structure
The highlighted block (i.e., referring to “Your Company”) in the above diagram (Figure-3) is the organization wanting to optimize the supply chain operations and avail the Supply Chain & Logistics Services from 3PLs. A good planning and management of operational process within the supply chain is highly important, hence real-time collaboration is essential between internal organization, suppliers and customers. The table below shows Gartner’s research on Top 25 Supply Chain [7] organizations able to achieve efficiencies through collaborated and responsive connected network.
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Peer Rank Company Opinion1
Gartner Opinion1
Three-Year Weighted ROA2 -25%
Inventory Turns3
Three-Year Weighted Revenue
Composite
1 Apple 17.90% 49.3 40.90% 8.5 2 Dell 6.60% 38.9 4.10% 5.14 3 P&G 9.60% 5.6 2.40% 5.13 4 Research In Motion (RIM) 25.10% 17.7 43.90% 5.1 5 Amazon 6.60% 11.2 34.00% 5.07 6 Cisco Systems 10.20% 11.8 5.50% 4.82 7 Wal-Mart Stores 9.00% 8.5 3.60% 4.4 8 McDonald's 15.30% 141.8 2.60% 4.35 9 PepsiCo 12.00% 7.8 18.80% 4.11 10 Samsung 9.80% 16.9 22.50% 3.98 11 The Coca-Cola Company 15.30% 5.3 7.90% 3.96 12 Microsoft 21.40% 16.6 6.10% 3.72 13 Colgate-Palmolive 20.00% 5.1 3.00% 3.62 14 IBM 12.50% 21.1 0.80% 3.6 15 Unilever 11.50% 5.3 5.20% 3.53 16 Intel 13.60% 4.5 9.70% 3.37 17 HP 7.00% 14.3 6.70% 3.28 18 Nestle 22.60% 5.5 0.80% 3.05 19 Inditex 16.90% 4.4 10.50% 3.05 20 Nike 13.00% 4.7 3.30% 2.72 21 Johnson & Johnson 13.40% 3.6 -0.30% 2.38 22 Starbucks 10.60% 8.6 5.10% 2.35 23 Tesco 5.30% 18.3 8.00% 2.34 24 3M 13.20% 4.6 5.80% 2.25 25 Kraft Foods 4.40% 5.9 15.60% 2.03 Notes: 1. Gartner Opinion and Peer Opinion:Based on each panel's forced-rank ordering against the definition of "DDVN Orchestrator" 2. Return on Assets (ROA): ((2010 net income / 2010 total assets) * 50%) + ((2009 net income / 2009 total assets) * 30%) + ((2008 net income / 2008 total assets) * 20%) 3. Inventory Turns: 2010 cost of goods sold / 2010 quarterly average inventory 4. Revenue Growth: ((change in revenue 2010-2009) * 50%) + ((change in revenue 2009-2008) * 30%) + ((change in revenue 2008-2007) * 20%) 5. Composite Score: (peer opinion * 25%) + (Gartner opinion*25%) + (ROA*25%) + (inventory turns * 15%) + (revenue growth * 10%) 2010 data was used where available. Where 2010 data was unavailable, latest available full-year data was used. All raw data was normalized to a 10-point scale prior to composite calculation. Source: Gartner (June 2011) - http://www.gartner.com/DisplayDocument?doc_cd=213740
(156 Voters) (32 Voters) -25% -25% 2,950 536 1,909 457 1,726 660 550 215 2,267 402 1,501 550 1,755 449 711 161 740 445 857 361 1,305 265 566 128 560 239 994 238 449 459 871 247 949 331 389 62 376 180 781 144 548 121 544 127 524 190 760 7 471 192
Score 5 Growth4 -15% -10%
Table-1: The Gartner Supply Chain Top 25 for 2011
Following factors greatly influence the supply chain design and optimization strategy; Achieving Strategic Fit – when organization’s competitive and supply chain goals are same, strategic fit arises. Product Segmentation and Pricing Products Supply Chain Structure for the efficient and responsive supply chain – Facilities, Inventory, Transportation and Information
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Supply Chain Strategies – Distribution Network, Direct Ship, Postponement (e.g., downstream assembly/merge and/or cross-docking), Customer pickup distance, Managing Inventories (avoiding “Bullwhip” effect) and Service Commitments Obstacles – Short Product Life Cycle, Demanding Customers, Supply Chain Ownership, Globalization and Country’s Regulatory and Trade environment
Based on the characteristics and operational differences, there are 3 major & specialized supply chains exists as shown below;
Inbound-ToManufacturing (I2M)
Figure-4: Supply Chain Models
Finished Goods Distribution (FGD)
After Market Services (AMS)
There are many organizations use combination of the above supply chain models to optimize and increase efficiency to have variety supply chain models. This increased the complexity in supporting the supply chain operations through a common standardized information technology tools. III. 3PL SERVICES Today 3PL service providers are playing bigger role in enhancing and improving the supply chain efficiencies for the given organization. Looking at the SCOR Model and its five distinct Process Areas (i.e., Plan, Source, Make, Deliver and Return), the major involvement of 3PLs in supply chain can be visualized. Generally, in-sourced and out-sourced activities on the supply chain can be visualized from the diagram below (Figure-5)
Suppliers
Supply Chain
Flows: Product, Process, Information, Cash & Capital
Customer Channels
Stores Distribution Centers
Manufacturers
Plan
Source
Make
Deliver
Repair/ Return
Highly In-Sourced Activities
Highly Competitive Outsourced Activities
LLP / 4PL / Control Tower
•
Unique and aligned to the specific organization Few 3PLs offering this services and Limited Supply Chain Systems Solution Extensive use of ERP/MRP Solutions
I2M • Inbound To Manuf acturing (I2M) Supply Chain Transportation Warehousing Value Added Services VMI
FGD
AMS
•
•
• • •
•
• • •
•
•
• •
•
Finished Goods Distribution (FGD) Supply Chain Transportation Warehousing Distribution Channel (B2B) Direct Delivery Model (B2C) Merge-In-Transit Customer Assigned Inventory Project Based Logistics
•
• • •
•
• •
Af ter Market Services (AMS) Supply Chain Transportation Warehousing Multi-Leg & MultiType Order Management Sophisticated Stocking Approach Stringent SLA VMI
Figure-5: SCOR Model based In-Sourced and Out-Sourced Activities
The 3PL Study [8] provides exhaustive list shown below (Table-2) of services which can be availed from Global/Local 3PL Service providers.
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Table-1: Wide Variety of Logistics Services from 3PLs
Below diagram (Figure-6) shows the 3PL (Forwarders) share on the Ocean Freight Transportation as one of the services listed on the Table-1 above.
331,000.00 385,000.00 315,000.00 300,000.00
259,000.00
400,000.00
430,000.00 408,000.00 440,000.00 465,000.00
2,900,000.00
476,000.00 500,000.00 500,000.00 500,000.00 550,000.00
1,600,000.00 576,000.00 610,000.00
2,800,000.00
672,000.00
700,000.00
1,500,000.00
705,000.00 710,000.00
710,000.00 880,000.00
1,200,000.00
Top 25 Ocean Freight Forwarders for 2011 (Ocean Freight - Volume in TEUs)
Source: http://www.allbusiness.com/transportation/transportation-support-services/16731089-1.html, By Daniel P. Bearth TEU - Twenty Foot Equivalent Unit
Kuehne + Nagel International DHL Global Forwarding DB Schenker Pantos Logistics Co. Panalpina World Transport Expeditors International of Washington DSV Air & Sea Sankyu Inc. Bollore Group/SDV Logistics UPS Supply Chain Solutions Ceva Logistics Damco International Kerry Logistics Agility Logistics APL Logistics China Resources Logistics Group Mallory Alexander International Logistics UTi Worldwide Kintetsu World Express Yusen Logistics Logwin AG Hellmann Worldwide Logistics China Container Line Limited Geodis Group Nippon Express Co. OOCL Logistics Limited Dascher GmbH & Co. CH. Robinson Worldwide
Figure-6: Ocean-Freight Shipment (in TEUs) for 2011
The wide variety of logistics services from 3PLs and increased outsourcing also increased expectation of information flow and/or management within the connected network. A good nearreal-time information flow / exchange improve the communication for better operational planning. The 3PL Study provides highlights of the IT expectation from 3PLs and 3PLs IT 3PL in Supply Chain Management by Jaishankar K S Page 7
capabilities (Figure-7). Although the year-on-year study shows there is improvement in bridging the gap, there is an opportunity to improve.
Figure-7: 3PL – IT Gap
It is not only Information Management or IT Gap, there is also concerns in outsourcing some of the supply chain activities. The complexity of the supply chain operations, knowledge transfer in those activities outsourced and project management, added additional risks in defining the requirements and training & skill level issues (Figure-8) [9]. The lack of detailed & clear requirements and the global/local generic contract agreements complicated overcoming the issues in outsourcing.
Figure-8: Issues in Outsourcing
There are also other market forces impacting the supply chain which weakens [10] the overall supply chain efficiency (Figure-9);
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Figure-9: Supply Chain – Weak Links
These challenges and market forces will have to be overcome with good operational plan and risk management. Well planned and closely collaborated supply chain operations proved to be successful, whether being in-sourced or out-sourced. The supply chain operations is not only looking at transportation and storage activities but more value-added services e.g., Promotional Packaging, Technical Services (Equipment Faulty Screening) etc., Hence with the wide variety of services including specific value-added services from 3PL, availing & utilizing 3PL’s is expected to grow.
IV. CONCLUSION
As the 3PLs are able to provide more and more value-added services, bringing efficiencies to the supply chain operations, it is expected to see growing trend in utilizing 3PL service providers. Whether new to 3PL services or re-using/extending the services with 3PLs, it is important to establish the clear requirements and evaluation criteria (e.g., not just alone price points, although it is important) along with the risk mitigation, the efficiency could be increased in supply chain operations thus achieving profitability.
REFERENCES
[1] SUPPLY CHAIN MANAGEMENT AND OPTIMIZATION MODELS, By Sriramulu Saravanan, Jaishankar K S, and Sajeesh Kumar Krishnan Nair & Dr.B.Venkatachalam, Proceedings of the International Conference on Computer Applications 2010, Management
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[2] [3] [4]
[5] [6] [7] [8]
Category, Techno Forum Research and Development Center, Pondicherry - 605 008, India, www.icca10.in, ISBN: 978-981-08-7303-5, Published By Research Publishing Services, No:83 Genting Lane, #08-01, Genting Building, S349568 Singapore Rhonda R. Lummus and Robert J. Vokurka, Defining supply chain management: a historical perspective and practical guidelines, Industrial Management and Data Systems, 99/1 [1999] 11–17 Hokey Min and Gengui Zhou, Supply chain modeling: past, present and future, Computers and Industrial Engineering 43 (2002) 231-249, www.elsevier.com/locate/dsw (accessed on 04-Oct-2010) Jayashankar M. Swaminathan, Stephen F. Smith and Norman M. Sadeh, Modeling Supply Chain Dynamics: A Multiagent Approach, Decision Sciences, Volume 29, Issue 3, pages 607–632, July 1998, http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.43.6908andrep=rep1andtype=pdf (accessed on 11-Oct-2010) Sunil Chopra and Peter Meindl, Supply Chain Management, Strategy, Planning and Operations, Second Edition, Pearson Prentice Hall, 2004, ISBN: 0-13-121745-3 Supply Chain Operations Reference (SCOR) Overview, Version 9.0, Supply Chain Council, www.supply-chain.org
The Gartner Supply Chain Top 25 for 2011, http://www.gartner.com/DisplayDocument?doc_cd=213740 Debra Hofman, Vice President, Supply Chain Research, Gartner (June 2011),
2012 THIRD-PARTY LOGISTICS STUDY, The State of Logistics Outsourcing, Results and Findings of the 16th Annual Study, www.3plstudy.com [9] Metrics, PM Network, September 2010, www.PMI.org [10] Metrics, PM Network, November 2008, www.PMI.org
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3PL in Supply Chain Management
Jaishankar K S ([email protected])
Supply Chain Systems Consultant, Solutions Delivery, DHL Customer Solutions & Innovation, Singapore Abstract - Supply chain is one of the key trade enabler and is of a connected network of operations/partners. The 3rd party logistics (3PL) partners play a key role in gaining the supply chain efficiency and in optimizing it. More & more organizations are using 3PLs through outsourced supply chain services. Hence having some of the basic knowledge about 3PL operations and factors influencing in Supply Chain Management are critical. This short article is trying to address the supply chain & 3PL service areas briefly, which will help to articulate the current trends and environments. Index Terms – Supply Chain Models, Supply Chain Management, SCM, 3PL Services I. INTRODUCTION
Historically, the Supply Chain Management was dependent on the individual business entity and was “Point-To-Point”. There was a frequent changing hand in the supply chain that means it was not an EndTo-End connected network, in other words very much disconnected network. This was essentially an “entity centric” model, which involved higher inventory and the operations are characterized as capital intensive with long cash-to-cash cycles [1]. The development of applied computing technology and introduction of computers in business was a paradigm shift. This enhanced & introduced end-to-end view of overall operations of an organization. With this development, the globalization and initiatives of productivity gain within the global organizations, increased outsourcing of their supply chain activities. The last two decades saw increased contract logistics or buying services from 3rd Party Logistics (3PL) service providers. The globalization, growth oriented economic development and its market opening further increased the necessity of end-toend view of the operations and a special management practice i.e., Supply Chain Management (SCM) evolved. The initial involvement of 3PL was on Freight Forwarding and Customs Brokerage. Some of the large organizations dealt this with directly asset owned carriers (e.g., Ocean/Sea Carriers with Vessels) and local agents for customs clearance. Others used Freight Forwarders i.e., organizations used Non-Vessel Operator (NVO) or Non-Vessel Operating Common Carrier (NVOCC). The NVO / NVOCC facilitated the transportation coordinating with the transporting organization and the Ocean-Carrier / Ocean-Liners. Similarly for the Air-Freight, Air-Liners, Freight Forwarders & Customs Brokers were involved and this involved usually Port-To-Port transportation and Export & Import Customs Clearance. In pre-globalization, limitations in market access, the activities like warehousing and domestic distribution to the wholesale and/or retail chain are basically managed by the importers in the importing
3PL in Supply Chain Management by Jaishankar K S
Page 1
country. However, the globalization and opening of economy attracted the global organization to have local offices to gain market share and establish themselves in the growing economy/market. All the above global economic changes created the need for distribution centers (warehouses) and domestic transportation services. The importance of tightly connected network with extended/outsourced SCM models increased. The competition, graining quick access to the market and for efficient supply chain, organizations looked at 3PL services through contract logistics. The contract logistics extended the scope of 3PL activities, from international (port-to-port) transportation, customs brokerage to warehousing, domestic transportation and various other value-added logistics operations. II. SUPPLY CHAIN MANAGEMENT The logistics and supply chain professionals increasingly use “Supply Chain” to refer to “the process and/or effort in producing and delivering the finished product to a given market or customer segment” [2]. It is essentially a “connected network” that involved various parties (e.g., supplier, transporters, logistic service providers, manufacturers, distributors, retailers, customers, government agencies, commercial agencies, financial institutions etc., Supply chain management evolved focusing on gaining efficiency and synergies within the internal functional management [3]. Various models aim to have better utilization and coordination of the internal corporate functions. The globalization/global economy and customer expectations (on product’s quality, usability/function, cost and services) are 2 key drivers for the increased demand for efficient supply chain models [4]. The value of supply chain greatly correlated with “Supply Chain Profitability” [5]. SCM deals with the management of supply chain network to maximize the total supply chain profitability. Inventory Control Systems (ICS), Bill of Materials (BOM) and Material Requirement Planning (MRP), MRP II, Enterprise Resource Planning (ERP), Electronic Data Interchange (EDI and standards like ANSI X.12, EDIFACT, RosettaNet etc.,) and other computing/business solutions have been helping organizations to better manage the supply chain. Below diagram (Figure-1) shows some of the developments in this area [1];
3PL in Supply Chain Management by Jaishankar K S
Page 2
IT
Information Technology Development
• Communication Technology • PBX & Virtual PBX • eFAX, Email • VoIP, IVR • Use of Computing Technology • Internet • EDI: RosettaNet • Oracle Fusion, GXS, axway, IBM WebSphere & DataStage TX, webMethods, SAP NetWeaver. TIBCO • I2 Technologies, Manugistics, ILOG etc., • Seibel, Ariba etc., • IBM Cognos, SAP BusinessObjects, etc., • TransPro, Class, Optiant, Demantra • RFID, GPS, Pick to Light/Voice etc., • IT Applications • ERP, SCM, CRM, WMS, TMS, BI Applications
• Widely used Fax Technology • Use of Computing Technology • EDI: ANSI X.12, EDIFACT etc., • SAP R/3, BAAN, JD Edwards, Oracle, Peoplesoft, • Barcoding • FMS / TMS & WMS
• International Trade Governance and/or Pacts / Agreements and Trade Associations • Supply Chain Management: • MRP II, CIM, ISD • TQM, ERP • Freight & Inventory Management
• Globalization: Increased Free Trade Agreements & Trade Associations • Increased Outsourcing • Supply Chain Management: • Outsourced SCM & Business Analytics • JIT & VMI, MIT, Cross-Dock, Kitting • Direct Factory Shipments • Faster Networks (Time-To-Market) • eCommerce & eProcurements • Models: I2M, FG, SPL, CLS/Service Logistics, Recalls / Emergency • Trade Compliance • Optimization & Integration • Data Analytics and BPM & BAM Analytics
Business Processes
Time 1971 To 1990
1991 To 2010
Figure-1: Information Technology in Supply Chain (1971-2010)
The ERP deployment alone was not able to fulfill the complex supply chain management in the interconnected network. Specialized solutions evolved and were applied in Operations/Execution, Tactical and Strategic management levels. Below diagram (Figure-2) [1] shows the strategic fit of Supply Chain Systems.
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Page 3
Strategic Strategic Fit
NO
IO
WD
TO
SCM Value Analysis
Tactical
Collaborative Planning, Forecast & Replenishment (CPFR) / Demand Chain Management (DCM)
Supply Chain Visibility System Integration
OMS TMS FMS XDS WMS
Supply Chain Management (SCM)
Operations / Execution SRM PCM PLM HRM CFM CPM CRM
Enterprise Resource Planning (ERP)
Upstream Supply Chain
•
•
Downstream Supply Chain
•
SRM – Supplier Relationship Management, PCM – Procurement Contract Management, PLM – Product Life Cycle Management, HRM – Human Resource Management, CFM – Corporate Financial Management, CPM – Corporate Performance Management, CRM – Customer Relationship Management OMS – Order Management System, TMS – Transport Management System, FMS – Freight Management System, XDS – Cross-Dock System, WMS – Warehouse Management System SCM is supported by the critical supply chain optimization tools • NO – Network Optimization, IO – Inventory Optimization, WD – Warehouse Design, TO – Transport Optimization
Figure-2: SCMs Role in achieving strategic-fit
It is ultimately the efficient operational process that can optimize and make use of the available Supply Chain Systems at best. The Supply Chain Council’s Supply Chain Operations Reference (SCOR) is of the model that can be utilized to define and establish best supply chain operations process. The SCOR model depicts the connected network in a simplified way as below (Figure-3) [6] and provides a framework in establishing better supply chain operations, thus maximizing the profitability.
Figure-3: SCOR Model – Scope & Structure
The highlighted block (i.e., referring to “Your Company”) in the above diagram (Figure-3) is the organization wanting to optimize the supply chain operations and avail the Supply Chain & Logistics Services from 3PLs. A good planning and management of operational process within the supply chain is highly important, hence real-time collaboration is essential between internal organization, suppliers and customers. The table below shows Gartner’s research on Top 25 Supply Chain [7] organizations able to achieve efficiencies through collaborated and responsive connected network.
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Peer Rank Company Opinion1
Gartner Opinion1
Three-Year Weighted ROA2 -25%
Inventory Turns3
Three-Year Weighted Revenue
Composite
1 Apple 17.90% 49.3 40.90% 8.5 2 Dell 6.60% 38.9 4.10% 5.14 3 P&G 9.60% 5.6 2.40% 5.13 4 Research In Motion (RIM) 25.10% 17.7 43.90% 5.1 5 Amazon 6.60% 11.2 34.00% 5.07 6 Cisco Systems 10.20% 11.8 5.50% 4.82 7 Wal-Mart Stores 9.00% 8.5 3.60% 4.4 8 McDonald's 15.30% 141.8 2.60% 4.35 9 PepsiCo 12.00% 7.8 18.80% 4.11 10 Samsung 9.80% 16.9 22.50% 3.98 11 The Coca-Cola Company 15.30% 5.3 7.90% 3.96 12 Microsoft 21.40% 16.6 6.10% 3.72 13 Colgate-Palmolive 20.00% 5.1 3.00% 3.62 14 IBM 12.50% 21.1 0.80% 3.6 15 Unilever 11.50% 5.3 5.20% 3.53 16 Intel 13.60% 4.5 9.70% 3.37 17 HP 7.00% 14.3 6.70% 3.28 18 Nestle 22.60% 5.5 0.80% 3.05 19 Inditex 16.90% 4.4 10.50% 3.05 20 Nike 13.00% 4.7 3.30% 2.72 21 Johnson & Johnson 13.40% 3.6 -0.30% 2.38 22 Starbucks 10.60% 8.6 5.10% 2.35 23 Tesco 5.30% 18.3 8.00% 2.34 24 3M 13.20% 4.6 5.80% 2.25 25 Kraft Foods 4.40% 5.9 15.60% 2.03 Notes: 1. Gartner Opinion and Peer Opinion:Based on each panel's forced-rank ordering against the definition of "DDVN Orchestrator" 2. Return on Assets (ROA): ((2010 net income / 2010 total assets) * 50%) + ((2009 net income / 2009 total assets) * 30%) + ((2008 net income / 2008 total assets) * 20%) 3. Inventory Turns: 2010 cost of goods sold / 2010 quarterly average inventory 4. Revenue Growth: ((change in revenue 2010-2009) * 50%) + ((change in revenue 2009-2008) * 30%) + ((change in revenue 2008-2007) * 20%) 5. Composite Score: (peer opinion * 25%) + (Gartner opinion*25%) + (ROA*25%) + (inventory turns * 15%) + (revenue growth * 10%) 2010 data was used where available. Where 2010 data was unavailable, latest available full-year data was used. All raw data was normalized to a 10-point scale prior to composite calculation. Source: Gartner (June 2011) - http://www.gartner.com/DisplayDocument?doc_cd=213740
(156 Voters) (32 Voters) -25% -25% 2,950 536 1,909 457 1,726 660 550 215 2,267 402 1,501 550 1,755 449 711 161 740 445 857 361 1,305 265 566 128 560 239 994 238 449 459 871 247 949 331 389 62 376 180 781 144 548 121 544 127 524 190 760 7 471 192
Score 5 Growth4 -15% -10%
Table-1: The Gartner Supply Chain Top 25 for 2011
Following factors greatly influence the supply chain design and optimization strategy; Achieving Strategic Fit – when organization’s competitive and supply chain goals are same, strategic fit arises. Product Segmentation and Pricing Products Supply Chain Structure for the efficient and responsive supply chain – Facilities, Inventory, Transportation and Information
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Supply Chain Strategies – Distribution Network, Direct Ship, Postponement (e.g., downstream assembly/merge and/or cross-docking), Customer pickup distance, Managing Inventories (avoiding “Bullwhip” effect) and Service Commitments Obstacles – Short Product Life Cycle, Demanding Customers, Supply Chain Ownership, Globalization and Country’s Regulatory and Trade environment
Based on the characteristics and operational differences, there are 3 major & specialized supply chains exists as shown below;
Inbound-ToManufacturing (I2M)
Figure-4: Supply Chain Models
Finished Goods Distribution (FGD)
After Market Services (AMS)
There are many organizations use combination of the above supply chain models to optimize and increase efficiency to have variety supply chain models. This increased the complexity in supporting the supply chain operations through a common standardized information technology tools. III. 3PL SERVICES Today 3PL service providers are playing bigger role in enhancing and improving the supply chain efficiencies for the given organization. Looking at the SCOR Model and its five distinct Process Areas (i.e., Plan, Source, Make, Deliver and Return), the major involvement of 3PLs in supply chain can be visualized. Generally, in-sourced and out-sourced activities on the supply chain can be visualized from the diagram below (Figure-5)
Suppliers
Supply Chain
Flows: Product, Process, Information, Cash & Capital
Customer Channels
Stores Distribution Centers
Manufacturers
Plan
Source
Make
Deliver
Repair/ Return
Highly In-Sourced Activities
Highly Competitive Outsourced Activities
LLP / 4PL / Control Tower
•
Unique and aligned to the specific organization Few 3PLs offering this services and Limited Supply Chain Systems Solution Extensive use of ERP/MRP Solutions
I2M • Inbound To Manuf acturing (I2M) Supply Chain Transportation Warehousing Value Added Services VMI
FGD
AMS
•
•
• • •
•
• • •
•
•
• •
•
Finished Goods Distribution (FGD) Supply Chain Transportation Warehousing Distribution Channel (B2B) Direct Delivery Model (B2C) Merge-In-Transit Customer Assigned Inventory Project Based Logistics
•
• • •
•
• •
Af ter Market Services (AMS) Supply Chain Transportation Warehousing Multi-Leg & MultiType Order Management Sophisticated Stocking Approach Stringent SLA VMI
Figure-5: SCOR Model based In-Sourced and Out-Sourced Activities
The 3PL Study [8] provides exhaustive list shown below (Table-2) of services which can be availed from Global/Local 3PL Service providers.
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Table-1: Wide Variety of Logistics Services from 3PLs
Below diagram (Figure-6) shows the 3PL (Forwarders) share on the Ocean Freight Transportation as one of the services listed on the Table-1 above.
331,000.00 385,000.00 315,000.00 300,000.00
259,000.00
400,000.00
430,000.00 408,000.00 440,000.00 465,000.00
2,900,000.00
476,000.00 500,000.00 500,000.00 500,000.00 550,000.00
1,600,000.00 576,000.00 610,000.00
2,800,000.00
672,000.00
700,000.00
1,500,000.00
705,000.00 710,000.00
710,000.00 880,000.00
1,200,000.00
Top 25 Ocean Freight Forwarders for 2011 (Ocean Freight - Volume in TEUs)
Source: http://www.allbusiness.com/transportation/transportation-support-services/16731089-1.html, By Daniel P. Bearth TEU - Twenty Foot Equivalent Unit
Kuehne + Nagel International DHL Global Forwarding DB Schenker Pantos Logistics Co. Panalpina World Transport Expeditors International of Washington DSV Air & Sea Sankyu Inc. Bollore Group/SDV Logistics UPS Supply Chain Solutions Ceva Logistics Damco International Kerry Logistics Agility Logistics APL Logistics China Resources Logistics Group Mallory Alexander International Logistics UTi Worldwide Kintetsu World Express Yusen Logistics Logwin AG Hellmann Worldwide Logistics China Container Line Limited Geodis Group Nippon Express Co. OOCL Logistics Limited Dascher GmbH & Co. CH. Robinson Worldwide
Figure-6: Ocean-Freight Shipment (in TEUs) for 2011
The wide variety of logistics services from 3PLs and increased outsourcing also increased expectation of information flow and/or management within the connected network. A good nearreal-time information flow / exchange improve the communication for better operational planning. The 3PL Study provides highlights of the IT expectation from 3PLs and 3PLs IT 3PL in Supply Chain Management by Jaishankar K S Page 7
capabilities (Figure-7). Although the year-on-year study shows there is improvement in bridging the gap, there is an opportunity to improve.
Figure-7: 3PL – IT Gap
It is not only Information Management or IT Gap, there is also concerns in outsourcing some of the supply chain activities. The complexity of the supply chain operations, knowledge transfer in those activities outsourced and project management, added additional risks in defining the requirements and training & skill level issues (Figure-8) [9]. The lack of detailed & clear requirements and the global/local generic contract agreements complicated overcoming the issues in outsourcing.
Figure-8: Issues in Outsourcing
There are also other market forces impacting the supply chain which weakens [10] the overall supply chain efficiency (Figure-9);
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Figure-9: Supply Chain – Weak Links
These challenges and market forces will have to be overcome with good operational plan and risk management. Well planned and closely collaborated supply chain operations proved to be successful, whether being in-sourced or out-sourced. The supply chain operations is not only looking at transportation and storage activities but more value-added services e.g., Promotional Packaging, Technical Services (Equipment Faulty Screening) etc., Hence with the wide variety of services including specific value-added services from 3PL, availing & utilizing 3PL’s is expected to grow.
IV. CONCLUSION
As the 3PLs are able to provide more and more value-added services, bringing efficiencies to the supply chain operations, it is expected to see growing trend in utilizing 3PL service providers. Whether new to 3PL services or re-using/extending the services with 3PLs, it is important to establish the clear requirements and evaluation criteria (e.g., not just alone price points, although it is important) along with the risk mitigation, the efficiency could be increased in supply chain operations thus achieving profitability.
REFERENCES
[1] SUPPLY CHAIN MANAGEMENT AND OPTIMIZATION MODELS, By Sriramulu Saravanan, Jaishankar K S, and Sajeesh Kumar Krishnan Nair & Dr.B.Venkatachalam, Proceedings of the International Conference on Computer Applications 2010, Management
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The Gartner Supply Chain Top 25 for 2011, http://www.gartner.com/DisplayDocument?doc_cd=213740 Debra Hofman, Vice President, Supply Chain Research, Gartner (June 2011),
2012 THIRD-PARTY LOGISTICS STUDY, The State of Logistics Outsourcing, Results and Findings of the 16th Annual Study, www.3plstudy.com [9] Metrics, PM Network, September 2010, www.PMI.org [10] Metrics, PM Network, November 2008, www.PMI.org
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