Supply Chain Management Advancements in SCM

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Advancements in SCM

Dr Mariusz Maciejczak

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Business

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to

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business e

-

commerce

An example:

An example: Eurotrans Eurotrans -- an Internetan Internet--based European freight exchangebased European freight exchange

•

• Access to Eurotrans Access to Eurotrans

through terminals in

service stations

•

• Additional communityAdditional community- -building services:

building services:

weather, maps, e

weather, maps, e--mail mail etc.

etc.

Trucking companies

•

• Post offers of transport Post offers of transport

capacity

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• Consult requests for Consult requests for

transportation

Manufacturing companies

•

• Post requests for Post requests for

transportation capacity

•

• Set up private exchanges Set up private exchanges

with partner trucking

companies

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Business Dimension Functional Excellence Integrated Supply Chain Adaptive Supply Chains

Integration Silo Enterprise Extended

Enterprise

Organization Departmental Centralized Collaborative

Performance Cost Cost & Service Profit &

Productivity

Decision Functional Process-Focused _{Agent-Assisted}Event-Based,

Technology Point Solution ERP/Bolt-On Interdependent,

Web-Connected

Time Focus Months to _Weeks Weeks to Days Real-Time

M IN D S E T E X E C U T IO N

From Internal Silos to Networked Ecosystems

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Ø Device: a tag / label with identification that is read electronically

w Minimal issues with orientation and obscurity compared to

barcodes

w Tags can be electronic chips

w Have storage capabilities and power sources that provide

versatility

Ø System: device + reader/writer + controller w Device – tag / label

w Reader/writer – to communicate with device

w Controller – manages data interface with computer systems

RFID Technology Allows Goods to Be

Identified and Monitored Via a Wireless Tag

RFID Technology Allows Goods to Be

Identified and Monitored Via a Wireless Tag

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• Applications

– Tracking, Tracing, Inventory Management – Anti-Counterfeiting – Safety, Security – Numerous others RFID: A $15B to $25B Market by 2015 RFID: A $15B to $25B Market by 2015 Ø

Market players

w Alien Technology w Checkpoint w Matrics w Intermec

As with all new technologies, there are issues, barriers, and adoption challenges w Common standard w Tag cost w System integration w Privacy w Readability

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Experts Predict Cost per Tag Will Be as Low

as 5

¢

Within 18 Months (in 2001: $30 per tag)

Experts Predict Cost per Tag Will Be as Low as 5

¢

Within 18 Months (in 2001: $30 per tag)

Ø

Gillette ordered 500 million tags this year

Ø

P&G thinks RFID can cut its inventory levels almost in half

Ø

Wal-Mart have put its suppliers on notice, using RFID will

become a requirement to remain a supplier

No other technology in the last 20 years has had as much potential to impact the economy’s trillion-dollar inventory levels as RFID!

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Raw Material

Raw Material Manufacturer_Manufacturer Manufacturer_Manufacturer Finished Goods / Warehouse

Finished Goods /

Warehouse DistributionDistribution RetailerRetailer

Shrinkage Item Level Inventory Tracking Product Lifecycle Management Proof of Delivery Vendor Managed Inventory Fleet Maintenance & Repairs Plant Maintenance In Store Availability Automatic Checkout Last 50 yards Asset Tracking Waste Disposal Inventory Reduction Intelligent Shelf Security Automatic

Receiving In Store_Inventory

In Store Reactive Marketing Product Related On Sell Improved Production Planning

Visible Event Driven

Proactive Intelligent

Responsive

Collaborative Real Time

Coordinated Closed-Loop

Characteristics of Adaptive Supply Chain Execution

There are Numerous Applications of RFID Across the Supply Chain

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RFID in practice

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Introduction

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• General:

– World compliant. – Standards based.

• Tag thermal printable labels:

– Write capable. – Low cost.

• Simultaneous multiple read capability:

– Rapid data acquisition.

– High reliability and repeatability within proximity of 100%.

• Moderate cost/complex antenna systems.

– Reliable coverage limited to within a maximum of 3 to 4 metres.

DHL general requirements/wishes of RFID.

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• Performance - lowering operational costs:

– Reduce or eliminate the need for bar code scanning.

– Remove handicap of handling scanner and shipments.

– Automated consolidated/bulk shipment/piece identification.

– Reducing costs of Security Services.

• Quality - improved service:

– Improved checkpoint availability:

• Commercial airlines which accounts for 30 million shipments/yr. • Faster/earlier availability.

• Flexibility - new services.

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Levelled Risk – DHL & Others

• Select the most widely used

ID capture processes. _{‚ Focus on developing devices for}

the toughest challenges first. ƒ Develop one device at a time.

„ Simulate real world at the developer and test.

Maximize developer access at lowest cost.

… Move device into real world and stress test.

† Assemble multiple proven devices into the real world and Pilot.

DHL RFID today development model.

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LOGISTICS SERVICE PROVIDER

Company performing logistics activities on behalf of a manufacturer or

distributor. Depending on the complexity and the type of value-added

operations carried out by the Logistics Service Provider, several categories can be defined:

• The traditional Logistics Service Providers who carry out physical logistics

operations (transport and storage) and whose management system is limited to tracking shipments on behalf of the client company;

• The value-added Logistics Service Providers who add a certain number of services to the traditional package ranging from managing complex

operational handling (co-manufacturing and co-packing), to management of administrative operations (billing and ordering) and information

management (tracking-tracing, etc.);

• Logistics services integrators characterized by the quasi-absence of their own physical facilities. Their role is to integrate the services of different sub-contracting companies (transport, storage, value-added operations, etc.) and to coordinate and control them through management of the associated information flows.

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Logistics Industry Evolution

Third Generation ( 2000 and beyond) First Generation (1970s - 1980s) Second Generation (1980s - 1990s)

Broader more integrated services

• Transportation / warehousing

• Freight forwarders / brokers

• Shipper’s agents

• Non asset-based companies

• Asset-based companies increased

service offerings

• Online freight marketplaces

• Web-based 3PLs

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F

irst

-

party logistics

, 1PL

First-party logistics provider (1PL) is a firm or an individual that needs to have cargo, freight, goods, produce or merchandise transported from a point A to a point B.

The term first-party logistics provider stands both for the cargo sender and for the cargo receiver. A 1PL can be a manufacturer, trader, importer/exporter, wholesaler, retailer or distributor in the

international commerce field. It can also be institutions such a

government department or an individual or family removing from one place to another.

Anyone having goods moved from their place of origin to their new place is considered to be firstparty logistics provider.

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second

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party logistics provider

, 2PL

A second-party logistics provider (2PL) is

an asset-based carrier, which actually

owns the means of transportation. Typical

2PLs would be shipping lines which own,

lease or charter their ships; airlines which

own, lease or charter their planes and

truck companies which own or lease their

trucks

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Third Party Logistics

• “Third-party Logistics is simply the use of an outside company to perform all or part of the firm’s materials management and product distribution function.”

-- Simchi-Levi (2000)

• “A relationship between a shipper and third party which, compared with the basic services, has more customized offerings, encompasses a broad number of service

functions and is characterized by a long-term, more mutually beneficial relationship”

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Third

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Party Logistics (3PL):

Definitions

• 3PLs are external suppliers that perform

all or part of a company’s logistics

functions, including:

– Transportation

– Warehousing

– Distribution

– Financial services

• Terms contract logistics and outsourcing

are sometimes used in place of 3PL.

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Third Party Logistics

In-house Logistics Department Shipper Transportation IT support Warehousing Others In-house Operation Outsourced Operation 3PL Shipper Shipper Shipper Transportation Warehousing IT support SC integration Others

Party Logistics (3PL):

Types of 3PL Providers

• Information-Based

– Significant growth and development in this

alternative category of Internet-based,

business-to-business, electronic markets for

transportation and logistics services.

– Transplace and Nistevo are examples of

information-based 3PLs.

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Why is it needed?

• Advantages

o Cost reduction

o Focus on core competency

o Improved efficiency, service and flexibility o Industry-specific application

– “build-to-order” systems and e-merchants

• Disadvantages

o Loss of control

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Range of Services provided by 3PL

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

C o m p le x it y & C u st o m iz at io n

Complexity & Customization

Low Low High High Physical Services Management Services Physical Contract Logistics Services

• Dedicated contract carrier

• Dedicated warehousing

Integrated Contract Logistics

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• Integrated warehousing & transportation

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• Integrated carrier

management & transportation

Basic Services Management contract

logistics Services

• Common Carriage

• Public Warehousing • Traffic Management

• Warehouse Management

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Current State

--

Service Offerings

• Dedicated Contract Transportation / Transportation Procurement

• Inventory Management

• Logistics Management and Consulting • Freight Audit and Bill Payment

• Customs Services

• Shipment Tracking and Tracing

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Current use of 3PL by industry

75,9 71,1 61,4 56,2 53,8 82,2

n Percentage of 3PL use in different industries

n Industry Computer Consumer Retail Chemical Medical Auto

Source "What's ahead for 3PLs“ Modern Materials Handling, April, 2000

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Third

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Party Logistics Research Study:

Industry Details

• 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%)

– 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.

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Emergence of Fourth Party Logistics Providers

u ‘Globality’ and Supply Chain Integration are increasing the

functions of Logistics providers. This has lead to the

emergence of consulting firms as fourth party logistics providers

u 4PLs have the advantage of being in sync with the rapid,

enormous changes in Information Technology.

u Consultants as 4PLs are used to review bids made by 3PLs,

and to align the business processes with the supply chain -- especially critical in case of Global Logistics.

u 3PL have a larger, more efficient network of transportation &

networking, but the 4PL have optimal combination of

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Development & Role of 4PL

Source: Andersen Consulting http://www.ac.com/services/scm/scm_who_4pl_paper2_b.html

Client Internal Logistics Operations Client 3PL 4PL IT Service Providers 3PL Business Process Management

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Greater Functional Integration

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Broader Operational Autonomy

Insourcing 1970s-1980s Outsourcing 1980s-1990s 4PL 1990s-2000 Client Client Client

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4PL

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Fifth Party Logistics

Fifth Party Logistics (5PL) is attributed to Logistics Service Providers who plan, organize and implement logistics solutions on behalf of a contracting party (in particular, information systems) by exploiting the

appropriate technologies (conceptual level).

The central ethos of 5PL is its commitment to collaboration and to obtaining a higher degree of resource utilisation in order to achieve savings and open up opportunities to secure the best possible solution at minimum

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6, 7,8,

…

PL

• The phrase 7PL was coined by the Value Logistics Group and is a concept

describing the developing trend of 3PL and 4PL combined. Through this service, the client has one service provider that oversees the entire logistics chain.

• 7PL is the combination of 3PL and 4PL into one (3PL + 4PL = 7PL). One service provider can now provide a client with both 3PL and 4PL services with a complete 7PL solution to clients and can undertake turnkey projects for its clients where all services and activities are provided for under one roof.

• One contract, one bill. 7PL is a turnkey solution where instead of dealing with several people for various services like inbound, outbound and warehousing, clients now are required to deal with one person under the ‘one contract, one bill’ concept.

• 7PL companies will be prime candidates for takeover by bigger players and play the role of service providers within the larger offer. Such consolidation will be seen in all areas from shipping, trucking, air cargo to couriers, ground handlers and IT services. Many others will drop out.

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Niche Markets

–

Online Logistics Providers

• Online Freight Marketplaces

– Spot market

– Auction and RFQ – Exchange

– Meta-marketplaces

• Application Service Providers (ASPs)

• Purchasing Consolidation Market

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• The Freight Transportation Industry is Ideally

Suited e-commerce

¢High Fragmentation of Shippers and Carriers

¢Many Intermediaries

¢Complex Supply Chains

¢High Search Costs

¢Significant Opportunities for Economies of Scale

• Several Models Emerging

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Dynamic Forces of Global Logistics

The firms adopt different orientations with varying intensities due to the dynamic behavior of the global business environment.

IN FO

USE R RESOURCES

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Global Logistics’ Orientation

u Resource Oriented Logistics

u Emphasis towards optimal use of resources -- capital,

materials and people

u Focuses on the relationship between the functional

and the geographical

Optimize

Resources Functional Geographical

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Global Logistics’ Orientation

u Information Oriented Logistics

u Emphasis towards optimal use of information. u Focuses on the relationship between the sectorial

and the geographical dimensions

Geographical Sectorial

Optimal Performance

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Global Logistics’ Orientation

u User Oriented Logistics

u Emphasis on the final customer.

u Using all the supply chain partners to bring their

expertise in order to best service the customer

u User oriented focus brings about flexibility in the

logistics channel

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Factors Pushing Global Logistics

Technological Advances Emergence of Global Markets Global Cost Forces

Political & Macro-economic factors

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Factors Pushing Global Logistics

u

u Exchange rate fluctuations

u Regional trade agreements --- NAFTA u Trade protection mechanisms

u Tariff and non-tariff barriers u Technical Standards

u Health regulations u Procurement policies

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How is Global Logistics creating Change?

u The management has to consider the Global economy

u Logistics operations perceived more as Service Provider

for cost minimization

u Service in the Industry becoming more important than

Cost Saving

u Logistics activities no longer limited to moving products

through the Supply Chain but as an Information Provider

for the SC.

u Companies moving away from Vertical Integration

and towards Supply Chain Integration, with Logistics activities provided externally.

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New concepts in Global Logistics

Delocalization - practice of adding value to the product at

different locations closer to the consumer.

Modularization - practice of assembling a product using modules purchased from different sources

Delayed Differentiation & postponement - Customization of the order after demand has been identified

e.g: Labeling the products in the language of the countries that they have to be shipped to

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