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Advancements in SCMAdvancements in SCM
Dr Mariusz Maciejczak
Supply Chain Management
BusinessBusiness--toto--business ebusiness e--commercecommerceAn example: An example: Eurotrans Eurotrans -- an Internetan Internet--based European freight exchangebased European freight exchange
•• Access to Eurotrans Access to Eurotrans through terminals in through terminals in service stationsservice stations
•• Additional communityAdditional community--building services: building services: weather, maps, eweather, maps, e--mail mail etc.etc.
Trucking companiesTrucking companies•• Post offers of transport Post offers of transport
capacitycapacity•• Consult requests for Consult requests for
transportationtransportation
Manufacturing companiesManufacturing companies•• Post requests for Post requests for
transportation capacitytransportation capacity•• Set up private exchanges Set up private exchanges
with partner trucking with partner trucking companiescompanies
Business DimensionFunctional 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 Event-Based, Agent-Assisted
Technology Point Solution ERP/Bolt-On Interdependent,Web-Connected
Time Focus Months to Weeks Weeks to Days Real-Time
MIN
DSE
TEX
ECU
TIO
NFrom Internal Silos to Networked EcosystemsFrom Internal Silos to Networked Ecosystems
Ø Device: a tag / label with identification that is read electronicallyw Minimal issues with orientation and obscurity compared to
barcodesw Tags can be electronic chipsw Have storage capabilities and power sources that provide
versatility
Ø System: device + reader/writer + controllerw Device – tag / labelw Reader/writer – to communicate with devicew Controller – manages data interface with computer systems
RFID Technology Allows Goods to Be Identified and Monitored Via a Wireless TagRFID Technology Allows Goods to Be Identified and Monitored Via a Wireless Tag
In short, RFID is like a bar code that can talk
• Applications– Tracking, Tracing, Inventory
Management– Anti-Counterfeiting– Safety, Security– Numerous others
RFID: A $15B to $25B Market by 2015RFID: A $15B to $25B Market by 2015
Ø Market playersw Alien Technologyw Checkpointw Matricsw Intermec
As with all new technologies, there are issues, barriers, and adoption challenges
w Common standardw Tag costw System integrationw Privacyw Readability
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!
Raw MaterialRaw Material ManufacturerManufacturer ManufacturerManufacturer Finished Goods / Warehouse
Finished Goods / Warehouse
DistributionDistribution RetailerRetailer
ShrinkageItem LevelInventory Tracking
Product LifecycleManagement
Proof of Delivery
VendorManaged Inventory
Fleet Maintenance& Repairs
PlantMaintenance
In StoreAvailability
AutomaticCheckoutLast
50 yards
Asset Tracking
WasteDisposal
Inventory Reduction
Intelligent ShelfSecurity Automatic
ReceivingIn StoreInventory
In StoreReactiveMarketing
ProductRelatedOn Sell
ImprovedProduction Planning
Visible Event Driven
Proactive Intelligent
Responsive
CollaborativeReal Time
Coordinated Closed-Loop
Characteristics of Adaptive Supply Chain Execution
There are Numerous Applications of RFID Across the Supply Chain
There are Numerous Applications of RFID Across the Supply Chain
RFID in practiceRFID in practice
Introduction Introduction RFID in RFID in DHLDHL
• 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.DHL general requirements/wishes of RFID.
• 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.
DHL Express Objectives for RFID
Levelled Risk – DHL & Others
Å Select the most widely used
ID capture processes. Ç Focus on developing devices for
the toughest challenges first.
É Develop one device at a time.Ñ Simulate real world at the
developer and test.Maximize developer access at lowest cost.Ö Move device into real world
and stress test.Ü Assemble multiple proven devices
into the real world and Pilot.
DHL RFID today development model.DHL RFID today development model.
LOGISTICS SERVICE PROVIDERLOGISTICS 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 informationmanagement (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.
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• Increasing supply chain integration
FFirstirst--party logisticsparty logistics, 1PL, 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 theinternational commerce field. It can also be institutions such agovernment 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.
secondsecond--party logistics providerparty logistics provider, 2PL, 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
Third Party LogisticsThird 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”
-- Murphy & Poist (1998)
ThirdThird--Party Logistics (3PL): Party Logistics (3PL): DefinitionsDefinitions
• 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 outsourcingare sometimes used in place of 3PL.
Third Party LogisticsThird 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
ThirdThird--Party Logistics (3PL): Party Logistics (3PL): Types of 3PL ProvidersTypes of 3PL Providers
• Transportation-Based• Warehouse/Distribution-Based• Forwarder-Based• Financial-Based• Information-Based
ThirdThird--Party Logistics (3PL): Party Logistics (3PL): Types of 3PL ProvidersTypes of 3PL Providers
• Transportation-Based– Services extend beyond transportation to offer
a comprehensive set of logistics offerings.– Leveraged 3PLs use assets of other firms.– Nonleveraged 3PLs use assets belonging
solely to the parent firm.– Ryder, Schneider Logistics, FedEx Logistics,
and UPS Logistics are examples of 3PLs.
ThirdThird--Party Logistics (3PL): Party Logistics (3PL): Types of 3PL ProvidersTypes of 3PL Providers
• Warehouse/Distribution-Based– Many, but not all, have former warehouse
and/or distribution experience.– Transition to integrated logistics has been
less complex than for the transportation based providers.
– DSC Logistics, USCO, Exel, Caterpillar Logistics, and IBM are examples of warehouse/distribution-based 3PLs.
ThirdThird--Party Logistics (3PL): Party Logistics (3PL): Types of 3PL ProvidersTypes of 3PL Providers
• Forwarder-Based– Essentially very independent middlemen
extending forwarder roles.– Non-asset owners that capably provide a wide
range of logistics services.– AEI, Kuehne & Nagle, Fritz, Circle, C. H.
Robinson, and the Hub Group are examples of forwarder-based 3PLs.
ThirdThird--Party Logistics (3PL): Party Logistics (3PL): Types of 3PL ProvidersTypes of 3PL Providers
• Financial-Based– Provide freight payment and auditing, cost
accounting and control, and tools for monitoring, booking, tracking, tracing, and managing inventory.
– Cass Information Systems, CTC, GE Information Services, and FleetBoston are examples of financial-based 3PLs.
ThirdThird--Party Logistics (3PL): Party Logistics (3PL): Types of 3PL ProvidersTypes 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.
Why is it needed?Why is it needed?
• Advantageso Cost reductiono Focus on core competencyo Improved efficiency, service and flexibilityo Industry-specific application
– “build-to-order” systems and e-merchants
• Disadvantageso Loss of controlo Impact on in-house workforce
Range of Services provided by 3PL
Source: J.M. Africk & C.S. Calkins ( Transportation & Distribution, 1994)
Com
plex
ity &
Cus
tom
izat
ion
Complexity & Customization
LowLow
High
High
PhysicalServices
ManagementServices
Physical ContractLogistics Services
• Dedicated contract carrier• Dedicated warehousing
Integrated Contract Logistics
•• Integrated warehousing & transportation
•• Integrated carriermanagement & transportation
Basic Services Management contract logistics Services
• Common Carriage• Public Warehousing • Traffic Management
• Warehouse Management• Import/export Management
Current StateCurrent State-- Service OfferingsService Offerings
• Dedicated Contract Transportation / Transportation Procurement
• Inventory Management• Logistics Management and Consulting• Freight Audit and Bill Payment • Customs Services• Shipment Tracking and Tracing• Reverse Logistics and Value-added Services
Current use of 3PL by industryCurrent use of 3PL by industry
75,9
71,1
61,4
56,2
53,8
82,2
n Percentage of 3PL use in different industriesn Industry
Computer
Consumer
Retail
Chemical
Medical
Auto
Source "What's ahead for 3PLs“ Modern Materials Handling, April, 2000
ThirdThird--Party Logistics Research Study: Party Logistics Research Study: Industry DetailsIndustry 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%)– Cross docking (38.6%)
Figure 11Figure 11--6 6 3PL User/Nonuser 3PL User/Nonuser Experience, 1996Experience, 1996--20012001
Shippers Using More than Five 3PLsShippers Using More than Five 3PLs
Table 11Table 11--2 2 ThirdThird--Party Revenues Party Revenues Estimated at $56.4 Billion in 2000Estimated at $56.4 Billion in 2000
ThirdThird--Party Logistics Research Study: Party Logistics Research Study: Industry DetailsIndustry Details
• Reported problem areas:– 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.
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 ofwarehouse capabilities, transportation services and technology
Development & Role of 4PL
Source: Andersen Consulting http://www.ac.com/services/scm/scm_who_4pl_paper2_b.html
Client Internal LogisticsOperations
Client 3PL
4PLIT ServiceProviders
3PL
Business ProcessManagement
• Greater Functional Integration• Broader Operational Autonomy
Insourcing 1970s-1980s
Outsourcing 1980s-1990s
4PL1990s-2000
Client
Client
Client
4PL 4PL (i.e. http://www.fourpl.com/services/services.php)(i.e. http://www.fourpl.com/services/services.php)
Fifth Party LogisticsFifth 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 cost/carbon etc.,
6, 7,8, 6, 7,8, …… PLPL
• 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.
Niche Markets Niche Markets ––Online Logistics ProvidersOnline Logistics Providers
• Online Freight Marketplaces– Spot market– Auction and RFQ– Exchange– Meta-marketplaces
• Application Service Providers (ASPs)• Purchasing Consolidation Market• Infomediaries
• 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
Online Logistics Providers-Opportunity
ITS, UC Irvine
ITS, UC Irvine
ITS, UC Irvine
ITS, UC Irvine
ITS, UC Irvine
ITS, UC Irvine
ITS, UC Irvine
ITS, UC Irvine
ITS, UC Irvine
ITS, UC Irvine
ITS, UC Irvine
ITS, UC Irvine
Dynamic Forces of Global Logistics
The firms adopt different orientations with varying intensitiesdue to the dynamic behavior of the global business environment.
INFO
USER
RESOURCES
Global Logistics’ Orientation
u Resource Oriented Logisticsu Emphasis towards optimal use of resources -- capital,
materials and peopleu Focuses on the relationship between the functional
and the geographicalOptimize
ResourcesFunctional Geographical
Global Logistics’ Orientation
u Information Oriented Logisticsu Emphasis towards optimal use of information.u Focuses on the relationship between the sectorial
and the geographical dimensions Geographical Sectorial
Optimal Performance
Global Logistics’ Orientationu 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 customeru User oriented focus brings about flexibility in the
logistics channel
Customer
Factors Pushing Global LogisticsTechnological
Advances
Emergence ofGlobal Markets
Global CostForces
Political & Macro-economic factors
Factors Pushing Global Logistics
u Global Marketsu Competition from foreign firms in local markets.u Incredible growth of demand in foreign markets.u Global presence used as competitive threat.u Change of priorities
u Global markets growing faster due to technological advances
u Products need to be introduced in all markets together.u State of the Art markets driven by customer preferences
u Firms have to set up production in these areas to maintain their competitive profiles. E.g. Japan - M/c
tools
Factors Pushing Global Logistics
u Improvements in Technologyu Communication faster, easier and cheaper.
u Markets characterized by fewer producers and greater diversity in products
u Shorter product life cyclesu Technology advancement become global phenomenon
u Firms have to start looking at international sources to tap technological services
u Global competition forcing companies to locate more R&D and production units closer to the suppliers.
u Joint ventures between firms to share technological info.
Factors Pushing Global Logistics
u Global Costs Forces -- Shift in Logistics costsu Shift in focus from direct labor costsu Global environment forcing companies to consider
a trade off between labor costs, cost of start-up, fluctuation
of currency, inventory costs, cost of quality managementand training the local workers leading to island hopping strategy.
u New Competitive priorities like speed, quality,customization,
delivery reliability.u Production facilities are becoming more capital intensive
u high technology industriesu R & D costs
Factors Pushing Global Logistics
u Political and Macroeconomic factorsu Exchange rate fluctuationsu Regional trade agreements --- NAFTAu Trade protection mechanisms
u Tariff and non-tariff barriersu Technical Standardsu Health regulationsu Procurement policies
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 Providerfor the SC.
u Companies moving away from Vertical Integration and towards Supply Chain Integration, with Logistics activities provided externally.
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 modulespurchased 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
ICMANUF.
PRINTMECH.
MANUF.
CUSTOMER
WORLDWIDE
SUPPLIERS
DISTRIBUTIONCENTRES
WORLDWIDE
PRINTEDCIRCUITASSM. &
TESTVANCOUVER
FINALTEST
&ASSM.
VANCOUVER
SUPPLIERACCESSORIES
Global Supply Chain – HP Example
