outsourcing 3 pl 4 pl challenges final

Presentation on

Outsourcing - 3PL / 4PL ChallengesIndustry 2.0 Conference

Presentation on

Outsourcing - 3PL / 4PL ChallengesIndustry 2.0 Conference

February 8, 2005

Arif A. SiddiquiArif A. SiddiquiGeneral Manager

confidential 23/23/2005

Content

• Understanding the Outsourcing Landscape

• Establishing the Outsourcing Strategy

• Case Study 1 - Consumer Durable

• Case Study 2 - Hi-tech

• Challenges






• Challenges

Content


Globalization

ContractTransportation/

Distribution

1995 - 2000

LogisticsOutsourcing

IntegratedSupply ChainManagement

1985 - 1995 2000 +

Single function Integrated multi-functions

Transactional Strategic partnerships

Local, regional Global, door-to-doorcoverage

Asset heavy, processexecution

Information/knowledge focus,integrated IT solutions

Landscape

80% of Fortune 500 Manufacturers use 3PL services accounting to 40% of the logisticoutlay. This is likely to reach 50% by 2006


Source: Logistics The way it is today - Sajal Kabiraj

Distribution Model

Replenishment

Customer Service Time

Customer

Orders

Demand

Shipment Type

Destinations

Warehouse Type

Order Cycle Time

Predictable

Monthly or Fortnightly

Channel

Reactive, Rigid

Supply Driven, Push

Scheduled

Stable, Consistent

Bulk

Major Towns - Concentrated

Go-downs

Variable, Small Lots

Weekly or Daily

End Customer

Responsive, Flexible

Demand Driven, Pull

Real Time

More Cyclical

Smaller Lots

Geographically Dispersed

Custom Built

Logistics Then Logistics Today

Logistics Today


Asia-Pacific Logistics OverviewM

arke

ts

l Hong Kongl Singaporel Japanl Australial New Zealandl Koreal Taiwan

Mature

l China

Unique

l Malaysial Thailandl Indonesial Philippinesl India

Mid-Level

l Sub-Continentl Vietnaml Cambodial Laosl Myanmarl Etc

Developing

l DevelopedLogistics

l High Competitionl High Service

levelsl Lead time

pressurel Lower Growth

l RapidDevelopment

l Undevelopeddomestic mkt..

l Increasingservice levels

l High Growth

l Developingsophistication

l Increasingcompetition

l Increasingservice levels

l Varied Growth

l Poorerinfrastructure

l Lowercompetition

l Regulatoryhurdles

l OwnershipIssues

l High Growth

Cha

ract

eris

tics


Outsourcing in India

• Emerging Trends

– Current India Logistics Market approximately Rs. 40,200 crore (Euro 6.7 bn) *

– In-sourced Logistics accounts for 45%

– Out-Sourced Logistics forecasted to increase

• Driving factors

– Supply Chain Management - Not a core competency

– Changes in Regulatory Framework (e.g. Free Trade Zones, Exemptions,Customs EDI, VAT, etc.)

– Supply Chain integration intra-entities

– Emergence of Global Logistics Service Providers

– Improvement in infrastructure

Source: *ATKearney Estimate


Extent of Outsourcing in India

Importance Rating and Extent of Outsourcing of Logistics Activities (2001)

Source : Third Party Logistics Practices: An India Perspective, B. S. Sahay and Ramneesh Mohan






• Challenges

Content


Outsourcing Strategy

Develop a business case Select a service providers


Business case

Whyoutsource?

What tooutsource?

How tooutsource?

Strategic Factors

l Focus on core competenciesl Improve customer servicel Enhance flexibility

Operational Factors

l Improved process executionl Improved technology

Financial

Factors

lReduce costs

lReduce capital requirements

Why to outsource?

Developing a business case helps logistics managers to determine if the decisionhas strategic, financial and operational justification


Dimension Transportation Distribution Import/Export

l Network design

l Carrier contracting

l ShipmentoptimizationP

lan

nin

gE

xecu

tion

l Carrier selection/tendering

l Shipment tracking

l Freight payment

l Facility design

l Project management

l Core warehouseactivities

l Value addedservices

l Coordination ofglobal freightmovements

l Customs clearance

l Freight forwarding

What to outsource?


How to outsource?

PerformStrategic

Assessment

Decision to form

relationship

EvaluateAlternative

Options

PotentialPartner

Capabilities

CompanyNeeds &Priorities

StructureOperating

Model

Implementation &

ContinuousImprovement

Select Partner


Vendor Selection

Jack ofAll Trades

One-StopShop

National Operator

LocalExpert

Integrated

Niche

Local National

FunctionalGrowth

ValueManagement(3PL/ 4PL)

GeographicGrowth

Multi-vendor Management(Transporter/ Landlord)

Service ProvidersScope of Service

Service ProvidersGeographic Breadth

Managem

ent Style






• Challenges

Content


Scope

• Warehousing - 20 locations

– Finished Goods

– Project Material

• Primary Transportation

• Secondary Transportation - Inter-city/ inter-region

• Secondary Transportation - Intra-city


Factory/Plant

Warehouse2

ImportLocations

Warehouses 1

Dealer/Distributor/Customers

LST billing

EXPRESS

CST Billing

EXPRESS

IBSTFTL

ImportsFTL

TRANSACTION

DISTRIBUTION MODE

TRANSACTION

DISTRIBUTION MODE

Imports DomesticMULTIPLE

VENDOR ANDWAREHOUSES IN

THE SAME REGION


LST Billing

EXPRESS

One region of Customer

Existing - SCM Model

IBSTFTL

ImportsFTL

Limitations

• Push Model resulting in huge inventoryacross the system and sub-optimalutilization of warehousing space

• Low inventory information visibility due todecentralized system

• High logistics cost due to movement toand from multiple warehouses to samemarket

• Factory feeding the market directlyleading to longer lead-time

• Port of clearance not completely inalignment with cost and consumptionmarket

• Lack of standardization resulting inlonger lead-time for policy roll-outs, MISgeneration, etc.


Expectations and Challenges

Expectations

• Uniform processes across country

• Visibility of inventory through the entiresupply chain

• Shorter order to delivery TAT

• Reduction in inventory holding

• Facilitating right stock at right place basedon pull system

• Reduction in working capital throughincreased inventory turns

• Optimization of warehousing space acrossthe country

• Shift from Static to Dynamic model

• Over all reduction in logistics cost

• Manage smooth transition

Logistics Challenges

• Initiating change management andimplementation of new process across theorganization

• Vendor re-evaluation on proper SLAs andcost optimization - 4PL

• Integrating systems, standardizing process

& MIS across multiple locations

• Framing stringent KPIs/ SLAs andimplementing the same as part of theoperations

• Flexibility in offering dynamic servicesrequired due to seasonality of demand

• Facilitating movement based on pull as

against push system

• Reduction in total logistics cost to turnover


Recommended - SCM Model

RegionalWarehouse

2

State/ SatelliteFlow-throughWarehouses


IBST

EXPRESS

LST Billing

EXPRESS

TRANSACTION

DISTRIBUTION MODE

RegionalWarehouse

1

RegionalWarehouse

3

ImportLocations

RegionalWarehouse

4



IBST

EXPRESS

LST Billing

EXPRESS



IBST

EXPRESS

LST Billing

EXPRESS



IBST

EXPRESS

LST Billing

EXPRESS

CST Billing

EXPRESS

IBSTFTL

IBSTFTL

IBSTFTL

IBSTFTL

ImportsFTL

ImportsFTL

ImportsFTL

IBSTFTL

TRANSACTION

DISTRIBUTION MODE

Imports DomesticSINGLE 3PL

VENDOR

Factory/Plant


• Integrated operation and standardized logistics policies across the country facilitating better MIS

and inventory visibility through the supply chain

• Two step distribution model - RWH for stocking and state warehouse for LST billing with state

warehouses essentially holding low inventory only of fast moving SKUs

• Movement from factory to RWH to be on FTL mode, onward movements on express mode

facilitating economies of scale

• Slow moving manufactured items to be stocked primarily at RWH

• Non-saleable/ damaged stock cleansing on regular intervals

• Single point accountability across services across country

• Considerable reduction in lead time envisaged in servicing orders of finished goods across India

• Movements based on pull as against push will result in lower inventory at regional/ state

warehouse, thus reducing inventory holding cost

Highlights of theImplemented SCM Model






• Challenges

Content


Scope

• Warehousing - 4 mother warehouses, 17 state-warehouses, 24 tertiary

warehouses

– Finished Goods

– Infrastructure Material - open space

– Defective Returns Management

• Intra-country distribution

• Rapid Fulfillment


Factory/Plant

Port ofEntry

Warehouses1


LST billing

EXPRESS

CST Billing

EXPRESS

TRANSACTION

DISTRIBUTION MODE

TRANSACTION

DISTRIBUTION MODE

Imports Domestic

MULTIPLE C&F VENDOR

Few Geographical Markets

Existing - SCM Model

IBSTFTL

ImportsFTL

Drivers

• Strategy of expanding PAN India onshort notices, with focus on B Classcities apart from metros

• Rapid Fulfillment - last mile deliveries

• Increase in volume of transactions

• Barcode integration to capture serial nos.of goods

• Shorter product life cycle and increasedimportance of logistics during newproduct/ service launches

• Postponement logistics - productactivation at warehouses

• Cost optimization through refurbishingand reuse of returned material


Expectations and Challenges

Expectations

• Large mother/ regional warehouses andsmall satellite warehouses across India

• Process standardization at national level

• Integration of systems like Oracle, SAP,etc.

• Logistics support during new product/service launches

• Equipment Serial Nos. capture forintegrated billing and AMC

• Rapid fulfillment

• Value added services

• Reverse Logistics

• Dynamic Cost model (pay-by-use)

Logistics Challenges

• Managing transition, systems integration &process standardization across threeentities within client organization

• Implement SCM across 45 locations inIndia including roll-out of closed and openwarehouses

• Formulating and implementing investmentplan to scale up

• Managing logistics during new product/service launches

• Ability to provide value added services likeproduct activation, kitting, etc.

• Reverse Logistics Management includingrefurbishing activities

• Managing rapid fulfillment and tatkaaldeliveries


Recommended - SCM Model

Motherwarehouse

Circlewarehouse

Clusterwarehouse

In-Bound Out - Bound

Overseas Supplier

LocalSupplier

AgentCustomer

Material Receipt

Quantity Check

Put Away

Receive Order-STN/Invoice

Pick List Generation

Material Retrieval

Dispatch

System Update

Generate System Report

System Update

Serial Nos. Capturing

Equipment Activation

Systems Updation

Reverse Logistics

Conduct inspection and segregation

Equipment refurbishing


• Surrogate customer account management (single window - Program Mgmt)

• Standardized logistics policies across the country

• Customized SCM reports for effective inventory management through bar-

coding technology

• Warehouses scaled across 45 locations in India within 6 months

• Rapid fulfillment mechanism from warehouses to meet immediate demands

• Standard Operating Procedure to manage distribution during new service and

product launches

• Value added activities conducted at warehouse

• Reverse logistics management within warehouse

• Implementation/ Roll-out of customer’s ERP within warehouses

Highlights of theImplemented SCM Model






• Challenges

Content


• Strategic

– Management buy-in

– Cultural fit

– Scope of outsourcing

• Organizational

– Restructuring organization

– Re-deploying existing resources

– Anticipating quantum and timing of change

– Managing change

• Operational

– Reengineering existing processes in view of outsourcing strategy

– Framing KPIs/ SLAs both for internal resources and for external agencies

– Implementing processes across the organization and initiating MIS generation

– Measuring performance and benefits of outsourcing

Outsourcing Challenge -Internal to the Organization


• Selection Challenges

– Ability to understand and assess customer’s requirement

– Project management and roll-out capabilities

– Framing appropriate performance measurement system

– Information technology integration and interface

– IT and communication infrastructure upgradation

– Managing relationship with customers/ vendors/ authorities/ employees

– Developing short-term and long-term infrastructure

– Developing strong intra-country dependable distribution service

– Ability to scale-up/ down depending on customer’s requirement

– Developing and enhancing Intellectual Capital

– Continuously enhancing and expanding service offerings

– Developing and implementing industry-specific SCM solutions with tangiblemeasurable results

Outsourcing Challenge -Vendor Selection


• External Challenges

– Optimizing within infrastructure constraints

• Poor road conditions

• Lack of dependable communication infrastructure

• Real estate hurdles

– Managing multiple government authorities

• Sales tax authority

• Octroi Authorities/ Entry Tax Authorities

• Local bodies (Gram Panchayats, etc.)

– Understanding and adopting laws of land

• Sales Tax

• Entry Tax

• Excise Laws

• Octroi rules

• Other documentation like permits, etc.

Outsourcing Challenge -External Business Environment


Logistics

ProductionControl &ProductionManagement

TransportationManagement

DistributionManagement

NetworkManagement/Optimization

Customer Service and

OrderManagement

Procurement& InventoryManagement

Strategy& Planning

InformationTechnology

• Forth Party Logistics - managing multiple3PLs and technology partner

• Transportation Excellence

• National Footprint

• Advanced IT Application - WMS,Track andTrace, RFID, etc.

• Optimizing Decision Support Tools

• Transition and relationship managementcapabilities

• 24/ 7 Service Capability

• Managing ‘Mission Critical’ installationsduring high cost machine down timescenarios

• Value added services and Postponementlogistics

Future Expectations from 3PL

Getting the right combination


Key Success Factors

• Management Buy-in

• Project Management Capabilities (Service Provider & Customers end)

• Flexibility in scaling and adapting to changes

• Standardized service and processes across the country

• Strict adherence to performance management - KPIs/ SLAs

• Cost reduction and resource optimization initiatives

• IT integration and upgradation capabilities

• Change management capabilities

• Adequate trained and skilled manpower


“MANUFACTURING QUALITY IS NO LONGER THE KEY COMPETITIVEDIFFERENTIATOR, SUCCESS NOW DEPENDS ON THE ABILITY TO MEETCUSTOMER DEMANDS FOR DELIVERY, QUANTITIES AND OPTIONS AS ARESULT, COMPANIES ARE SCRAMBLING TO IMPROVE SUPPLY CHAIN

PERFORMANCE SIMPLE TO REMAIN COMPETITIVE.”

- JIM SHEPHERD - V. P. RESEARCH, ADVANCE MANUFACTURING REASEARCH

• When quality is given and customer order fulfillment becomes a keydifferentiator between products/ organizations, SCM design and efficientoutsourcing becomes the buzzword.

• 80% of Global Fortune 500 manufacturers use 3PL services ascompared to 55% of Indian manufacturers

• With booming Indian economy where infrastructure and tax reforms arebeing implemented, SCM will be the prime focus for organizations


Speed

Openness Collaboration

Time Trust Skills

Collaboration(CPFR),

Communities ofInterest (Service

Providers & Industry)

Speed

Future competitive weapon

Economy of Skill

Commandand Control

Costs

Economy of Scale

Competitive Weaponsof the 2000’s

Competitive Weaponsof the 1990’s


Thank youThank you