Logistics Outsourcing

An Emerging Trend

Drivers to Outsourcing

Globalization of markets
Competitive pressure

Changing customer demands

Emerging technologies

Why Outsourcing?
- To focus on core competencies

- Resource constraints - Cost-saving resulting from better management - Wider geographical coverage - Reduction in risk and liability - Extend superior customer service - Source of process improvement

Which Logistics Activities Are Outsourced ?

Warehousing and warehousing management Transportation and freight management Freight payment and audit Inventory management Customs clearance Material Handling Packaging

Logistics Evolution
4 Party Logistics
Alliance with 3 PL Service provider IT Organization IT/logistics Consultant

3 Party Logistics

Outsourcing Warehousing Transportation Inventory Order processing

In-house logistics

Self -relient Organization performing all logistics operation

3 PL Service Provider
Wholesalers
The stand-alone operators, who extend only one type of service in which they have an expertise such as:
- Warehousing - Transportation - Customs clearance - Packing - Equipment suppliers - IT support

Integrators
One who provides entire logistics services and offers Logistics solutions to customers logistics problem

Advantages of 3 PL
Reduction in risk and liabilities Value added service to the customer

Source of process improvement

Wider market coverage Speed to market

Value Added Services by 3 PL Service Providers

Cross docking Customs clearance Reverse logistics Assembly or mixing Freight consolidation Special packaging & labelling Logistics audits Stock financing

Prominient 3PL providers

AFL Limited Dynamic Logistics Fed Ex Gati Logistix limited Patel Roadways SembCorp TCI TNT

4 PL Service Provider
- Covers the entire supply chain of the customer
- Collaboration between two or more 3PL service Providers on the resources sharing basis to extend logistic solution to a common customer - Alliances to be led by integrator with IT based and not asset based service provider
- Flexible arrangement

Advantages of 4 PL
Reduced logistics cost Concentration on core competencies Release of management capacities Reduced assets Economies of scale Increase of process quality Access to latest technologies

Logistics Outsourcing Issues

Switching cost (assets , customer service) Degree of control (over employees) Human & electronic interface ( decision issues, EDI) Tuning logistics to need of channel partners (ITC) Degree of outsourcing Legal aspects

Service Provider Selection - 1

Define logistics problems
Identify problem areas

Establish objectives
Search for service provider

Proposal evaluation
Selection of service provider

Service Provider Selection- 2

Define logistics problems

- High logistics cost - Longer performance cycle - Increased customer complaints - Reverse logistics

Service Provider Selection-3

Identify problem areas

- Warehousing - Material handling - Storage arrangement - Transportation - Packaging

Service Provider Selection-4

Establish objectives
- Cost reduction - Performance cycle compression - Customer complaints resolution - JIT delivery - Freight optimization - Route planning - Inventory carrying cost

Service Provider Selection-5

Search for service provider

- Integrator - Wholesaler - Consultants

Service Provider Selection-6

Proposal evaluation & Selection
- Credentials - Logistics infrastructure - Experience and customer base - Technology - Cost of service - Reliability - Government liaison

Logistics Service Contract Agreement

Date & place of the contract Names and addresses of contracting parties Scope of service Delivery requirements Payment terms Extra services from service providers Charges for services offered Value proposition by service provider Damage liability Responsibilities Performance measures criteria Risk sharing Termination of contract Notice period Notice for claims and filing suits Authority & jurisdiction of dispute settlement Governing laws