3PL Industry Analysis PDF

WEEK 12 3PL & IT GAP & CMA CGM Third-party logistics (3PL) industry Strategic needs of 3PL users – IT GAP Case study - Digitalisation of CMA CGM Overview ▪ Outsourcing has continued to grow in the second decade of the 21st century. ▪ Relying on external experts for noncore services and c...

WEEK 12 3PL & IT GAP & CMA CGM Third-party logistics (3PL) industry Strategic needs of 3PL users – IT GAP Case study - Digitalisation of CMA CGM Overview ▪ Outsourcing has continued to grow in the second decade of the 21st century. ▪ Relying on external experts for noncore services and capabilities has become commonplace, as few organizations can afford to manage all business activities in-house. ▪ Logistics is another activity that is widely outsourced to external experts. ▪ Global companies like - Deutsche Post (owner of Exel and DHL), FedEx, C.H. Robinson, and UPS provide a wide variety of transportation and logistics services to individuals and companies around the world. Overview ▪ These third party logistics service providers (3PLs) are experts in the management and flow of freight, allowing customers to focus their resources on other activities. ▪ Some of these larger organizations tries to provide a one-stop shopping solution where customers can purchase all their transportation service needs, regardless of mode or geographic requirements. ▪ This might be the future of 3PL industry 3 Third-Party Logistics ▪ A 3PL firm refers to An external supplier that performs or manages the performance of all or part of a company’s logistics functions. Logistics functions cover transportation, warehousing, distribution, financial services, and so on. Many logistics companies started life by transporting freight using one mode of transport A move away from own-account transportation to third-party transportation - creating logistics service providers (LSPs) 4 Third-Party Logistics ▪ First Party Logistics (1PL). They dictate the origin (supply) and the destination (demand) of the cargo with distribution being an entirely internal process owned by the firm. ▪ Second Party Logistics (2PL) Asset-based logistics providers that physically move product through the supply chain. A maritime shipping company, a rail operator or a trucking company that are hired to haul cargo from an origin (e.g. a distribution center) to a destination (e.g. a port terminal). 5 Third-Party Logistics ▪ Third Party Logistics (3PL) Firms that provide logistics services on behalf of their clients and customers. They offer comprehensive freight distribution services along transport chains. These services can involve warehousing, transloading, terminal operations and even forms of light manufacturing such as packaging and labeling. A 3PL thus tries to organize the tasks related to physical distribution 6 Third-Party Logistics ▪ Fourth Party Logistics (4PL) ‘A supply chain integrator that assembles and manages the resources, capabilities and technology of its own organisation, with those of complementary service providers, to deliver a comprehensive supply chain solution’ Firms that provide total and broader scope of solution services to help manage elements of the supply chain. Concerns independent and neutral actors such as specialized consulting firms that are organizing and managing complete supply chains strategies for their customers. This often involve agreements (subcontracting) with 3PLs and 2PLs. Many 3PL firms also offer 4PL services. The distinction between 3PL and 4PL is now being blurred. 7  Third-Party Logistics ▪ 3PL vs 4PL 4PL Spin-Off Elements of - Manage Multiple 3PLs Supply Chain 6 - Take on More Risk than 3PLs - Provide Advanced IT Services Advanced Services 5 - Provide Strategic Consultancy - “Control Tower” Services Lead Logistics and 4PL Services 4 Single Source 3PL 3 3PL Contract Transportation Management Logistics - Domestic vs. International - Asset vs. Non-Asset Based 2 Individual or Multiple Logistics Activities Value-Added Warehousing and Distribution 1 Insourcing 8 Third-Party Logistics ▪ Each layer involves increasing levels of service ▪ A 3PL could be booking transport and warehousing services creating a supply chain between a manufacturer and the distribution center of a purchaser. ▪ Several firms, many global in scope, offer a variety of logistical services spanning 2PL, 3PL and 4PL layers. ▪ About 75% of all 3PL firms are also offering 4PL services http://www.pantos.com/kr/main.do 9 Types of 3PL Providers ▪ Resource Ownership Asset based Non-asset based ▪ Primary Service Transportation based Forwarder based Financial based Information based Types of 3PL Providers ▪ Resource Ownership Asset Based - Owns assets and labor force needed to run transport and logistics activities - Examples: UPS, J.B. Hunt, Exel, Ryder, FedEx - Advantages: readily available capacity, permanent employees, and direct control of the customers’ freight - User concerns: potential for bias toward 3PL’s own internal resources in developing solutions for customers 11 Types of 3PL Providers ▪ What are the assets? Do you have any example? Truck fleets, ocean vessels, aircraft, terminals and warehouses, material handling equipment, technology systems, and/or other resources Readily available capacity, permanent employees ▪ What are the asset-based implies to use in using 3PL? Direct control is available Types of 3PL Providers Non-asset Based - Contracts with other firms to provide services rather than owning required assets - Examples: C.H. Robinson, XPO Logistics, Kuehne + Nagel, CEVA Logistics - Advantages: more flexible vs. asset-based 3PLs, unbiased decision making - User concerns: subject to competition for capacity from external providers, more intensive relationship management required 13 Types of 3PL Providers ▪ Do 4PLs fall into this category? Consulting firms such as Accenture, Bain & Company, KPMG, and some software firms may fall into this category ▪ Any other disadvantages? For example in time of economic expansion? Limited availability of purchased transpiration abilities in time of economic boom 14 Types of 3PL Providers ▪ Primary Services Transport based - Business origin in freight movement - Examples of 3PLs: UPS Supply Chain Solutions, FedEx Trade Networks, Schneider Logistics Services, Damco (Maersk Group), BNSF Logistics - Examples of services: move freight, manage transportation operations, operate fulfillment centers, develop logistics solutions 15 Types of 3PL Providers Forwarder based - Includes freight forwarders, brokers, and agents that primarily facilitate the flow of goods on behalf of customers - Examples of 3PLs: C.H. Robinson Worldwide Inc., Hub Group Inc., Kuehne + Nagel Inc. - Examples of services: arrange transportation services for LTL shipments, air cargo, and ocean freight; facilitate international freight movements 16 Types of 3PL Providers ▪ Financial based Specialize in monetary issues and financial flows in the supply chain Examples of 3PLs: Cass Information Systems, CT Logistics, enVista, TranzAct Technologies, GE Capital Examples of services: freight rating, freight payment, freight bill auditing, accounting, electronic payment, freight claims 17 Types of 3PL Providers ▪ Information based Digitized activities that were previously performed manually or required the use of licensed software Examples of 3PLs: Descartes Systems Group, Transplace, MercuryGate Examples of services: online freight brokerage services, cargo planning, routing & scheduling; Internet access (pay per use) to TMS, WMS, performance management tools 18 3PL industry ▪ There has been a steady increase in annual gross revenues over this time frame, with the only exception being the lower revenue for 2009. 19 A nearly 20-year look at annual gross - revenue/turnover data for the U.S. 3PL market ▪ How many firms in Fortune 500 are outsourcing their logistics services do you think? 90 percent of the Fortune 500 companies outsourced some or all of their logistics and supply chain functions with technology, automotive, and retailing industries as leading users. Major 3PL users include companies such as General Motors, Procter & Gamble, and Walmart While many 3PLs rely upon these Fortune 500 clients for current revenues, future growth opportunities also lie with small and midsize companies (SMEs) 20 3PL industry ▪ 3PL Logistics vs. In-House Logistics 21 3PL industry ▪ The logistics services most frequently outsourced are those that are more operational, transactional, and repetitive in nature. ▪ The most frequently outsourced services include domestic transportation (80%), warehousing (66%), international transportation (60%), freight forwarding (48%), and customs brokerage (45%) ▪ The less frequently outsourced logistics services tend to be customer-related, involve the use of information technology, and are more strategic in nature ▪ Users of 3PL services indicate significant agreement with the statement that “third party suppliers should provide a broad, comprehensive set of service offerings” 22 3PL industry 23 3PL industry ▪ IT gap This refers to the difference measured each year between the level of IT capabilities required for 3PL expertise and the shippers satisfied with 3PL IT capabilities. IT gap has narrowed significantly over the time frame, but it is apparent that most shippers do not come close to using the full range of IT capabilities that may be obtained through their relationships with 3PLs. This is due to 1) the complexity of IT-needs of the shipper organizations 2) the extent to which their IT capabilities themselves need to be improved. 3) the complex relationships between the internal to the customer organization also between IT process areas. 24 3PL industry 25 3PL industry ▪ The use of a 3PL was interpreted simply as “turning over all logistics activities” to an outsourced provider ▪ Respondents now suggested that a “hybrid” management structure represents a highly effective way to manage 3PL relationships. ▪ Client firm still want sufficient power over operations for a track record of performance or “trust” factor to be built up. ▪ This hybrid approach to the management of operations is an innovative response to the challenge of successfully managing 3PL–client relationships. 26 3PL industry 27 3PL industry ▪ Based on views from 3PL users, there are a number of areas in which they encourage 3PLs to pursue opportunities for improvement. ▪ Several of these are as follows: Meeting service-level commitments Realizing cost reductions Avoiding “cost-creep” and price increases once the relationship has commenced Effective “onboarding” by 3PLs of new customer relationships Ability to form meaningful and trusting relationships Information technology capabilities Global capabilities Strategic management capabilities and consultative/knowledge-based skills ▪ It appears that some 3PLs need to improve in the areas of strategic management, technology, and knowledge-based skills. 28 3PL industry ▪ There are increasing acceptance of the 4PL model, likely growth in expenditures by current users of 3PL services, and a growing sophistication in the outsourced business approaches that respond to a dynamic set of customer logistics and supply chain needs. 29 CMA CGM Case – Digital transformation 30 CMA CGM Case – Digital transformation 1. What stages did CMA CGM go through in its digital tra nsformation? 1) Step 1 - ( ) digitalization 2) Step 2 - ( ) digitalization 3) Step 3 - ( ) digitalization CMA CGM Case – Digital transformation 2. What strategies did CMA CGM adopt to overcome t he challenges in the digital transformation process? Explore the strategies based on this framework. CMA CGM Case – Digital transformation 1) First dimension : Novelty (1) Incremental: Exploiting existing digital technologies and knowledge to make incremental improvements. (2) Radical: Exploring new possibilities and creative digital solutions by developing novel digital innovations. 2) Second dimension: The environmental complexity (1) Established framework: In a low-complexity environment, firm tends to follow the established framewor k of adopting digital technologies and achieving digital innovations (2) New framework: In a high-complexity environment, it becomes possible to “reframe” the core configura tion of technological and market elements and arrive at an alternative architecture (the new framework) 3) Second dimension : tactics (1) Exploitation- Adaptive and progressive development within existing frameworks (2) Exploration – Experiment and venture to novel ideas to discover potential avenues for growth and innov ation (3) Bounded exploration- Maintain the present business model and use breakthrough digital technologies t o change some of the established frameworks within the company. (4) Reframing- Change the company’s original framework and form links between different environmental f actors. (5) Co-evolve- In the unknown environment, gradually form development tracks through the complex inter action between various elements independent of each other.  Stages of Dimension 1: Dimension 2: Applicable Digital Transformation Novelty of Digital Innovation Environment Complexity Transformation Tactic Process Digitalization Service Digitalization Product Digitalization Business Model Digitalization 34