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INDUSTRIES IN TRANSTION: FREIGHT TRANSPORTATION INTERMEDIARIES IN THE INFORMATION AGE PowerPoint Presentation
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INDUSTRIES IN TRANSTION: FREIGHT TRANSPORTATION INTERMEDIARIES IN THE INFORMATION AGE

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  1. INDUSTRIES IN TRANSTION:FREIGHT TRANSPORTATION INTERMEDIARIES IN THE INFORMATION AGE Jiong Song and Amelia C. Regan Metrans 2nd Annual Transportation Conference Feb. 2, 2001 ITS, UC Irvine

  2. Outline Section I Traditional Freight Transportation Intermediary Current State and Evolution of the Industry Section II Section III Niche Markets -- Online Logistics Providers Section IV Research Needs / Opportunities Predictions / Conclusions Section V ITS, UC Irvine

  3. Section I Traditional Freight Transportation Intermediary Current State and Evolution of the Industry Section II Section III Niche Market -- Online Logistics Providers Section IV Research Needs / Opportunities Predictions / Conclusions Section V ITS, UC Irvine

  4. 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” -- Murphy & Poist (1998) ITS, UC Irvine

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

  6. Characteristics of 3PL • Perform outsourced logistics activities • Process management / Multiple activities • More customized services • Mutually beneficial and risk-sharing relationship • Long-term commitments (1~ 3 years) ITS, UC Irvine

  7. Why is it needed? • Advantages • Cost reduction • Focus on core competency • Improved efficiency, service and flexibility • Industry-specific application – “build-to-order” systems and e-merchants • Disadvantages • Loss of control • Impact on in-house workforce ITS, UC Irvine

  8. Section I Traditional Freight Transportation Intermediary Current State and Evolution of the Industry Section II Section III Niche Markets -- Online Logistics Providers Section IV Research Needs / Opportunities Predictions / Conclusions Section V ITS, UC Irvine

  9. Industry Evolution Third Generation ( 2000 and beyond) • Online freight marketplaces • Web-based 3PLs • Increasing supply chain integration • Non asset-based companies • Asset-based companies increased service offerings Second Generation (1980s - 1990s) • Transportation / warehousing • Freight forwarders / brokers • Shipper’s agents First Generation (1970s - 1980s) Broader more integrated services

  10. 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 State -- Service Offerings ITS, UC Irvine

  11. Current State -- Market Size 3PL market is growing ( $ Billions ) ITS, UC Irvine

  12. Market Structure Annual Revenue > $100 million $20 - 100 million < $20 million • Orange Courier • Regal Logistics • Cass Information • System • California Distribution • Bax Global Logistics • Menlo Logistics ITS, UC Irvine

  13. Current use of 3PL by industry • Industry • Percentage of 3PL use in different industries Computer Consumer Retail Chemical Medical Auto Source "What's ahead for 3PLs“ Modern Materials Handling, April, 2000 ITS, UC Irvine

  14. Current Industry Status • No commonly accepted terminology • Technologies increase visibility, efficiency and integration • The service menu is rapidly changing • New breed of companies are emerging ITS, UC Irvine

  15. Section I Traditional Freight Transportation Intermediary Current State and Evolution of the Industry Section II Section III Niche Markets -- Online Logistics Providers Section IV Research Needs / Opportunities Predictions / Conclusions Section V ITS, UC Irvine

  16. Niche Markets – Online Logistics Providers • Online Freight Marketplaces • Spot market • Auction and RFQ • Exchange • Meta-marketplaces • Application Service Providers (ASPs) • Purchasing Consolidation Market • Infomediaries ITS, UC Irvine

  17. Online Logistics Providers-Opportunity • 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 ITS, UC Irvine

  18. Niche Markets – Online Service Providers • Spot market • Auction and RFQ • Exchange • Meta-marketplaces • Application Service Providers (ASPs) • Purchasing Consolidation market • Infomediaries ITS, UC Irvine

  19. ITS, UC Irvine

  20. ITS, UC Irvine

  21. Niche Markets – Online Service Providers • Spot market • Auction and RFQ • Exchange • Meta-marketplaces • Application Service Providers (ASPs) • Purchasing Consolidation market • Infomediaries ITS, UC Irvine

  22. ITS, UC Irvine

  23. ITS, UC Irvine

  24. Niche Markets – Online Service Providers • Spot market • Auction and RFQ • Exchange • Meta-marketplaces • Application Service Providers (ASPs) • Purchasing Consolidation market • Infomediaries ITS, UC Irvine

  25. ITS, UC Irvine

  26. ITS, UC Irvine

  27. ITS, UC Irvine

  28. Niche Markets – Online Service Providers • Spot market • Auction and RFQ • Exchange • Meta-marketplaces • Application Service Providers (ASPs) • Purchasing Consolidation market • Infomediaries ITS, UC Irvine

  29. ITS, UC Irvine

  30. Niche Markets – Online Service Providers • Spot market • Auction and RFQ • Exchange • Meta-marketplaces • Application Service Providers (ASPs) • Purchasing Consolidation market • Infomediaries ITS, UC Irvine

  31. ITS, UC Irvine

  32. ITS, UC Irvine

  33. Niche Markets – Online Service Providers • Spot market • Auction and RFQ • Exchange • Application Service Providers (ASPs) • Purchasing Consolidation market • Infomediaries ITS, UC Irvine

  34. ITS, UC Irvine

  35. Niche Markets – Online Service Providers • Spot market • Auction and RFQ • Exchange • Application Service Providers (ASPs) • Co-ops • Infomediaries ITS, UC Irvine

  36. ITS, UC Irvine

  37. Section I Traditional Freight Transportation Intermediary Current State and Evolution of the Industry Section II Section III Niche Markets -- Online Logistics Providers Section IV Research Needs / Opportunities Predictions / Conclusions Section V ITS, UC Irvine

  38. Recent Research • General market examination • Lieb and Randal (1999) • Lieb and Peluso (2000a, 2000b) • Contracts and relationships • Leahy, Murphy & Poist (1995) • Sankaran & Charman (2000) • Decision-making processes • Menon, McGinnis & Ackerman (1998) • Lim (2000) ITS, UC Irvine

  39. Behavioral Models • Carrier and Shipper behavior models • Carrier selection • Contract design • Contract negotiation • 3PL provider’s behavior • Service offerings • Carrier selection • Contract design • Contract negotiation ITS, UC Irvine

  40. Online Freight Marketplaces • Integrated and Time Sensitive Optimization Problems • Dynamic and stochastic routing and scheduling systems • Dynamic inventory management systems • Combined inventory-routing models • Real-time bidding and freight matching algorithms • Optimal pricing strategies for intermediaries and carriers • Optimal bidding strategies for shippers • Simulation-based analysis of costs and benefits to shippers, carriers and 3PLs under competing business models • Is it a zero sum game? Who wins? Who loses? How much? ITS, UC Irvine

  41. Section I Traditional Freight Transportation Intermediary Evolution and Current State of the Industry Section II Section III Niche Markets -- Online Logistics Providers Section IV Research Needs / Opportunities Predictions / Conclusions Section V ITS, UC Irvine

  42. Predictions and Conclusions • The total market for freight transportation intermediaries is still growing with the boom of e-commerce; • The conventional 3PLs will not fade, but will face with the competition from the online logistics providers; • The companies have to combine the logistics expertise with advanced technology to evolve; • Strategic alliance and merge/acquisition will be important to obtain comprehensive and intergrated supply chain solution capability; • Small carriers and niche carriers will benefit from increased access to shippers and reduced search costs • Medium sized and Large carriers may resist and try to continue business as usual or simply become e-commerce enabled using current business models • The 120+ on-line freight marketplaces will be reduced to less than 10 leaders and a few successful niche players in near future. ITS, UC Irvine

  43. Predictions and Conclusions • The freight transportation industry has historically been slow to change • Personal relationships will continue to be important despite a growing acceptance of web based interactions • The potential benefits of IT are huge • Major industry changes will come – the question is how soon ITS, UC Irvine

  44. End ITS, UC Irvine