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Leveraging Logistics: a 3PL Perspective

Leveraging Logistics: a 3PL Perspective

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Leveraging Logistics: a 3PL Perspective

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  1. Leveraging Logistics:a 3PL Perspective Presented to: TLI Fall Forum and Logistics Colloquium November 16, 1999

  2. Leveraging Logistics Excellence:a 3PL Perspective “Knowledge is of two kinds. We know a subject ourselves, or we know where we can find information upon it.” Source: James Boswell, Life of Samuel Johnson, 1791

  3. Leveraging Logistics Excellence:a 3PL Perspective • Introduction: J.B. Hunt Logistics • 3PL Market Landscape • 3PL Market Direction • Leveraging Logistics Excellence • Case Study

  4. Leveraging Logistics Excellence:a 3PL Perspective Introduction: J.B. Hunt Logistics • 3PL Market Landscape • 3PL Market Direction • Leveraging Logistics Excellence • Case Study

  5. Overview of J. B. Hunt • Started by J. B. Hunt in 1969 • Largest publicly held TL carrier in the U.S. • Owns 9,400+ trucks and 38,000+ trailers and containers • Approximately 15,000 employees • 40 offices in the U.S., Canada, and Mexico • Includes Logistics Management, Dedicated Contract Services, Truckload & Intermodal • $2+ billion in revenue projected in 1999 • 3PL side of business = 1/3 of total...$800 million • Growing at 30-40% a year

  6. J.B. Hunt Logistics • Provides transportation logistics services • Technology driven • Client advocate • Unbiased carrier and service provider selection • 100% coverage of transportation needs • Focused on lowest total cost solution

  7. DCS Intermodal Truckload Service Partners Technology J. B. Hunt Logistics

  8. Building a World-Class Supply Chain • Introduction: J.B. Hunt Logistics 3PL Market Landscape • 3PL Market Direction • Leveraging Logistics Excellence • Case Study

  9. Definitions • 3PLs: Independent companies that design, implement, and/or manage a client’s supply chain logistics needs. A 3PL s primary value-add is based on information and knowledge versus providing an undifferentiated service at the lowest cost. Source: Piper Jaffray, 1999

  10. Definitions • Logistics: That part of the supply chain process that plans, implements, and controls the efficient flow and storage of goods, services, and related information from the point of origin to the point of consumption, in order to meet customers’ requirements. • Supply chain: A set of three or more organizations directly linked by one or more of the upstream and downstream flows of products, services, finances, and information from a source to the customer. Source: CLM, Keeping Score, 1999

  11. Definitions • Supply chain management: The implementation of supply chain orientation across suppliers and customers…and the sum of all overt management actions undertaken to realize that philosophy. • Integration: Uniting two or more functions within a company, or two or more processes between two or more companies, into a compatible or unified process. Source: CLM, Keeping Score, 1999

  12. 3PL Market Landscape • Globally, logistics costs in 1998 were $3.5 trillion • America spent $898 billion on logistics in 1998 • $524 B for transportation (58%) • $425 B on motor carriage (47%) • 10.6% GDP flat for last 3 years • down from high of 16.6% in 1981 • up from low of 10.2% in 1993 Source: R. Delaney, National Press Club. 6/7/99

  13. 3PL Market Landscape • In 1998, U.S. companies increased their expenditures on 3PL services by 15%, to $39.6 billion • Transportation Management was $5.8 billion and was the fastest growing at 21% • Dedicated Contract Carriage, at $6.2 billion, grew 20% Source: Armstrong & Associates, 1999

  14. 3PL Market Landscape • Fortune 500 Companies and 3PLs* • 70% of Fortune 100 companies use 3PLs • 44% of Fortune 500 companies use 3PLs *Adjusted to exclude firms not likely to use 3PLs (e.g., financial institutions) Source: Armstrong and Associates, 1999

  15. Leading 3PL Services/Providers • Transportation based • Warehousing based • Brokerage based • Freight Forwarding based “There are well over 1000 companies in the United States that claim to be 3PLs.” Source: Piper Jaffray, 1/99

  16. Activities Outsourced to 3PL’s • Outbound Transportation 62.9% • Warehousing 62.9% • Freight Bill Auditing/Payment 53.2% • Inbound Transportation 48.9% • Freight Consolidation/Distribution 38.2% • Product Marking/Labeling/Packaging 30.6% • Cross-Docking 23.1% • Traffic Management/Fleet Operations 22.6% • Source: University of Tennessee, 1999

  17. Ryder Integrated C.H. Robinson Menlo Logistics Caliber Logistics Penske Logistics J.B. Hunt Logistics Hub Group Fed Ex Schneider Logistics Emery 3PL Market Landscape1998 Top 10Source: Inbound Logistics, 7/99

  18. 3PL Opportunities for Improvement • Lack of Cost Control • Unsatisfactory Customer Service • Inadequate Technology • Communications • Lack of Understanding Scope of Work • Inadequate Performance & Knowledge • Lack of Proactive Management • Shortage of Qualified People Source: Journal of Commerce

  19. Building a World-Class Supply Chain • Introduction: J.B. Hunt Logistics • 3PL Market Landscape 3PL Market Direction • Leveraging Logistics Excellence • Case Study

  20. 3PL Market Direction “CEOs and CFOs realize that today’s most important strategic variables are packaging and logistics.” Source: Wall Street Journal, 7/98

  21. 3PL Market Direction “Logistics is in the limelight because CEOs cannot seem to squeeze enough dollars out of their companies’ manufacturing, marketing, sales and distribution operations.” Source: American Shipper, 10/99

  22. 3PL Market Direction “The logistics outsourcing marketplace is now exploding because (it allows companies to) take advantage of increased economies of scale and more sophisticated process expertise, which enables them to release scarce capital for more productive uses elsewhere.” Source: Editors, Outsourcing Journal, 4/99

  23. 3PL Market Direction • 3PL penetration is increasing • 2% in 1992 ($10 B of $465 B market) • 7% in 1998 ($40 B of $606 B market) • 12.5% in 2002 ($85 B of $682 B market) Source: Cass Information Systems and Piper Jaffray…estimates

  24. 3PL Market Direction • Market for 3PL services growing at 18-22% annually Source: University of Tennessee, 1999

  25. 3PL Market Direction • U.S. logistics costs should hit $1 trillion in 1999 • Transportation will be $458-460 billion (46%) • Logistics-to-GDP ratio remains flat at 10.5%-10.6% Source: Gruntal & Co., L.L.C.

  26. 3PL Market Direction “In our opinion, when the use of the Internet spreads to totally control supply chains, orders, billing, payments, and tracking, we may expect the logistics-to GDP ratio to improve once more…by enhancing logistics productivity.” Source: Gruntal & Co., L.L.C.

  27. Building a World-Class Supply Chain • Introduction: J.B. Hunt Logistics • 3PL Market Landscape • 3PL Market Direction Leveraging Logistics Excellence • Case Study

  28. Catalysts of Logistics LeverageSource: Dr. J. Thomas Mentzer, University of Tennessee Top Management Vision and Commitment Efficiency and Effectiveness Creation of Value-Added Services Orientation of Marketing LOGISTICS LEVERAGE Performance Dimension Agreements Strategic Interface Teams Time and Quality Based Competition Partnership Technology Market Intelligence

  29. Logistics Leverage is the... “achievement of excellent and superior infrastructure-based logistics performance which, when implemented through a successful marketing strategy, creates recognizable value for customers.” Source: Dr. T. Mentzer, University of Tennessee

  30. Logistics Leverage • Unlike a product change or enhancement, achieving logistics superiority is a capability difficult to imitate. • It involves changes in people, technology, facilities and/or strategic corporate infrastructure Source: Dr. T. Mentzer, University of Tennessee

  31. Logistics Leverage • Achieving competitive advantage through leveraging logistics is likely to achieve maintainable competitive superiority. Source: Dr. T. Mentzer, University of Tennessee

  32. Logistics Leverage “Everybody talks about the weather, but nobody does anything about it.” Source: Mark Twain

  33. Logistics Leverage • “Immense buying power, plus exhaustive knowledge of what is selling at what checkout counter, make a powerful combination called clout. Home Depot, Wal-Mart, Toys ‘R’ Us, and Target have it, and they use it to demand continually better performance and better terms from their suppliers.” Source: American Shipper, 10/99

  34. Logistics Leverage • J. B. Hunt Logistics has similar clout as a 3PL by controlling an immense amount of freight and capacity that they can leverage to achieve lower costs and improved service from their suppliers.

  35. Leveraging Logistics ExcellenceSavings Potential • Inbound consolidation & mode selection 20-25% • Closed loop dedicated operations 15% • Route redesign and optimization 10-15% • Mode conversion 10-15% • Reverse logistics 10-15% • DC location realignment 10-12% • Reduced inventory & carrying costs 7-10% • Core carrier management & lane matching 5-10% • Rate negotiation & audit 4-5% Source: Armstrong & Associates, 1998

  36. Catalysts of Logistics Leverage Efficiency and Effectiveness Creation of Value-Added Services Orientation of Marketing Top Management Vision and Commitment LOGISTICS LEVERAGE Performance Dimension Agreements Strategic Interface Teams Time and Quality Based Competition Partnership Technology Market Intelligence

  37. Vision and Commitment “Supply chain leaders across a range of industries…share certain attributes.” One of those attributes is “an overriding vision, driven from the top.” Source: Francis J. Quinn, editor of Supply Chain Management Review 8/99

  38. Vision and Commitment “Organizational and operational change will never happen unless it is driven by top management-not just some of the top brass, but the CEO and the whole officer corps.” Source: Francis J. Quinn, editor of Supply Chain Management Review 8/99

  39. MISSIONTO BE THE BEST SERVING THE BEST We will forge long term partnerships with key customers that include supply chainmanagement as an integral part of their strategy. Working in concert, we will drive out cost, add value and function as an extension of their enterprise.

  40. Catalysts of Logistics Leverage Top Management Vision and Commitment Creation of Value-Added Services Orientation of Marketing Efficiency and Effectiveness LOGISTICS LEVERAGE Performance Dimension Agreements Strategic Interface Teams Time and Quality Based Competition Partnership Technology Market Intelligence

  41. Efficiency and Effectiveness Logistics service providers most frequently create value through the effectiveness (68%) and efficiency (80%) of their operations… Source: University of Tennessee, 1999

  42. Efficiency and Effectiveness • Total supply chain analysis and design • Systems technology • Asset strength (TL, Intermodal, Dedicated) • Network of carriers (capacity) • Network of customers (freight)

  43. Efficiency and Effectiveness Carrier Leverage • Move 1 million loads/year…we are a big shipper • Existing contracts with around 800 carriers • 2,000 additional carriers contracted for random freight • Service providers in multiple transportation modes

  44. Catalysts of Logistics Leverage Top Management Vision and Commitment Efficiency and Effectiveness Creationof Value-Added Services Orientation of Marketing LOGISTICS LEVERAGE Performance Dimension Agreements Strategic Interface Teams Time and Quality Based Competition Partnership Technology Market Intelligence

  45. Value-Added Services • Total System Re-engineering (Strategic) • Analyze, benchmark, design • Optimize total network • Assembling/Management of Asset Providers (Tactical) • Contract negotiation • Freight bill auditing and payment • Performance monitoring and reporting • Process and Execution (Operational) • Order/freight management • Carrier dispatching and communication • Service and cost management

  46. Value-Added Services Networked Freight • Continuous moves • Matching shipments within a single client’s freight and tendering to carriers combined • Cluster continuous moves • Matching one client’s freight with another’s and tendering to carriers combined • Networked lanes • Identifying the client lanes that can be matched on a regular basis, and negotiating lower rates

  47. Catalysts of Logistics Leverage Top Management Vision and Commitment Efficiency and Effectiveness Creation of Value-Added Services Performance Dimension Agreements Orientation of Marketing LOGISTICS LEVERAGE Strategic Interface Teams Time and Quality Based Competition Partnership Technology Market Intelligence

  48. Importance of Measurements • “Some companies are data rich, but information poor, because they measure the wrong things…what accountants want to know about, rather than what customers care about.” • “What gets measured competently, gets managed.” Source: Dr. K. Manrodt, University of Tennessee, 1999

  49. Logistics Measurements • Logistics measurements should benefit the company in three ways: • Significant reduction in operating costs • Dramatic improvement in customer service • Enable new growth opportunities Source: CLM Keeping Score, 1999

  50. Establishing Logistics Measurements • Make sure measurements are in synch with strategy • Truly understand customer needs • Know your costs in providing logistics services • Take a “process” view of logistics • Focus only on key measures • Stop ineffective measurement activities • Use information technology Source: CLM, Keeping Score, 1999