OMSAN LOJİSTİK Top Management Program in Logistics & Supply Chain Management (TMPLSM) Supply Chain & Logistics Outsourcing Projects 2. 3PL Industry Highlights

OMSAN LOJİSTİK

Top Management Program in Logistics & Supply Chain Management (TMPLSM)

Supply Chain & Logistics Outsourcing Projects

2. 3PL Industry Highlights

4

3PL Industry Trends

• The European 3PL market is currently going through a fundamental redefinition. The new focus is on integrated logistics as “one-stop” solutions. There is also a significant migration from asset-based logistics to value-added and integrated contract logistics solutions.

• The emergence of the concept of a lead logistics provider (LLP) has brought about higher degree of specialization within the 3PL market. Also the gradual transformation of 3PL players into a 4PL service provider is just about taking shape and promises to be an exciting phase in the logistics services market in Europe.

• The current estimation of the exact size of the European logistics market as per various sources varies considerably. However the current total logistics spends in Europe is roughly put in the region of $140-$160 billion, of which $35-40 billion (25%) is directly contracted out to 3PL companies.

5

Global Logistics and contracts logistics

service providers, 2003

6

Trend in Outsourcing around the World …

7

European Logistics Market 2003

• Germany and France are the highest potential markets in Europe. However, UK market is very mature in comparison to the other ones and the most part of top European contract Logistics players are UK based.

8

Logistics contract duration

• Most part of European LSP contracts are 3 to 5 years long. It shows LSP adopt and strategy of long term partnerships with their clients.

Source: Transport Intelligence 2003

9

32%

27%

18%

10%

5%

8%

FMCG Retail & Food Technology

Automotive Health & Medical Other

Logistics outsourcing by sector

Sales of Top 11 European LSP actors by sector (2002)

Source : NVC Research, 2004

Automotive is a business developed by actors focused on this sector (therefore not representative among top European LSP actors)

FMCG and Retail sectors are the main clients of Top LSP actors

Top 11 players represent 30% of total logistics market in Europe

10

Competitive Positioning

General Services

Special Services

Ge

og

rap

hic

al S

pe

cia

liza

tio

nG

lob

al Ge

og

raph

ic Co

ve

rage

DSV

Dachser

Panalpina

DeutschePost

TNT

Bolloré

Ryder

CNF

Stinnes UPS

Exel

ABX

Tibbett

NDHays

Salvesen

Geodis

K&N

11

Top 20 European Logistics leaders 2003

Source: Eye for Transport, 2003

12

European Logistics leaders 2003

Source: Transport Intelligence, 2003

Revenue with contract Logistics

ProfitMargin

13

European Logistics leaders 2003

• Market progressed to reach a balance in terms of contract logistics profit margin of around 3%. This can be explained by the consolidation in the sector and the fact that LSPs are creating now multiple sector offers.

14

What are you looking for?

15

Why Would you want to do it?

16

Some Accomplishments …

17

Measures of Success …

18

Average Customer Results from Use of 3PL Supplier

• Logistics Cost Reduced by 14.6%

• Logistics Assets Reduced by 25.8%

• Order Cycle Length from 11.9 to 7.5 Days

• Information Systems Integration from 35% to 65%

• Customer Satisfaction Index from 65.2 to 67.9

Source: 1997 University of Tennessee/Exel Logistics Study

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Outsourcing - Industry Trends

20

3PL Contract Logistics Market

Private Fleet15%

Value Added Whse/Dist

37%

International24%

Software6%

Transportation18%

21

Annual Logistics AnnualRegion GDP Growth Spend % Market Growth

North America $11,100 5.6% $1,110 20% $222 15%Europe $9,900 3.9% $990 28% $227 10%Asia $8,050 4.5% $805 10% $81 20%Africa $550 7.8% $20 n/a n/a n/aAustralia/NZ $500 4.6% $50 15% $8 8%South America $1,250 2.3% $65 10% $7 20%

Total $31,350 $3,040 $545

Global Logistics Market(in $billions)

Outsourcing

Outsourcing is approximately $545 billion annually and growing at 15% per year.

Source: PwC and US Department of Commerce.

22

Services Provided By 3PL’s

Transportation Mgt22%

Private Fleets11%

Intermodal5%

Warehousing19%

Value Added16%

International10%

Integrated11%

Other2%

Lead Logistics4%

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Where should you go? What’s the scope of outsourced

logistics services?

24

What’s stopping companies around the world from

outsourcing today?

25

Where should 3PLs get better at?

26

What customers think of their

3PLs regarding applied

technology …How are we doing at our company in

terms of logistics IT support?

27

Message? Without technology a full service 3PL

can’t survive in today’s market place!

28

… and in the future, don’t expect things getting easier. There’s a new breed of solely IT-based

logistics services.

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… and this is the way we could see the logistics (3PL) function and its processes …

Sourcing Point(Supplier, Factory, Store, User)

Fulfilling your service promise, while optimizing system’s resources

Fulfilling your service promise, while optimizing system’s resources

Logistics (bridge)

Logistics

Consumption Point(Factory, Store, User, Consumer)

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Axis of the Logistics Evolution

COSTSCOSTS

SERVICESSERVICES

PHYSICAL FLOWPHYSICAL FLOW

INFORMATION FLOWINFORMATION FLOW EXTERNAL EXTERNAL THIRD PARTY THIRD PARTY LOGISTICSLOGISTICS

INTERNALINTERNAL

32

Steps of the Methodology

Business planningThought Lea

dersh

ip

Performance excellence

VisionStrategyPriorities

Best P

ract

ices

Indust

ry L

eader

s Baseline

Footprint

Current

Situation

33

A business oriented framework for assessmentand strategic vision

1)Vision, Strategy, Priorities Short term tangible results Long term strategic alignment

• Baseline Footprint

Current Orientation Gap between Vision, best practices and currents state addressed by a business

planning Financial Justification

1)Industry Leaders

Selection of Applicable best practices Roadmap to achieving performance excellence Impact Vision and Strive to be Industry Leader

34

Phase 1: Vision, Strategy, Priorities

Strategicvision

Organizationpeopleskills

Monitoringand logical process

InformationSystemssolutions

Logisticsoperations

The 6 Logistics/SCMcomponents

Key PerformanceIndicators

Information systems

Service targets

Cost

of th

e Lo

gis

tic

solu

tion

Logistics

Org

anizatio

n

Physical fl

ows

Logic

al pro

cess

Components of the Logistics Business Model

35

Performance

Organization

StrategyMonitoringInformationSystemsOperations

Logistics/SCM Maturity Levels

• Each component of logistics is characterized by one of the 4 possible maturity levels.

Sequence of operations

Level 1

Physical logistics

Level 2

Supply Chain Management

Level 4

Integrated logistics

Level 3

36

Logistics/SCM Maturity Levels

Performance

Organization

Strategy

Monitoring

Information systems

Operations

Current maturity

Level 1

Low level of logistics maturity

Level 4 High level of cooperation with external actors

Level 2 Logistics focused on physical operations

Level 3

- High level of internal cooperation with other functions

current aimed Aimed maturity

37

The Maturity Matrix

• Each component of Logistics:– Strategic vision– Organization people skills– Monitoring and logical process– Information Systems solutions– Logistics operations – Key Performance Indicators

consists of several attributes, the consolidation of which helps to define the maturity level of the component

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Clients values and performance targets Physical Structure

Process and organization Information system

• Sequential approach of physical operations

• Logistics is under the responsibility of warehouse manager and transportation is under commercial management

• Field if limited to internal environment

• Pushed flow logic• Constant claim management

• Dominant productivity objective• Logistics = Cost centre• Saturation of transportation assets

• Local logistics, local and regional warehousing network

• Operations without added value, focused on transport

• Assets ownership, racks, bins and warehouses

• Increasing number of third party actors

• Direct negotiation with carriers

• Specific solutions• Outdated information system• Low transport planning and tracking• Low EDI with business partners

Level 1 : Low level of logistics maturity

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• Management of enterprise’s internal flows

• Assuming push/pull flow interface: postponement and late differentiation

• Specialization of shipping areas/sites• Development of national platforms• Assets ownership • Transport groups creation and

evolution aiming at value creation

• MRP, DRP • EDI wide-spreading• Transactional information system

(stock management)• Low information from logistics

service providers

• The objective is reduction of order management costs, stock costs, with improvement of service level

• Heading for excellence• Performance measurement

through representative numbers

• Logistics function is normally fragmented: Warehouses, ADV, Delivery planning

• Creation of Distribution logistics function

• Development of interfacing functions : forecast and demand management

• Paperless organization



Level 2 : Logistics focused on physical operations

40

• Management of enterprise internal flows

• Continental transport platform planning

• Network planning• Globalization of flows• Post-manufacturing development• Punctual logistics outsourcing

• Introduction of Supply Chain statements :forecast adequacy, constraint management, visibility, alert management

• Reverse Logistics development• Category management introduction• Business Process Re-engineering

• Service level agreement formalization

• Trade-off analysis between logistics service and logistics cost

• Shared performance indicators

• ERP• Fist APS• Integration between ERP and APS,

extended visibility and anticipation• Tracking & tracing• Constant optimization and flexibility



Level 3 : High level of internal cooperation with other functions

41

• Client and supplier collaboration• Assuming multiple functional fields :

logistics, customs, quality, proprietary transfer

• Gaps elimination throughout the Supply Chain : reduction of buffer stocks

• BTO• e-logistics• Outsourcing of administrative assets

(telephone, office)• Sector concentration• 4 PL introduction (4th part logistics)• 3PL (logistics service provider)

specialization • Multi-modality

• E-business• Faster link with client and suppliers• Collaborative planning solutions• Supplier transparence• Capital Clients management• Extranets• CPFR• EAI

• Chain capacity (against single actor capacity)

• Reduction of frozen period• Segmentation• Agility and Lean• Continuous improvement• Strategic gains: Market share, Time

To Market, enter barriers • Innovation and continuous

adaptation



Level 4 : High level of cooperation with external actors

42

Where are we? Where do we want to be in 2010? How do we get there?

Today

Somewhere around here, tomorrow!

43

Strategic profiles for a best-in-class 3PL

Logistics Engineering

Internal Organization

Asset Resources

Human Resources

Information systems

Special Logistic Operations

Current maturity

Level 1

Partial Logistics Services

Level 4 Integrated SCM Services

Level 2 Separated Execution between Transport and Logistics

Level 3

Integrated Execution of Operations

current aimed Aimed maturity

Capability for Partnerships

44

Topic « strategic vision » (1/2)

Level 1 Level 2 Level 3 Level 4

Understanding level of Logistics objectives

Vague Formalized and not communicated

Formalized and communicated to the logistics organization

Formalized and shared

Formalization level of the logistics strategy

Not clearly defined Defined but not formalized (no documents, no communication)

Formalized but not fully and clearly communicated

Formalized and fully communicated

Communication of the logistics strategy

Limited to logistics Limited to operations « B » + other functions (marketing, finance, R&D, …)

In house and external (key accounts, partners, …)

Links between the logistics strategy and the business strategy

Independent Input for the business strategy Strategic co-design Pulled by the business strategy

Logistics strategy horizon Less than one year (reactive to events)

Annual budget Less than five years More than five years (partnership)

Logistics strategy focus Costs reduction Improvement of the service level Trade-off service – cost Supply chain used as a competitive leverage

Relations type with the suppliers and the customers

Reactionary management and the dysfunctions

Conflict relations focused on the costs or the service

Relations based on costs and service

Partnership relations and shared improvement

Covered operation fields Transport and storage

Physical logistics chain and customer service

« B » + Sourcing and forecasting (monitoring)

« C » + customers and Third Party logistics operations

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Topic « strategy vision » (2/2)


Service Strategy provided by logistics

Not defined or not defined enough

No customized service strategy

Services sometimes customized (customer, distribution channel,…)

Services fully customized

Logistics innovation and design capability

Low capacity and curative approach

Weak capacity (logistics/business integration) embedded in an improvement process

Strong expertise and anticipation focused on in house benchmarking (resource management)

Strong expertise and anticipation (pro-active approach) focused on external benchmarking

Alternative scenarios assessed for logistics

No alternative scenario Only volume alternative scenarios

Volume alternative scenarios and services

Co-designed scenarios with customers, logistics providers,…

Strategy of IS No guidelines Local and limited guidelines Global guidelines Global guidelines + business intelligence (partners, suppliers,…)

46

Topic « organization – people - skills » (1/2)


Formalization level of the logistics organization

No logistics skills Identified logistics skills Organized logistics function Supply chain function with functional interfaces

Objectives definition No objectives Limited objectives Objectives on the logistics performance

Objectives on the evolution of Supply chain function

Logistics management profile

Independent organizations

Shared information with other departments

« B » + shared objectives Formalized collaborative processes

Interface with suppliers and retailers

Little or no automated interface

Interfaces limited to largest volumes of exchange

Widespread interfaces of data exchange

Widespread interfaces + collaborative tools

Relations between logistics and the other functions

Conflict relations Limited relations Shared objectives Shared objectives and initiatives

Improvement approach “Fireman” ex post Approach limited to the costs reduction

Continuous improvement with quantitative objectives

Global approach cost / service value

Sponsor for the change (responsible for evolution expenses)

No sponsor Functional or operational managers

Logistics VP Top corporate management

Changes booster Operational managers “A” + Logistics teams “B” + Logistics management “C” + Supply chain and business management

47

Topic « organization - people - skills » (2/2)


Main constraints for an improvement approach

No measure and no control of the trade-off cost / service

Lack of quantitative objectives cost / service

Very local approaches Shared and communicated improvement approach

Teams development and skills management

No development plan Development limited to recruitment

« B » + Development by the expertise training

« C » + Training to management and leadership

48

Topic « monitoring and logical process »


Horizon Daily Consistent with the budget on a monthly bucket

Rolling yearly horizon Flexible horizon according to the events

Business indicators measure

No knowledge of the basic indicators

Global logistics budget and productivity indicators

“B” +costs analysis and budget control

« C » + action plans under manager control

Service objectives Little or no formalized Objectives not differentiated and internally fixed

Objectives differentiated on an axis (customer, product, …)

Objectives differentiated on several axes

Decision-making tools

Not or not much support Office tools Tools dedicated to functional areas

Tools enabling overall integration

Key Performance Indicators (KPI)

No KPI KPI limited to logistics costs and logistics productivity

KPI limited to the costs and to service quality and productivity

« C » + in house & external benchmarking + action plans

Capability to monitor a relation with a logistics service provider

Lack of in house monitoring and few experience of logistics subcontracting

In house monitoring and few experience of logistics subcontracting

In house monitoring and capability to share the monitoring process with a service provider

Specific and pro-active monitoring with a service provider (plans of shared improvement)

49

Topic « Information Systems solutions »


In house integration logistics IS and operational IS

No automated interface (operational monitoring and execution and level)

Limited and not very open-ended interfaces (limited to execution level)

Interfaces on the way to internal generalization

Internal and external generalized interfaces

Integration of internal IS and external IS (customers, service providers)

No automated interface (customer relation)

Limited and not very open-ended interfaces (transport)

Interfaces on the way to internal generalization (logistics service providers)

Generalized interfaces

Global coherence of logistics IS compared to logistics

No coherence with logistics Local IS partially integrated (area, functions)

Local integrated IS ex post Supply Chain Management guidelines

Transactional functionalities (orders management, tracking, …)

Few Limited to the basic functions

Developed but limited functional span (partial tracking, …)

Wide functional span (full tracking, collaborative management of problems, …)

Decision-making functionalities (planning and optimization tools)

Few, simple local tools Modules of local optimization

Developed but limited functional span (partial optimizations, …)

Large functional span (full optimization)

Data coherence (data management, dictionaries)

No coherence (no common dictionary, …)

Partial coherences Full coherences Data management organized within a planned process

50

Topic « Logistics operations »


Logistics (warehousing service, transport) - Purchasing

Spot purchasing Purchases based on yearly contracts

Purchases based on 3 year-contracts with yearly savings

Purchases based on open book : win / win

Performance measure cost - quality

No performance measure Performance focused on the costs and productivity levels

Multi-criteria analysis of the performance level

Performance measure according to customer’s specifications

Technical innovations (warehouse, transport)

No or few innovations Spot innovations pushed by logistics services

Spot innovations co-developed by logistics and business line

Innovations embedded in the Mid Term Plan of Supply Chain

Customer service information (tracking, …)

No tracking Limited tracking ex post not integrated in the transactional IS

Tracking limited to the customer’s request and integrated in the transactional IS

Full tracking (on Supply Chain) available on line for the customer

Shared experience in operations

No sharing Standardized operations but not rolled out

Standardized operations and rolled out

Operations in line with the local needs and exchanges on the in house best practices

Operations optimization

On a spot basis ex post Local and anticipated Shared, global but spot Global and planned

51

Topic « Key Performance Indicators »


Integration level of the concept of performance

No references to the performance

KPI limited to operational activities

Widespread KPI KPI embedded in formalized reporting process

Quantitative indicators for measuring the logistics performance

Analytical costs of the service provider on operations and resources

Internal and external analytical costs

Comparison of standard costs with actual costs

Balance between costs and service value KPI

Benchmarking Not or few benchmarking Partial and specific benchmarking not fully formalized

Regular quantitative benchmarking

« C » + regular qualitative benchmarking

Trade-off analyses No trade-off approach Trade-off inventory cost versus transport

Trade-off costs versus service Trade-off costs versus service versus investment

Scope of logistics distribution network re-engineering

Few re-engineering of logistics networks

Re-engineering limited to the interfaces : Plant > DC – subsidiary > Customer

Collaborative re-engineering with logistics service providers

Collaborative re-engineering with suppliers and customers

Assessment No link between the logistics performance and assessment

Link between the operational performance and assessment

Link between the logistics performance and assessment of logistics staff

Integration of the Supply Chain performance within other functions

52

Potential Services Offered by a 3PL

• Shipment Consolidation

• Logistics Information Systems

• Product Returns

• Warehouse Management/Operations

• Inventory Management

• Carrier Selection

• Order Fulfillment

• Rate Negotiations• Order Processing• Fleet Management

/Operations• Product Assembly• Customer Spare Parts• Vendor Selection• Purchasing

53

Classification of Services by 3PL

Physical Contract Physical Contract Logistics ServicesLogistics Services

• Dedicated Contract Carrier• Dedicated Warehousing

Integrated Integrated Contract Contract LogisticsLogistics

• Integrated Warehousing and Transportation

• Integrated Carrier Management and Transportation

Basic ServicesBasic Services

• Common Carriage• Public Warehousing

Management Management Contract Contract

Logistics Logistics Services Services

• Traffic Management• Warehouse Management• Import/Export management

PhysicalPhysicalServicesServices

ManagementManagementServicesServices

Complexity and Customization

Co

mp

lexi

ty a

nd

Cu

sto

miz

atio

n

Low High

High

Source: J.M. Africk and C.S. Calkins (Transportation and Distribution, 1994)

54

Value Creation Capacity of proposing additional value (logistics value) to client´s products/offers.

Innovation Capability

Ability to creatively design and implement customised solutions and to implement projects.

Functional Expertise

Technical skills covering all the range of logistics operations (SC management, transportation planning, demand planning, customs clearance,etc). Broader service offerings.

Financial Engineering Skills

Assumption of financial commitment to taking part in a client´s new business. Sharing financial risk with client through for instance inventory and assets ownership. Shared risk and reward

IT Skills Information Technology (SW and HW) supporting logistics operations. E.g.: T&T, APS, Flow simulators, etc.

Vertical Expertise

Technical specific abilities supporting clients´operation to a sector or market. Capacity to work in joint teams with clients. Knowledge transfer. Also capacity of combining operational and project management skills (both internal and external).

Operational Reliability

Commitment to clients´ services expectations.

Operational Flexibility

Ability to timely react to new client´s needs. High flexibility in terms of staff and operational structure facing different demand volumes. Speed of project implementation.

Geographical Coverage

Presence in all clients markets, with local management and necessary structure. Ability to manage country specific joint venture ensuring pan-regional integration.

Cost Effectiveness

Competitiveness through the ability of realising the same operation with lowest fixed costs. Ability to reduce operational costs through business consolidation and dealing with high volumes. Focused cost reduction.

Key Success factors for a 3PL

55

Four LSP Strategies appears in response to market´s Key Success Factors

Strategic Profiles

• Cost Killer• Contract LSP• Logistics Partner• Supply Chain Partner

• Where are we?• Where do we want to

be?• Where are we prepared

to be?

56

Strategic profiles: Cost killer

Cost Killer

•Basic logistic services provider (mainly physical operations)

• Important attention to economies of scale

•No high functional expertise

•Multi-sector player

Value Creation



IT Skills

Vertical Expertise




Cost Effectiveness


57

Strategic profiles: Contract LSP

Contract LSP

•Standard logistic services provider (physical operations and some logical ones)

•Mutualized solutions (economies of scale)

•Poor functional expertise

•High geographical coverage

•Multi sector player

Value

Creation

Innovation

Capability

Functional

Expertise

IT Skills

Vertical

Expertise

Operational

Reliability

Operational

Flexibility

Geographical

Coverage

Cost

Effectiveness

Financial

Engineering Skills

58

Strategic profiles: Logistics Partner

Logistics Partner

• Long range contracts

• Sector specific economies of scale

• High specific expertise

• Geographical coverage as requested by the client

• High level of customer business process understanding

• High operational reliability

Value Creation



IT Skills

Vertical Expertise




Cost Effectiveness


59

Strategic profiles: Supply Chain partner

Supply Chain Partner

• High added value service

• High level of customer business model understanding

• Dedicated solutions

• Innovation

• Financial commitment

• Joint ventures• Can be a non

asset company (Example : 4PL)

Value Creation



IT Skills

Vertical Expertise




Cost Effectiveness


60

Strategic profiles : Synthesis

PhysicalService Offering

Logical

Pricing

Transaction Risk SharingFixed and Variable Value Based

ValueAdded

Low

High

Logistics Driven

Commodity

Contractual

SupplyChain Driven

Contract LSP

Cost Killer

Logistics Partner

Re

lati

on

ship

Supply Chain Partner

61

Strategic profiles evolution

Service Offering

Physical Logical

PricingTransaction Risk SharingFixed and Variable Value Based

ValueAdded

Low

High

Rel

atio

nsh

ip

Logistics Driven

Commodity

Contractual

SupplyChain Driven

Contract LSP

Cost Killer

Supply ChainPartner

Logistics Partner

Documents

OMSAN LOJİSTİK Top Management Program in Logistics & Supply Chain Management (TMPLSM) Supply Chain & Logistics Outsourcing Projects 2. 3PL Industry Highlights