International Journal of Informative & Futuristic Research ... · SCM is the management of all key business process across a number of the ... very optimum lead times [12]. In large

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Reviewed Paper

International Journal of Informative & Futuristic Research ISSN (Online): 2347-1697

Volume 2 Issue 9 May 2015

Abstract

Third party Logistics is a new type of industry where the firm‘s logistics activities can be outsourced. The concept of Third party logistics has been developed from the need to extend transportation services by transportation companies to its customers. Many manufacturing industries turned to logistics outsourcing to restructure their distribution networks and gain competitive advantages. This paper is an attempt to take an insight into knowing the effect of ICT, type of manufacturing segment and logistical sophistication on integration between 3PL providers and manufacturers through literature review.

Impact Of ICT, Manufacturing Segment

And Logistical Sophistication On 3PL

Providers And Manufacturers Integration Paper ID IJIFR/ V2/ E9/ 047 Page No. 3211-3218 Research Area Logistics

Key Words Supply Chain Management, Third Party Logistics, Information Systems,

Manufacturing Industries, Competitive Advantage, Value Addition

Harshad M Deshmukh 1

Associate Professor Department of Mechanical Engineering Prof Ram Meghe Institute of Technology & Research Badnera-Amravati

Dr. Satish V Bansod 2

Professor Department of Mechanical Engineering Prof Ram Meghe Institute of Technology & Research Badnera-Amravati

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ISSN (Online): 2347-1697 International Journal of Informative & Futuristic Research (IJIFR)

Volume - 2, Issue - 9, May 2015 21st Edition, Page No: 3211-3218

Aswathy Unnikrishnan , Ajesh F , Reshma S. Nair :: Detection Of Abnormal Visual Events Using HOFO And KNN

1. Introduction

A supply-chain is a network of facilities and distribution points that performs the functions of

procurement of materials, transformation of these materials into intermediate and finished products,

and the distribution of these finished products to customers. In recent years, a growing number of

manufacturers and retailers have adopted the supply chain management (SCM) concept in the

management of their businesses. For these companies, the delivery system has become an integral

part of their product, to the extent that transportation and logistics are as important as the product

itself [1].More and more companies have recognized that individual businesses no longer compete as

stand-alone entities, but rather as supply chains. One of the fundamental elements of supply chain

management is Logistics. “SCM is an integrating function with primary responsibility for linking

major business functions and business processes within and across companies into a cohesive and

high-performing business model”[2]. It is a part of supply chain process that plans implements, and

controls efficient, effective flow and storage of goods, services and related information from the

point of origin to the point of consumption in order to meet customer‟s requirements. SCM is an

integrated approach that is highly interactive and complex and requires simultaneous consideration

of many trade-offs. SCM is the management of all key business process across a number of the

supply chains. Successful SCM requires a change from managing individual function to integrating

activities into key supply chain process. Operating an integrated supply chain requires continuous

information flows, which in turn helps to create the best products flow [3].

Appropriate logistics strategies relating to transportation modes, warehousing, inventory

management and order processing have to be implemented for moving the right materials efficiently

to the right place, at the right time and at the right price across the supply chain. In order to handle

logistics activities effectively and efficiently, a company may consider the following options – it can

provide the function in-house by making the service, or it can own logistics subsidiaries through

setting up or buying a logistics firm or it can outsource the function and buy the service. Currently,

there has been a growing interest in the third option, i.e. outsourcing of logistics functions to third

party logistics service (TPL) providers.

Manufacturing industries collect raw materials from suppliers and deliver finished goods to the

customers. This function is executed by logistics. Logistics is a logical extension of transportation

and its related areas to achieve an efficient and effective goods distribution system. It encompasses

the activities of inventory management, order processing, warehouse and materials handling and

physical distribution. According to the council of logistics management, logistics is the part of

supply chain process that plans, implements and controls the effective flow and storage of goods,

services and related information from the point of origin to the point of consumption in order to

meet customer„s requirements [4]

Outsourcing logistics activities including transportation and warehousing to outside firms, is termed

as third party logistics. Third party logistics is a new type of industry where the firm„s logistics

activity can be outsourced. It came into existence during the deregulation of freight transport

industry in the 1980„s and has progressed in the 1990„s along with the development of IT.

2. Concept of 3 PL

TPL has many definitions and interpretations. Outsourcing, third party logistics services (3PL) and

contract logistics generally mean the same thing. It involves the use of external companies to

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perform logistics functions, which have traditionally been performed within an organization. The

functions performed by third party logistics service providers can encompass the entire logistics

process or select activities within that process. A key rationale for outsourcing of logistics functions

is the intensified globalization of businesses. During the last two decades, globalization has emerged

as a major force of shaping business strategies, leading firms to develop products designed for a

global market and to source components globally [5].

The future usage of third party logistics services is a function of the current level of satisfaction of

the firm with the logistics services provider. Only high levels of satisfaction with third party logistics

services providers will translate in increased outsourcing in the future. Typically, firms start with the

outsourcing of few logistics services, moving over to activities which have maximum impact on

logistics performance and then increase scope of usage of logistics services with perceived and

quantifiable impact on overall business performance [6].

3 PL means outsourcing logistics activities including transportation and warehousing to outside

firms, which are not a consignor or a consignee. However, it is not common 3 PL practice to

outsource a single activity of logistics independently, but to outsource multiple activities from the

firm„s strategic point of view. Features of 3PL include integrated (or multi-modal) logistics service

provider, Contract-based service provider, and consulting service provider. A 3 PL provider is

regarded as an integrated logistics service provider. IT-related activities for controlling goods flow

such as order processing, and inventory management, among others are also included in the function

of the 3PL provider. However, the 3PL provider need not provide all the services solely. The 3 PL

providers can outsource some activities to sub-contractors. A 3PL provider can be classified into the

asset-based and the non-asset-based. After realizing the potential in the outsourced logistics market,

3PL service providers are expanding their basket of services. Third party logistics incorporating

value-addition in their services and customizing their supply chain management solutions [7].

The reasons for Outsourcing are Focus on core competencies, Logistics cost reduction, Imbibe

flexibility in operations, improved customer services, productivity improvements, Access to

emerging technology, Access to unfamiliar market, diverting capital investment and to increase

inventory turn„ [8]. State – of – the – art logistics networks are characterized by linked database,

paperless transaction, analytic modelling and real-time tracking and tracing capabilities, all of which

lead to faster time to market, lower inventories so that companies can concentrate on their core

competencies. So outsourcing logistics is a better option, as it allows companies to stick to their

core-competencies [9]. When a firm contracts-out logistics activities to a 3PL provider, the 3PL

provider needs to establish transaction and inventory management systems involving other firms in

the supply chain; i.e. supplier, manufacture and retailer, etc. the 3PL provider does not usually

provide all logistics activities solely. Some activities are outsourced to subcontractors. For example,

non-asset 3PL providers may outsource a transport activity. Such relationship between the 3PL

provider and the sub- contractor likewise constitutes a part of the supply chain process [3].

3. Effect Of Usage Of ICT On 3PL Industry

In supply chain, while providing customized logistics services, Information and Communication

Technology (ICT) plays a critical role. In highly competitive situations with time constraints,

technology becomes a critical and effective tool to gain competitive advantage [10]. The logistics

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service provider companies with such customized technological advantage can achieve very

effective integration between various components of supply chain [11]. In case of third party

logistics applications, ICT capabilities can guarantee fast customization of products and achieve

very optimum lead times [12]. In large sized and small-medium sized 3PL companies, use of ICT is

uneven. Big 3PL companies invested heavily in ICT and developed advanced Information Systems

ISs) whereas small 3PL companies are hesitant for investing in developing human and infrastructure

capabilities in ICT. This has proved a competitive disadvantage for small 3PL companies in

achieving improvement in customer service and cost reduction [13].

A major effect of use of ICT in logistics service industry is integration of transportation and

warehousing with information based services like tracking, booking, routing, scheduling etc [14].

Nowadays through internet many transport and logistics providers are able to offer variety of real

time information and online services to their customers [15]. The advantage of this ICT enabled web

based third party service providers is to achieve added value to transport and logistics business

through greater efficiency and information transparency [16].

To keep pace with rapid market changes compelled third party logistics providers look for accurate

and real time information on the status of entire shipment process to improve their planning capacity

customer service levels [17]. An investigation is done to find the level of ICT adoption in small 3PL

providers. It was found that relatively higher level of ICT adoption is prevalent in large 3PL

providers. Many barriers exist to the successful adoption of ICT by small 3PL providers [18].

4. Relationship Between Manufacturing Segment And Choice Of 3PL Companies

It is observed that different manufacturing segments show different approach or behaviours while

procuring logistics services. It is found that the manufacturing companies outsourcing all supply

chain functions had higher logistics cost saving than those outsourcing any individual function [19].

To cater to specific categories of customers requiring specialized competencies and cost constraints,

3PL service providers have started to segment their markets. The segmentation of third party

logistics providers may be done on the basis of type of service they offer. They can be classified as

follows-

1. Operational Specialist: This category includes the service providers who offer specific services

like transportation, warehousing, labeling etc.

2. Integrated service providers: This category include providers offering more detailed solutions

consisting a variety of services for customers in an integrated manner [20].

It is found that logistics service buyers give more weightage to core competencies of logistics

service providers and favour those providers who offer customized services addressing to their needs

[21]. Use of information technology to gather, analyses and transfer huge volume of information

influences the speed of decision making in logistical activities. Its outcome leads to shorter

operational cycles and less complicated adaptations [22].

A higher level of sophistication in the logistics function would in part reflect a top position of the

chief logistics manager in the top ranks of the firm, which would facilitate the integrated

management of logistics activities and more efficient choices in the function‟s typical tradeoffs [23].

The flow of materials within the operations when analysed under different parameters like cost,

value addition, perishability, obsolescence, number of stock keeping units (SKUs) exhibits particular

situations that may influence selection of one type of provider over another. Production Systems

may be classified into so called V-A-T categorization of manufacturing structures. The Table No.1

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shows the classification of manufacturing structures, its characteristics and choice of logistics

service providers.

Table 1: Relationship between types of firm, manufacturing segment, choice of 3PL provider

Type of

Firm

Type of

Manufacturing

structure

Characteristics Examples

Choice of

Logistics

Service

Provider

V-type

Few raw

materials

transformed

into larger

number of end

products.

1. Deal with bulk cargo of low

value added items.

2. Focus is on transportation

and warehousing cost rather

than investment cost

3. Raw materials and end

products are neither perishable

nor obsolete.

4. May prefer less sophisticated

technology for handling,

moving and storing items to

achieve greater scale of

operation

Chemical, Steel,

Oil refining,

Paper, Apparel.

Prefer

functional high

scale

contractors.

A-type

Several raw

materials,

components

and parts

transformed

into few end

parts.

1. Final products have higher

value addition and cost density.

2. Prefer speedy shipment and

premium transportation.

3. Characterized by smaller

number of SKUs to maintain

and control which reduces

warehouse size.

4. Products normally subject to

obsolescence than to

perishability.

Aerospace,

Appliances,

Automotive,

High-tech

industries with

assembly type

operation.

Favor providers

who can

integrate several

logistical

functions.

T-type

Several

products are

assembled in

many different

ways out of

similar parts

and

components.

1. Characterized by higher

number of SKUs to control

affecting warehouse size,

technology and

decentralization.

2. Final product characterized

by low value addition and cost

density.

Food,

Beverages,

Tobacco,

Healthcare.

Preference of

provider

depends on

characteristics

of end product

and the market

served.

Type of manufacturing industry is considered as one of the segmentation criteria for third party

logistics providers and typical categories of industries include automotive, computer,

telecommunications, food items, paper etc [20]. It is investigated that whether there is any direct

relationship between type of manufacturing structure, level of logistics sophistication function and

choice of type of third party logistics provider. It is found that normally firms with A type

production process structure prefer integrated 3PL providers whereas firms with V type and T type

production process structure prefers functional 3PL providers [24].

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5. Integration Between 3PL Provider And Manufacturers

The integration of business operations and efficient management of information to create value can

be attained through the organizational coordination among supply chain members. It is observed that

integrative practices between companies participating in supply chain are limited [25]. Only a small

group of big companies are trying to form and manage a truly integrated supply chain by linking

their operations with customers and suppliers [26]. Lack of integration between 3PL providers and

manufacturers may be due to misinterpretation of collaboration practices [27].Many a times

ineffectiveness of ICT systems in handling and supporting flow of information also leads to lack of

integration between 3PL providers and manufacturers Sometimes Enterprise Resource Planning

(ERP) systems limit inter company cooperation [28]. Lack of integration is observed more between

manufacturers and TPL providers than between manufacturer-supplier and manufacturer-customers

[29]. In many situations TPL providers are treated as external agency and not as natural partners, so

focus is always on reduction in cost [30]. Integration of supply chain elements is achieved by

passing through four stages namely Baseline, Functional Integration, Internal Integration and

External Integration. To make the integration concept operational requires identification of the most

essential tasks to be solved in connection with SCM and the underlying activities to be performed to

accomplish these tasks. Business process perspective is the most appropriate approach to achieve

integration between logistic providers and manufacturers [31].

The integration between manufacturer and TPL providers will be strengthened by the effective use

of ICT. Manufacturers will start outsource more specific services to TPL providers provided they get

quality at less cost with use of effective ICT tool. TPL providers feel that logistical sophistication

and use of ICT tools will increase the effective cooperation between manufacturers and TPL

providers [32].

6. Conclusion

From the literature survey, it is observed that implementation of advanced ICT is more in big 3PL

companies. It also depend on the level of Information system integration and information exchange

between supply chain members. There is a direct relationship between the selection of logistics

service suppliers and shipper‟s manufacturing process structure and logistics function sophistication.

To achieve more efficient cooperation from manufacturers, 3PL providers are ready to increase the

use of ICT tools.

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39 (1990).

[2] Council of Supply Chain Management Professionals (CSCMP), available at:

http://www.cscmp.org/Website/AboutCSCMP/Definitions/Definitions.asp, visited on April 2013

[3] Skjoett-T Larsen, “Third Party logistics from an inter organizational point of view”, International journal

of physical distribution & logistics management 30(2) pp 112-127 (2000)

[4] Sunil Chopra , Perter Meindl , D.V. Kalra , Supply Chain Management , Pearson education, Inc. USA (

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[6] P. Dapiran, R. Lieb, R. Millen and A.Sohal, “Third party logistics services usage by large Australian

firms”, International Journal of Physical Distribution and Logistics Management, 26(10), pp. 36‐45 (1996).

[7] Logistics – Emerging opportunity in India, Weekender, March 12th 2005 , pp 1-5

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[8] B.S. Sahay, Ramneesh Mohan, Third party logistics practices : an Indian perspective International Journal

of Physical Distribution & Logistics Management 36 (9) pp 666-689 (2006).

[9] B. S. Blanchand , Logistics engineering and management , Prentice Hall of India Pvt. Ltd. 6th Ed (2008)

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supply chain: an empirical assessment of the interrelation between

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[12] A.G. Crowley, “Virtual logistics: transport in the market space”, International Journal of Physical

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Planejamento do Fluxo de Produtos e de Recursos, Atlas, SaõPaulo, pp 293-301 (2003).

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[26] P. Edwards., M. Peters and G. Sharman, “The effectiveness of information systems in supporting the

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[27] Barrett, M. (2004), “Understanding the meaning of collaboration in the supply chain”, Supply Chain

Management: An International Journal, 9(1), pp 30-42 (2004).

[28] H.A. Akkermans, P. Bogerd, E. Yu¨cesan and L.N. van Wassenhove, “The impact of ERP on supply

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[31] T.H. Davenport and J.E. Short (1990), “The new industrial engineering: Information technology and

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BIOGRAPHIES

1. Harshad M. Deshmukh: Mr. Harshad was born on 10 February 1966 in

Amravati. He completed his M.Tech in Production Engineering and MBA in

Marketing specialization. Presently he is working as Associate Professor in

Department of Mechanical Engineering, Prof. Ram Meghe Institute of

Technology & Research, Badnera, Amravati (M.S.), India. His teaching

experience at Undergraduate and Postgraduate level is 26 years. He is a member

of various professional societies like ISTE, IE (India), IIIE. His area of research

interest is Supply chain Management, Quality control and Operations

Management. He worked as Chairman, Board of Studies (Production

Engineering), Member, Faculty of Engineering & Technology and Member,

Academic Council in S.G.B. Amravati University during 2002 to 2007.

He also worked as Subject expert and Moderator in Management Board, S.G.B. Amravati University.

Presently he is working as Divisional Convener, Production Engineering in Institution of Engineers (India)

Amravati Local Chapter. He has worked as Member in number of Local Enquiry Committee, S.G.B. Amravati

University.

2. Dr. Satish.V. Bansod: Dr. Satish was born on 24 October 1960 in Amravati.

He completed his M.E. in Production Engineering and PhD in Ergonomics.

Presently he is working as Professor in Department of Mechanical Engineering,

Prof. Ram Meghe Institute of Technology & Research, Badnera, Amravati

(M.S.), India. His teaching experience at Undergraduate and Postgraduate level

is 30 years. He is a member of various professional societies like ISTE, IE

(India), IIIE. His area of research interest is Tool Design, Ergonomics and

Supply chain Management. He worked as Chairman, Board of Studies

(Production Engineering), Member, Faculty of Engineering & Technology and

Member, Academic Council in S.G.B. Amravati University. He is a recognized

PhD supervisor in the Faculty of Engineering & Technology, S.G.B. Amravati

University.

Presently he is working as Member, National Executive Council, Indian Society for Technical Education. He

has worked as Member in number of Local Enquiry Committee, S.G.B. Amravati University. He is a

recognized PhD thesis examiner in various universities.

Documents

International Journal of Informative & Futuristic Research ... · SCM is the management of all key business process across a number of the ... very optimum lead times [12]. In large