3PL / 4PL

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What Is Logistics?

Logistics Defines as the process or strategically managing

PROCUREMENT
MOVEMENT
STORING OF MATERIALS
FINISHED GOODS
MARKETING CHANNEL
To Achieve
COST EFFICIENCY
EFFECTIVENESS
OPTIMIZAITON OF PROFITS

With this background let us u/s advantages of Logistics Outsourcing

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Advantages of Logistics Outsourcing

Transfer of investments to the Service Provider

Higher readiness to deliver and flexibility
Optimization of the supply
Improvement of liquidity
Reduction of Personnel costs
Centralization on Core Competencies
Higher Quality of Logistics
No long term capital commitment for log. Assets.
Use of synergy effects through the Serv. Provider

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 Transparency of costs due to Process-oriented logistic

deduction
Innovation by know-how transfer (modern facilities of the
Service Provider
Reduction of interfaces
Improvement of competitiveness
Increase of efficiency (higher perf. Less costs)
Variability of fixed costs
Reduction of logistic expenses

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What is a 3PL
PROVIDE SERVICES LIKE WAREHOUSING,
TRANSPORTATION AND PACKAGING
MOST COMMON OUTSOURCED FUNCTIONS ARE
TRANSPORT, WAREHOUSING AND CUSTOMS
BROKERAGE, PAYROLL, ETC.

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Emergence of 3PL
Use of 3PLs amongst Fortune 500 companies increased
two fold between 1991 and 1995 and today, it is widely
accepted business practice.
In India, 3PLs gained acceptance from the mid 90s
onwards.
Pressure of globalization and spiraling costs.

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3PL Drivers
Need to focus on core competencies
Reducing supply chain costs
Freeing up assets for other core-valueadd activities
Labor problems
Availability of new technologies

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What can 3PL offer

Warehousing
3PL can run Warehouse
Uses WMS (W Management system)
Track movements with Radio Frequency Scanning
Barcode Labelling e.g. Planet M
Gives:
Real time, periodic and accurate information
Helps to manage inventory and demands better
Generates shipment notifications from retail partner in
SCM.

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Transportation Management
Provides means of transportation
Optimizes own fleet or uses from Alliance Partners
Often uses SMS Shipment management system
Effectively Plan Load management

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Routes equipment
Driver management
Network freight analysis
Provides integrated logistics solution
Uses concepts like Multi Stop
Uses Multi Vendor consolidation
INTEGRATES WITH WM software.
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Packaging
Final product packaging in the warehouse
Reduces product handling
Reduces cycle time
Reduces list
Provides variety of packaging services like:
Customized pallets, inserts
Display labeling, printing
Wrapping, Bundling

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Advantages / of 3PL Aggregation

Focus on core strengths
Provides technological flexibility / Provides flexibility in
- Geography -/ Workforce size / Resources Flexibility
----------------------------------------------------Capacity aggregation demand of multiple firms (EoS)
Inventory aggregation -- (uncertainty of product a/v)
Transportation Aggregation optimize tran. Load & EoS, i/b & o/b
WH aggrn needs of customers lower real estate costs, lower
processing and storage cost insider the WH/
Procurement Aggrn many small players & facilities reduced
procurement cost
Info / Receivables / Relationship Aggregation (decr. Point of
contact/ lower cost of recovery etc)

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Shortcomings of 3PL
Cost reduction falls short of clients expectations
Most 3PL service industry clusters where costs are already very low.
Reduction are short term, one time gains and cannot always be
sustained over longer periods
While operationally efficient, may 3PLs are unable to embrace the
full spectrum of supply chain activities
Supply chain visibility, exception management inventory holding etc.
are some areas which continue to be lacking
Many companies use several 3PL and handling of these players is a
time consuming management effort
Lack of a global reach / lack of a strong, fully integrated IT platform
Local regulations and tax structures do not allow 3PL to maximize
supply chain efficiencies
Inability to evolve into a best in class provider and players in their
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3PL Today
In spite of these shortcomings, outsourcing to 3PLs is
still good business sense.
In INDIA, this is in its early stages with some FMCG cos.
And Automobile sectors leading the charge.
Emphasis will be on reducing the number of 3PLs the
company uses
C&FA consider themselves 3PLs or aspire to be one.

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Risk of 3PL

The process is borken

Underestimation of the cost of coordination
Reduced customer supplier contact
Loss of internal capability & growth in 3 party power
Leakage of sensitive Data and Information
Ineffective contracts.

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What and Why 4PL

Technology developments have increased final customers
expectations by quantum leaps, to which manufacturers and
retailers need to respond.
Need for sustainable significant gains in SC efficiencies costs,
cycle time, customer service.
Need for a single SC manager who will be accountable for all
aspects of SC.

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Who is a 4PL
Entities incorporated by one or more industry players
One or more clients
One or more outsource partners (could be 3PL)
Usually one strong IT partner
May have a SC management consultant as a partner
All aspects of the entire SC is managed by the 4PL
Accountabilities are clearly defined
Gains and risks are shared
Puts the strategic and operational elements in the SC under one
group.
High costs in IT infrastructure can be defrayed over a number of
clients.
New technologies can be applied more expediitously than can a
single customer its own.
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4PL contd.
Broad and deep market knowledge (Providers, services,
references, trends)

Analytical skills (diagnostics, opportunities, solutions)

Simulation modeling tools
Project management skills
Logistical IT functionalities and multi-party connectivity.
Advanced planning and scheduling skills
Inventory management skills
Operational infrastructure
Global partner network
Data management skills
Reporting tools

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 4 PL example:
Nortel hired K&N (Kuchne & Nagel) AG, a 4Pl
provider to handle all its o/b logistics from
factories to customers. They now manage 3540 forwarders, WH managers, truckers and
other logistics providers worldwide.
3PL focuses on a Function & 4PL takes care of a
process. (MENLO designs SC Integration)

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What a 3PL can do?

One or more of logistic activities relating to the flow of product,
information and funds that can be performed by the firm itself.
Focus on TRANSPORTATION, WHsng & IT within the SC.
Most 3Pl started out with focus on one function then slowly
expanded their services to make it more comprehensive and Vad
due to their core competency and contact in the field.
UPS started as a small package carrier. Grainger started with
UPS with small order sizes, and UPS expanded its service like WH,
IT and international service. UPS manages National
Semiconductors global scm of delivering chips from its plants to
global distribution centers and customers.
Schneider started as a Truck Load Carrier. Today for GM Spare
Pats Operations (GMSPO) they are the logistics provider..from order
placement to collection of final payment.
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What 3PL can do?

Transportation: Basic Service Inbound outbound by ship,
truck, etc.
Activities tendering / trace, mode conversion, dispatch,
freight pay, contract management
Warehousing: Basic Service storage, facilities management
Activities cross dock / in=transit merge, pool distribution
across firms, pick/pack, kitting, inventory control, labeling,
order fulfillment, home delivery of catalog orders
Information Technology Bas Serv: Provide & maintain Adv.
Info syst
Activities: - Transp. M S, WHM, NW modeling & site
selection, freight bill payment, automated broker Ifs, end to
end matching, forecasting, EDI, worldwide track and trace,
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global visibility.

 Reverse Logistics: Basic Service handle reverse flows:

Activities: Recycling, used-asset disposition, customer returns,
returnable container management, repair /refurbish.
Other 3PL Services:
Brokering, freight forwarding, purchase-order management, order
taking, loss and damage claims, freight bill audits, consulting, timedefinite delivery.
International: Customer brokering, port services, export crating,
consolidation.
Special skills / handling:
Hazardous materials, temperature controlled, package/parcel
delivery, food grain facilities, equipment, bulk, COLD CHAIN FOR
PHARMA.
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