@ Supply Chain Management

The Defense Department is looking to outsource the management of its domestic freight-a contract that could run into the billions of dollars. The program is intended to cut costs and boost service; it could also shake up the industry.

DC Velocity has an article about the DTCI – Defense Transportation Coordinator Initiative that is finally getting some well needed publicity.
I’m pleased to see something that I was part off for more than a year finally seeing the light of day. And I choose the word “part off” very carefully because you can only be a “part off” something like this – the DTCI project was just huge. The dataset was huge. The dollar amounts were more than huge. The meetings lasted days. The computational times were spread over weeks. And so on…
So what is the DTCI all about?

Perhaps it’s no surprise that the people who brought us stealth technology have launched an all-out war on freight spending and nobody seems to have noticed. And the Department of Defense (DOD) surely is thinking big. In August of this year, DOD began reviewing proposals submitted under its Defense Transportation Coordination Initiative (DTCI)—a program through which it will outsource the management of all DOD freight moving commercially in the continental United States.
The goal of DTCI is to improve the speed, predictability and reliability of transportation while simultaneously reducing costs by as much as 20 percent. The rest of us call it third-party logistics (3PL), but hey, this is the government, which rarely misses an opportunity to make up its own acronym.

Nothing could be truer that governments make up acronyms on the fly. This is especially painful if you as an outsider have to sit through meetings where you get bombarded with acronymns every third or fourth sentence. I mean that they have a whole different language unto themselves.

Now, DTCI is no secret … the DOD has been working the circuit since early 2004, talking the vision and addressing concerns. It has even created a public Web site devoted to the initiative. But outside of the defense world, it hasn’t generated much buzz, and it should.
We’re talking billions of dollars in freight over the life of the contract. That’s not a typo. Billions of freight dollars. And when you start shifting that kind of money around in a market, changes happen. Not just for the players involved, but for everybody playing in the sandbox.

The last thing you want is for the government to make a move because when a governmental department the size and scope of the DOD shifts its way of doing things, its like an elephant in a china shop, more or less. With the DTCI, the government wanted to make a significant first step of bringing in private parties to manage the DOD’s domestic freight. The DOD in any case doesn’t use its own fleet for domestic freight shipments except in some special cases and contracts carriers to ship stuff already. However, in DTCI, its trying to bring in a 3PL for very much the same reasons that a firm would bring in a 3PL.

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Fiscal Visibility In Supply Chain = Money Saved is the title of a new opinion piece by author Michael Stolarczyk who also blogs at BlogonLog.
Michael notes,

A typical apparel company, for example, might source fabric from China, manufacture garments in Malaysia, send them to Italy for custom design work, then ship final products to a 3PL warehouse in the United States for delivery to major department stores around the country.

The above is an example of how dramatically the options for manufacturing, coupled with logistics options and supply chain technology, for any firm anywhere has shifted in less than two decades. However, this shift has also laid the axe to traditional notions of ownership and control driving up risks across the supply chain and thus inventories (in part to cover the lead times and in part to act as a buffer to rising risk) as well. You might have been used to bull whip effects in a supply chain on a domestic scale. What about bull whip effects on an international scale and what effects will such phenonmenon have on local economies that form part of such global supply chains?
Also remember that a customer’s notion of product availability has not been downgraded as a result of the increased lead times and coordination that firms have taken upon themselves. Instead, if anything, a customer’s notion of product availability and customer service has migrated northwards fueled by better communication and awareness i.e. trends are communicated in real-time these days.
So how have companies executed upon their strategic decision to outsource or offshore or some combination of the two?

“Poorly,” notes Michael,

The need for advanced solutions may seem obvious, but a surprising number of companies still have a long way to go when it comes to global supply chain technology sophistication.

and,

On average, large companies report their global supply chains are only 50 percent as automated as their domestic supply chains.

and,

The interesting news continues — only six percent qualify their global supply chains as highly automated, and a full 90 percent of all enterprises report their global supply chain technology is inadequate to provide timely information required for budget and cash-flow planning!

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As reported previously here, the summarized results of the 11th Annual 3PL study 2006 are now available at the site – www.3plstudy.com. The authors and objectives of the study were:

The 2006 study is produced by C. John Langley Jr., Ph.D., of the Georgia Institute of Technology, with industry experts from Capgemini, DHL, and SAP, and is an extensive study about using 3PL services in North America, Western Europe, Asia-Pacific and Latin America to examine critical trends and issues among key markets and key customers in the 3PL industry.

Tags: 3PL, 3PL Study, 3PL, Capgemini, Georgia Tech, DHL, SAP, C. John Langley Jr.

Tompkins Inc has a great web presentation that outlines some of the key steps that any firm undertaking the journey of selecting a 3PL must consider before taking that step.
Jim Tompkins outlines the following warning not too far into the presentation:

A study of third party logistics providers carried out by John Langley Jr., Ph.D., of the Georgia Institute of Technology, with Capgemini, DHL, and SAP, conducted an extensive study about using 3PL services in North America, Western Europe, Asia-Pacific, Latin America, South Africa, and the Middle East to examine critical trends and issues among key markets and key customers in the 3PL industry. You can peruse the executive summary of the study here.
The key takeaways from the above study are:

• 3PL users continue to view a collaborative partnership approach with their 3PL providers as key to improving the user-company 3PL performance. However, unlike in past surveys, pricing has become the most important attribute in selecting a 3PL provider. This is different from last year’s study where value-added services was ranked first. In fact, this year the proficiency of a 3PL provider’s core services was considered more important than the provider’s ability to deliver value-added services.
• 88% of those surveyed view their relationship with their service provider as successful. Although users are generally satisfied with their 3PL providers
• Implementing IT ranked third behind cost pressures and improving supply chain management as a leading factor affecting 3PL user organizations

The gaps identified in the 3PL industry in 2005 were:

• Disappointment with the 3PL provider’s abilities to develop advanced services.
• Need for relationship reinvention, mechanisms for continual improvement, and solution innovation.
• Increasing importance on repeatable and leveraged solutions.
• Emerging role of supply chain integration.
• Global evolution of 3PL usage.

The 2006 study is forthcoming shortly at it can be accessed at the following site: 3PL Study.

Categorized as: News_, 3PL_
Tags: 3PL Trends, 3PL Study, 3PL, Supply Chain Service Providers, Supply Chain Management, Capgemini Consulting, Georgia Institute of Technology, SAP, DHL

Logistics Management highlights from their 17th Annual State of Logistics report a finding that rising prices and interest rates will soon push logistics costs above 10% of GDP. They refer to a report written by economist Rosalyn A. Wilson for the Council of Supply Chain Management Professionals (CSCMP) that places logistics expenditures at 9.5% of GDP.

That’s a sharp departure from the three previous years, when those costs ranged between 8.6 and 8.8 percent of GDP (see Figure 1). And it’s perilously close to the 10 percent mark, a long-accepted demarcation separating reasonable and exorbitant cost levels.

Among the factors contributing to this precarious situation are:

One factor is the steady climb in interest rates, which has pushed up inventory-carrying costs. But the biggest cost driver has been rising transportation expenses, which reached $744 billion in 2005, up from $636 billion in 2004. Soaring fuel prices, a driver shortage, and diminished competition have all come together to raise rates across all modes, and for trucking in particular.

The article explains briefly how the value of logistics relative to overall economic activity is calculated:

That formula adds together three components: inventory-carrying costs, transportation costs, and administrative costs. This year Wilson calculated total logistics costs for 2005 at $1.183 trillion, a 15.2 percent hike over the previous year’s total.

The article also offers a snapshot of the US Logistics Market in 2005. That snapshot shows that Transportation costs have the lion share of Total Logistics costs in the US and the major issues there are driver shortages, tight trucking capacity and higher diesel cost.
Longer term, the report outlines aging and inadequate transportation infrastructure and supply chain security as the two long-term challenges for logisticians. Wilson writes that the transportation infrastructure is severely strained in some locations because of the dramatic growth in volume of freight. As for supply chain security, Wilson notes:

Like many other industry observers, Wilson argues for a holistic approach to security. She advocates end-to-end monitoring of cargo and at the same time establishing and preserving a proven chain of custody. Although companies would have to bear the costs associated with those practices, she believes that improved security would justify the expense. “Investment in state-of-the-art cargo- security technology and monitoring solutions can provide a significant return on investment, often at bargain prices considering the value of the capital that could be lost by a disruption in global container shipping,” she writes. Embracing security as a core business function will mitigate the need for invasive government practices, she adds.

Categorized as: News_, Supply Chain Management_
Tags: Logistics Report, Transportation Costs, Logistics Challenges

The top 25 third party logistics (3PL) providers as reported by Global Logistics and Supply Chain Strategies magazine are:

1. Exel, PLC – $13,335
2. Kuehne & Nagel – $10,700
3. Schenker – $10,700
4. DHL Global Forwarding – $9,500
5. UPS Supply Chain Solutions – $7,700
6. Panalpina – $6,320
7. CH Robinson – $5,689
8. TNT – $4,270
9. Expeditors – $3,902
10. Schneider Logistics – $3,852
11. NYK Logistics – $3,560
12. Penske – $3,171
13. Eagle Global Logistics – $3,096
14. Nippon Express – $3,000
15. PWC/Geologistics – $3,000
16. Bax Global – $2,899
17. UTi Worldwide – $2,785
18. Ryder – $2,181
19. Caterpillar Logistics – $2,100
20. Kintetsu – $2,025
21. Menlo – $1,340
22. APL Logistics – $1,290
23. Maersk Logistics – $800
24. SembCorp Logistics – $713
25. Fedex Trade Networks – $672