OMSAN LOJİSTİK

Supply Chain & Logistics Outsourcing Projects

3. 3PL Provider Selection

Top Management Program in Logistics & Supply Chain Management (TMPLSM)

4

Demand Management

Sourcing Management

Fulfillment Management

What products could help our

clients generate demand?

What products could help our clients connect

their supply-demand points?

What products could help our clients satisfy their demand?

1. Call Centers2. Order management3. Forecasting4. Collections5. Factoring6. Customer Service

& Claims Management

1.Supplier management

2.Procurement3.Financing

1.Network management2.Inbound transportation3.Supplier consolidation4.Storage5.Order fulfillment6.Outbound

transportation7.Reverse logistics

Design Product (P) Portfolio

5

How Do We Select A 3PL Provider?

• Don’t Jump the Gun!!• Pre-planning is critical, ask yourself….

– “What do you hope to achieve by outsourcing”?– “Can the 3PL Provider offer a solution to our problem”?– “Are there other options available to us”?– “Is third-party a strategic direction for us”?– “Do we have the expertise, what is the opportunity cost and

what capital is required?

6

How Do We Select A 3PL Provider?

• Pre-planning is critical, ask yourself….– “What particular functions would be beneficial

to outsource?– “What are my costs to perform this activity in-

house”?– “How would my customer feel about the third

party relationship”?– “Where are the “holes” in our logistics

process’’?

7

How Do We Select A 3PL Provider?

• Develop a Business Case

• Why?

• What?

• When?

• Where?

• How?

• Who?

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“Pre-Planning Analysis”Example

Criteria Mow Lawn Rebuild Engine Reverse Logistics

Expertise?

OpportunityCost?Fixed/VariableCosts?Outsource?

Probably Yes Probably No Maybe

Leisure, Time with Family, Home Business

Resources deployed to otherfunctional areas

Yes, mower, gas,oil, maintenance,

Yes, tools, computerequipment

Yes, Cross-dockfacilities, transport, IT

F(criteria weighting, goals, performance and service expectations)

Determination of the Economic Value Added (EVA)

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“7 Steps to 3PL Provider Selection”

“Pre-Planning Analysis”

Establish Objectives and Selection Criteria

Identify Qualified Providers

Secure RFI/RFQ’s from Providers

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“7 Steps to 3PL Provider Selection”

Evaluate Responses

Perform Site visits

Negotiate contracts

Selection

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The ABC’s in Provider Selection

• Alliances

• Balance

• Culture

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The ABC’s in Provider Selection

• Delivery!!

• Entrepreneurial Spirit

• Financial Position

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The ABC’s in Provider Selection

• Gain-sharing

• Hierarchical Structure

• Information Integration

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The ABC’s in Provider Selection

• Just-in-time capabilities

• Key performance measurements

• Legal Implications

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The ABC’s in Provider Selection

• Management expertise

• Niche player

• One-stop shopping

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The ABC’s in Provider Selection

• Process capability

• Quality certification

• References

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The ABC’s in Provider Selection

• Solutions

• Technology

• Understanding

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The ABC’s in Provider Selection

• Vision

• Willingness

• X-pertise

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The ABC’s in Provider Selection

• Y ask Why - Always!!

• Zero Sum Game - No!!

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RFI/RFQ ElementsCompany Profile

• How long has your company offered third party services to clients?

• What specific elements of your business give you a competitive advantage in the third party logistics area?

• In what market sectors does your company participate?

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RFI/RFQ ElementsStrategic Direction

• What are your company objectives?

• What are your major goals for the next three years?

• What is your business strategy and what changes do you anticipate over time?

22

RFI/RFQ ElementsCustomer Base Profile

• Specify the percentage of sales from your #1 customer, from the top (5) customers and top (20) customers

• Provide two previous customer contacts whom you have ceased to do business with within the last year

• What percentage of sales would our business represent?

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RFI/RFQ ElementsManagement Capabilities

• What is the tenure of the senior managers within your organization?

• What percentage of your revenue is allocated to employee training?

• How do you facilitate “continuous process improvement” in all of your operations?

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RFI/RFQ ElementsFinancials

• What are your historic trends for

profitability and return on investment?

• Are you a part of a larger company and if

so what degree of corporate support do

they provide?

• Who are your top three competitors?

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RFI/RFQ ElementsQuality Proficiency

• How is the corporation’s commitment to quality communicated to the employee?

• Are you currently ISO certified? If not, are you pursuing it? Detail your plan.

• Do you use quality costs and quality audits to assure adherence to the quality systems?

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RFI/RFQ ElementsCustomer Service Policy

• How would you define responsiveness?

• What are you response time standards to customer inquires (order status, shipment verification, etc.)

• Are customer service standards well documented and distributed?

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RFI/RFQ ElementsAccount Management

• Who will be the single point of contact for the account?

• Will a cross-functional team be assembled for the implementation?

• Describe how account management and program cohesiveness will be ensured.

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RFI/RFQ ElementsTechnology

• Provide an overview of your overall information systems network including major hardware and software platforms as well as operating environment

• Were the software applications developed “in house”?

• What is your disaster recovery plan?

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RFI/RFQ ElementsLogistics Network

• Provide details pertaining to the size and scope of your logistics network

• Describe you ability to provide “value-added services” to your customers

• Cite examples that demonstrate your expertise in warehousing and transportation management

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RFI/RFQ ElementsFee Structure

• What is your pricing policy and methodology?

• Does your company utilize “open book” pricing?

• How are startup costs reflected in the pricing scenarios?

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Third-Party Logistics RFI/RFQ Elements

• Company Profile• Strategic Direction• Customer Base Profile• Management Capabilities• Financials• Quality Proficiency• Customer Service Policy• Account Management• Technology• Logistics Network• Fee Structure

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Why Are 3PL’s Valued?Client Motivation

• Gain Systems Capabilities/Technology

• Provide Benchmarking

• Enable Change

• Avoid Labor Problems

• Avoid Costs of Regulation (OSHA)

• Increase Productivity/Efficiency

• Gain World-wide Market Entry

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Lets company focus on broader business issues by having outside experts handle various operational details

Lets company focus on broader business issues by having outside experts handle various operational details

Strategic Rationales for Outsourcing

Improve Business FocusImprove Business Focus

Permits firm to redirect efforts from non-core activities toward those that serve customers more effectivelyPermits firm to redirect efforts from non-core activities toward those that serve customers more effectively

Free Resources for Other PurposesFree Resources for Other Purposes

Provide Access to World-Class CapabilitiesProvide Access to World-Class Capabilities

Accelerate Business Re-Engineering BenefitsAccelerate Business Re-Engineering Benefits

Share RisksShare Risks

The specialized resources of outsourcing providers makes world-class capabilities available to firms in a wide range of applications

The specialized resources of outsourcing providers makes world-class capabilities available to firms in a wide range of applications Achieves re-engineering benefits more quickly by having outsiders--who have already achieved world-class standards--take over process

Achieves re-engineering benefits more quickly by having outsiders--who have already achieved world-class standards--take over processReduces investment requirements and makes firm more flexible, dynamic and better able to adapt to changing opportunities

Reduces investment requirements and makes firm more flexible, dynamic and better able to adapt to changing opportunities

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Why Are 3PL’s Valued?3PL Provider Motivation

• Incremental Revenue

• Revenue Retention• Stability• Scale for Leverage• Increase Profit &

Reduce Costs

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Why are Companies Reluctant to Outsource?

• Strategic– No perceived advantage– Internal resistance/politics– No credible 3PL provider– Difficult to develop new working relationships

36

Why are Companies Reluctant to Outsource?

• Strategic– 3PL provider does not offer solutions and

value– Limited history and payback with 3PL– Absence of comprehensive and integrated

3PL information systems– 3PL providers “talk-the-talk” but can they

“walk-the walk”? (over-sell and under-deliver)

37

Why are Companies Reluctant to Outsource?

• Tactical– Fear of losing control– Fear of lost jobs– Admission of incompetence– Fear of change– Perceived negative customer satisfaction

38

New Roles and Risks for 3PLs

While the existence of 3PLs is NOT new, the range of value propositions they offer today has changed dramatically:

1) Global Industry Consolidation in order to provide scale economies across services and geography while developing a degree of industry specialization (e.g., UPS and Fritz)

2) Technology Integration to link their business processes more directly to those of their clients

3) Industry Specialization to support unique industry needs

4) Industry Alliance Networks with the potential to create a new range of service offerings which are more global in scope and multi- or cross- modal in network connectivity (e.g., FedExp and the USPS)

Supply Chain Management Review, Sept. - Oct. 2001

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Providers Overview

Type Market Focus Examples

Asset

Non-Asset

Information/Mgmt.

Integrated

Carrier, WarehouseBrokers, ForwardersIT, Freight PaymentSupply Chain Mgmt.

4PL

Ryder, USCO

Intral (ex Gillette)

GEIS, IBM, Cass LogisticsUPS Supply Chain Solutions, Exel Logistics, DHL DanzasAccenture, Cap Gemini Ernst & Young

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Providers Overview Differentiating Factors

• Differentiating factors– Industry Specialization (food/groceries,

temperature controlled, automotive)– Mode Specialization (truck, rail, ocean)– Geographic Specialization (local, regional,

national, international)

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Overview of The Providers

• Differentiating factors– Service capabilities (TL, LTL, ocean, air, rail)– Technology offerings (information systems,

satellite vehicle communications, EDI)– Additional factors (import/export/customs, ISO

9000 certified, process re-engineering)

42

Strengths of Major 3PL Supply Chain Integrators (Large Industry Capability)

• Caliber Logistics• Customized Transportation Inc.• Exel Logistics• J.B. Hunt Logistics• Logix• Menlo Logistics• Ryder Integrated Logistics• Schneider Logistics

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• DSC Logistics

• Exel Logistics

• GATX Logistics

• Tibbett & Britten

Strengths of Major 3PL Warehousing & National Distribution Chain

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• Airborne Logistics Services• Associated Distribution Services• BAX Global Logistics• Emery Worldwide Global Logistics• FedEX LEC&C• Skyway Freight Systems• UPS Worldwide Logistics

Strengths of Major 3PL High-Value Commodities (Asset Based)

45

Strengths of Major 3PL High-Value Commodities (Non-Asset Based)

• AEI

• Circle International

• Expeditors International

• Fritz Companies Inc.

46

Strengths of Major 3PL Dedicated Contract Carriers

• Builders Transport• Caliber Logistics• J.B. Hunt Logistics• Penske Logistics• Rollins Logistics• Ryder Integrated Logistics• Schneider Logistics• Werner Logistics

47

Strengths of Major 3PL Intermodal Carriers

• Hub Logistics

• Mark VII Logistics

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Services Offered by 3PL

Shipment Consolidation Logistics Information Systems Product Returns Warehouse Management/Operations Inventory Management Carrier Selection Order Fulfillment Rate Negotiations Order Processing Fleet Management /Operations Product Assembly Customer Spare Parts Vendor Selection Purchasing

49

Shipment Consolidation …

50

Classification of Services by 3PL

Physical Contract Physical Contract Logistics ServicesLogistics Services

• Dedicated Contract Carrier• Dedicated Warehousing

Integrated Integrated Contract Contract LogisticsLogistics

• Integrated Warehousing and Transportation

• Integrated Carrier Management and Transportation

Basic ServicesBasic Services

• Common Carriage• Public Warehousing

Management Management Contract Contract

Logistics Logistics Services Services

• Traffic Management• Warehouse Management• Import/Export management

PhysicalPhysicalServicesServices

ManagementManagementServicesServices

Complexity and Customization

Co

mp

lexi

ty a

nd

Cu

sto

miz

atio

n

Low High

High

Source: J.M. Africk and C.S. Calkins (Transportation and Distribution, 1994)

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When Should You Contract Logistics?

Company Company NeedsNeeds

Provider Provider CapabilitiesCapabilities

Tangible Tangible ValueValue

ManagementManagementCommitmentCommitment

Low

Low

High

Low

Low

High

Yes NoNo

Do It!Do It!

Source: H.L. Randall, The Logistics Handbook, 1994

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Services Offered by 3PL

ResourceOrientedLogistics

UserOrientedLogistics

InformationOrientedLogistics

Shipment Consolidation

Logistics Information Systems

Product Returns

Warehouse Manag / Operat

Inventory Management

Carrier Selection

Order Fulfillment

Rate Negotiations

Order Processing

Fleet Management /Operations

Product Assembly

Customer Spare Parts

Vendor Selection

Purchasing

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

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Show Me the Value!

ValueValue = ai Xi + bjYj

where

Xi = Tangible Parameter i (e.g., cost)

Xi = Deviation from BASE CASEBASE CASE for parameter Xi

ai = Weight assigned to tangible parameter Xi

Yj = Potential Parameter j (e.g., new market)

Yj = Deviation from BASE CASEBASE CASE for parameter Yj

bj = Weight assigned to potential parameter Yj

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• Logistics may not be a core competency of the company

• 3PLs can enhance supply chain coordination: - risk pooling - IT infrastructure

- planning & control systems - warehouse management systems

• Outsourcing can be used to impose performance standards

• 3PLs can be more efficient by integrating flows across multiple customers: - FTL transportation - common warehouses - maximize backhauling

Show Me the Value!

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Ten Rules for Outsourcing

1) Develop a strategy for Outsourcing

2) Establish a rigorous provider selection process

3) Clearly define your expectations

4) Develop a good contract

5) Establish sound policies and procedures

6) Identify and avoid potential friction points

7) Communicate effectively with your logistics partner

8) Measure performance, communicate results

9) Motivate and reward providers

10) Be a good partner

Logistics Outsourcing: A Management Guide