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Logistics Service Providers -

CIassification and roIes


Tarun Vir Singh 2010B41
Prashant Petkar 2010B43
KunaI Singh 2010C43
Agenda
Definitions
Forms
Types of LSP
Advantages & Disadvantages
Challenges before LSPs
FD regulation for LSPs
Definition
Logistics: Channel of the supply chain which adds the value of time and place utility
Inbound Logistics: Logistical activities which are associated with receiving, storing and
disseminating input & "nformation of final product.
Process Logistics: Logistical activity associated with transforming input into the final
product i.e. finished products.
Outbound Logistics: Logistical activity which is associated with collecting; storing the
goods and their physical distribution to buyers.
Reverse Logistics: Goods return from the consumer point to the original supply point,
for various reasons. Bad delivery, over-supply, damage, expiry, failing inspection tests at
the customer point, goods unsold, recycling and disposal etc., are some instances where
the material traverses back.
Shipping Storage, security and T
nventory & Material handling Pick & Pack
Services
2%
98%
Cummulative revenue of top 20 logistics company in ndia
Rest of logistics ndustry
Logistics ndustry
0
10
20
30
40
50
60
70
80
90
100
Logistic ndustry
Overall
Transportation Warehousing
52
90
60
48
10
40
Outsourced nhouse
Source: KPMG Report 2010
Logistics ndustry
Forms of Logistics Collaboration
Horizontal collaboration
Between shippers or service
providers in the same market
Alliances, partnerships and network
organisations
Collaborate in some markets,
compete in other
Vertical collaboration
Collaboration Between subsequent
actors in the same supply chain
Between suppliers, manufacturers
and customers
orizontaI
CoIIaboration
orizontaI
CoIIaboration
VerticaI
CoIIaboration
VerticaI
CoIIaboration
Types of LSP
irst-party Iogistics (1PL)
Second-party Iogistics (2PL)
Third-party Iogistics (3PL)
ourth-party Iogistics (4PL)
4PL: Network
ntegrator
3PL: Performs all or a large portion of
client's Supply chain logistic acts
adding value thru info & knowledge.
2PL: Manufacturer's logistic border expands and
requires this trucking co. or warehouse operator
1PL: Small businesses buying & selling at one single location
PL Pyramid
irst-party Iogistics (1PL)
A firm or an individual that needs to have cargo, freight, goods,
produce or merchandise transported from a point A to a point
B.
Can be a manufacturer, a trader, importer/ exporter,
wholesaler, retailer, or a distributor.
2 types of 1PL
Sender of the Merchandise: Consignor/Shipper
Receiver of the Merchandise: Consignee
Typically they subcontract their transportation's needs to 2PLs
and 3PLs, which are companies specialized in transportation.
Second-party Iogistics (2PL)
A second Party Logistics provider is an asset based carrier,
which actually owns the means of transportation.
Second-party Iogistics providers can be:
shipping Iines, which own, lease, or charter their ships,
airIines, which own, lease, or charter their planes,
truck companies, which own, or lease their trucks,
barge companies, which own, lease, or charter their barge,
raiI companies, which own their trains
Third-party Iogistics (3PL)
1st Party
Producer of Goods
3rd Party Logistical Partner
A firm that provides outsourced
logistics services to the other 2
parties for some portion or all
of their
supply chain mgmt functions
2nd Party
The Customer
unctions of 3PL
%#%
Transportation
Warehousing
Cross
Docking
nventory
Mgmt
Freight
Forwarding
Packaging
Custom
Clearance
OverIap Between 2PL and 3PL
2PL can also be 3PL at the same time in
the following cases:
when a shipping line owns a freight forwarder,
when an airline owns a general sales agent (GSA),
when a freight forwarder owns trucks, or a warehouse,
when a courier company owns planes, trucks, or a warehouse.
2PL 3PL
Types of 3PL Providers
Transportation logistics services
Leveraged 3PLs use assets of other firms
Non-leveraged 3PLs use assets of the parent firm only
Examples FedEx, UPS
Transportation based
These have former warehouse and / or distribution experience
Examples - Caterpillar Logistics, BM
Warehouse /
Distribution Based
ndependent middlemen with forwarder roles
Non-asset owners providing range of logistic services
Examples AE, Kuehne & Nagle
Forwarder Based
Services relating to freight payment, auditing, cost accounting & control
Provide tools for monitoring, booking, tracking, tracing & managing
inventory (FleetBoston)
Finance Based
nternet based B2B, electronic markets for transport & logistics services
Examples Transplace, Nistevo
nformation Based
Key Considerations before choosing a 3PL Partner
Price
Financial stability
Location
Asset ownership
nternational scope
Customer service
Capacity to accommodate and grow
The ability to meet or exceed promises
Service quality and performance
Available Talent
nformation system and technology
capabilities
Experience in the same industry or with
similar companies
Flexibility and capability to handle
unique business requirements
Responsiveness to unforeseen
problems or unexpected events
Commitment to continuous
improvement
Key Bottlenecks for 3PL industry in ndia
Poor infrastructure and transportation facilities
Complex Tax Laws
Complexity in international trade documentation process and
lack of T infrastructure. [No Automation]
ndustry readiness. [Use of T and systems still not a focus
area amongst the 3PLs]
Lack of training and trained personnel.
Fourth-party logistics (4PL)
The term 4PL is generally considered to have been introduced
by Accenture.
4PL (Fourth Party Logistics) is a company who manages 3PL's
on behalf of the customer.
4PL providers do not own assets for transportation or
warehousing, but rather leverage the solutions created by 3PL
providers, in order to identify and provide 'best in class' services
to their clients.
The customer does not have to deal with all these 3PL's
individually but has one single point of contact: the 4PL company.
Companies providing 4 PL services are, SCMO, CPCS, BMT,
Delloite, CapGemini, Accenture.
Seventh-Party logistics (7PL)
The concept of 7PL stems from the very simple notion of
amalgamating the well-established 3PL domain with the
concept of 4PL.
7PL serves to optimise and rationalise the new economy
Supply chain partners.
7PL is the effective fusion of physical and process expertise of
3PLs, with the enhanced knowledge-based macro-strategic
consulting and T capabilities of 4PLs.
The concept is new to the business world and companies are
trying to build the expertise and infrastructure required.
Advantages & Disadvantages
dvantages Disadvantages
Strategic
Concentration on core competences
Access to specialized knowledge
and capabilities
Faster entrance to new markets
Higher flexibility
Dependence of a third party
Point of no return
inanciaI
Lower operational costs
Make cost variable
No investments in logistics assets
Switching cost
Transaction cost
OperationaI
More efficient operation
More effective operation
mprovement of customer service level
No direct contact with customer
Have less grip on quality
Additional effort needed to manage
third party
Lack of expertise of a third party in a
specific market
Challenges
Fierce competition in the global market
High Specialties
Fixed cost
Fragmentation of transport flows
Congestion
Shortage of staff
Rising petrol and labor prices
Proliferation of products with shorter life cycles
Profit margins decrease
ncreasing expectations of customers in terms of both
service and price
FD Regulations
100% FD under the automatic route is permitted for all logistic
services except services mentioned in points ii and iii below
ii. FD up to 100% subject to FPB approval is permitted for
courier services
iii. FD up to 49% under the automatic route is permitted
for air transport services, including air cargo services.
It is pertinent to mention in this context, that Press Note 1
(2007) that is expected to be imminently notified by the DIPP
proposes to increase the limit of FDI on air cargo services in
74%.
The road ahead
The demand for fully-enabled logistics service providers will
grow rapidly.
The evolution of the traditional middleman in wholesale
distribution- the middleman will sell services and not products.
Older practices of buy-hold-sell give way to contracted logistics
services.
Expanded role will be to help facilitate transactions, organize
client inventories and catalogues, take and fill orders, execute
shipments and keep track of every minute detail, all in real
time.

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