3PL – Prospects and Problems (DHL, DTDC Case)

CONTENTS

CHAPTER CONTENTS PAGE NO

IIntroduction

3

IIResearch Methodology

6

IIIFacts and Findings

7

IVAnalysis and Interpretation

9

Conclusion13

References 13

INRTODUCTION

Evolution of 3PL:

1 Growth of 3PL companies began back in the 1980’s when businesses began to look for new ways in which they could outsource logistics functions and concentrate on their core business.

2 FedEx is the company which has brought 3PL revolution.

3 The company’s overnight delivery service changed the way in which B2B andB2C transactions operated.

4 As the number of companies offering the service increased, it led to intense competition between them.

Introduction to 3PL:

1 Third party logistics (3PL) companies are a becoming an important part of today’s Supply chain.

2 These companies offer services that can allow businesses to outsource part of all of their supply chain management function.

3 Many 3PL companies offer a wide range of services including; inbound freight, freight consolidation, warehousing, distribution, order fulfillment and outbound freight.

4 In developed countries like US and Japan, use of 3PL services account for over 50% of the total logistic cost

Definition:

Third Party Logistics firm may be defined as an external supplier that performs all or part of a company’s logistics functions.

True 3PL:

1 Characteristics of 3PL are integrated/ managed together and they provide solutions to the logistics/ supply chain problems.

2 Recently, there has been significant increase in the number of firms offering the service and this trend is expected to continue. While many of the firms are small, niche players, the industry has large firms as well.

3 E.g. Fed Ex, UPS Worldwide logistics, Exel, Caterpillar Logistics services, etc.

Types of 3PL Providers:

1 Transportation-Based:

1. Transportation, which is a major activity in a supply chain of a firm, is taken care of by these providers.

2. Leveraged 3PLs use assets of other firms and Non- leveraged 3PLs use assets belonging solely to the parent firm.

3. Ryder, Schneider Logistics, FedEx Logistics, and UPS Logistics are examples of 3PLs.

2 Warehouse/Distribution-Based:

1. These types of providers take care of all the ware house and distribution activities of the firm.

2. This type of transition is more complex when compared to transportation based transition.

3. DSC Logistics, USCO, Caterpillar Logistics, are examples of warehouse/distribution-based 3PLs.

3 Forwarder-Based:

1. Independent middlemen extend forwarder roles.

2. Non-asset owners provide a wide range of logistics services.

3. AEI, Kuehne & Nagle, Fritz, Circle, C. H. Robinson, and the Hub Group are examples of forwarder-based 3PLs.

4 Financial-Based:

1. Provide freight payment and auditing, cost accounting and control, and tools for monitoring, booking, tracking, tracing, and managing inventory.

2. Cass Information Systems, CTC, GE Information Services, and FleetBoston are examples of financial-based 3PLs.

5 Information-Based:

1. Significant growth and development in this alternative category of Internet-based, business-to-business, electronic markets for transportation and logistics services.

2. Transplace and Nistevo are examples of information-based 3PLs.

3PL Market in India:

1 As, companies are concentrating on managing supply chain demand for 3PL’s has increased rapidly.

2 Increased awareness about efficient logistics practices led to the growth of 3PL industry.

3 Because of the infrastructural development such as ports, highways, bridges as well as increasing connectivity and rising significance of logistic services in the country, 3PL has vast opportunities in India.

4 Segment-wise market potential of the 3PL services facilitates the better analysis of the penetration level of latest logistic services across different industries in India.

5 Analysts says that, automobile and IT hardware industry to be the largest end-user industry for 3PL services, multinationals being the dominant users.

6 FMCG and retail sectors are among the other sectors which contribute to the 3PL market and have significant potency to grow in future.

RESEARCH METHODOLOGY

Type of Research:

Research is a purposeful, precise and systematic search for new knowledge, skills, attitudes and values, or for the re-interpretation of existing knowledge, skills, attitudes and values. Type of research adopted is descriptive i.e. self explanatory. The aim of this research is to verify formulated hypotheses that refer to the present situation in order to elucidate it.

Type of data and Sources of information:

Research has been done using the existing data i.e. secondary data. The source of information is Internet, Business newspapers and Business magazines. Various newspapers and magazines have been referred for the latest and factual data.

Objective:

The objective of this research is to find out various problems of 3PL industry and at the same time focus on the prospects of the industry. Different type of 3PL companies and the 3PL market in India have been discussed. Two companies namely, DHL, which provides international express service and DTDC, India’s largest domestic delivery network company are considered for study.

FACTS AND FINDINGS

DHL:

DHL Express (originally standing for Dalsey, Hillblom and Lynn) is a division of Deutsche Post DHL providing international express mail services, founded in 1969. It is a German based Express Logistics Company. DHL was first international company to offer overnight service. In 2004, DHL has acquired Indian domestic courier Blue Dart. DHL was the third largest courier behind FedEx and the UPS, in the world. It is worlds No.1 in ocean freight and contract logistics. Competitors worldwide are FedEx, UPS, and TNT. Keeping in view the environmental safety, DHL has switched from fuel to CNG for delivery fleet.

DHL offers a full range of customized solutions - from express document shipping to supply chain management.

Services provided:

1. DHL provides transportation and outsourced logistics services across the industry's supply chain, from sourcing/inbound logistics, to manufacturing, to outbound/distribution logistics, to after sales support.

2. It offers delivery and installation service that covers business equipment as well as home delivery direct to consumers.

3. A 24-hour door-to-door emergency delivery service in specific countries and territories is being offered.

4. Products can be tracked, queried and ordered online.

5. Receipt, management, execution, sequencing and dispatch of orders in a timely manner

6. Temperature controlled warehouses are present for perishable products.

7. The warehouses are automated or semi automated for material handling purposes.

8. Uses latest technologies like RFID tags for storing and detecting.

9. DHL Cargo has an insurance cover for the goods lost under transit.

10. Offers tailored made solutions based on pre-designed and standard logistics modules for different service level supply chains.

11. DHL deliver the right part, at the right place, at the right time, and at the right cost.

12. Value- added services like temperature controlled packaging, cargo insurance, QA/QC Control is being offered.

13. IT enabled solutions.

14. Operates call centre to control orders, monitor sales activities, and provide customer services.

15. Provides useful packaging tips, support to its customers.

Challenges faced:

1. Under certain circumstances, due to unavailability of the recipient, several repeat deliveries have to be made leading to higher costs.

2. Creating extensive network and carrying out international expansion.

3. Lack of own fleet of air fleet in countries like India resulting in delays.

4. International parcels have to pass the custom check before they can be sent to other countries; certain parcels get delayed for more than 24 hours.

5. Shipping volume rises and falls tremendously as the economy climbs and dips.

DTDC:

DTDC is India’s Largest Domestic Delivery Network Company offering various custom made services ranging from Domestic to International. DTDC delivers to the remotest places in India with the help of 4,000 business partners spread across the length and breadth of India. It is spread across 240 countries around the globe. DTDC has the state of art IT infrastructure to support their operations and has built many customized applications for its corporate clients. DTDC offers wide range of services like Express

courier, cargo, end to end supply chain solutions, Retail services like ticketing solutions, bill payments, Mobile & DTH top ups apart from Training supply chain professionals through its supply chain training institute. Competitors in India are First flight, Blue Dart, Professional Couriers, Gati, Safe express etc

Services provided:

1. Domestic tracking via internet, SMS

2. DTDC’s E commerce solution that helps with system generated bar-coded waybill at the customer’s destination facilitating an easy process.

3. Customers can schedule a courier pick-up

4. Get customized rate quotes

5. Customer can create customized shipment reports

6. DTDC Indian Address Validation Tool- ensures that customer-entered shipping addresses for the de1stinations are correct at the time of order.

Challenges faced:

1. Does not own freighter aircraft.

2. Still developing its overseas expansion.

3. Repeat deliveries leading to higher cost.

ANALYSIS AND INTERPRETATION

Third party logistics study revealed that number of 3PL users is very stable and it is expected that their number may increase in the coming years.

Exhibit 1: No. of 3PL user / Non user experience, 96-01

Exhibit 2: Shippers using more than five 3Pl’s

Exhibit 3: Third Party Revenue Estimated

Exhibit 4: Top Six outsourcing Logistics services

Exhibit 5: Factors for selecting and evaluating 3PL’s

Third Party Logistics research study revealed the following:

1) Quantifiable measures of 3PL success:

Logistics costs reduced by 8.2 percent.

Logistics assets reduced by 15.6 percent.

Average order cycle length changed from 10.7 to 8.4 days.

Overall inventories reduced by 5.3 percent.

2) Outsourced logistics services include:

Warehousing (73.7%)

Outbound transportation (68.4%)

Freight bill auditing/payment (61.4%)

Inbound transportation (56.1%)

Freight consolidation/distribution (40.4%)

Cross docking (38.6%)

3) Some of the problems reported are:

Service level commitments not realized.

Strategic management skills lacking.

Cost reduction goals not realized.

Cost “creep” and price increases occurring.

Improvements and achievements lacking.

Control of outsourced functions diminished.

Consultative, knowledge-based skills lacking.

Technology capabilities not being delivered.

Time and effort spent on logistics not reduced.

CONCLUSION:

By outsourcing logistics activities, firms can save on capital investments, and thus reduce financial risks. Investment on logistics assets, such as physical distribution centers or information networks, usually needs large and lump sum costs, which involves financial risks. Hence, by outsourcing these activities, a firm can concentrate on its core activities.

The Indian 3PL market is set to grow tremendously in the next 5-7 years, spearheading the growth of logistics market. Several factors including government’s support are instrumental in this growth. Though certain challenges remain to be addressed, the general trend is highly positive. With scenario highly favorable for them, the onus is now on 3PL service companies to offer quality services at affordable pricing, and delivering consistent results to maintain the momentum. For now, surely 3PL is the way forward for Indian Logistics Market.

REFERENCES:

1. Understanding the Sap Logistics Information System (2007) by Martin Murray

2. http://www.researchandmarkets.com/reports/888568/

3. http://www.dtdc.in

4. http://www.dtdc.com/

5. http://www.dhl-discoverlogistics.com

6. http://www.business-standard.com

7. “Management of Business Logistics” –7th Edition by Coyle, Bardi, Langkey