THIRD-PARTY LOGISTICS HAKAN GULTEKIN

OUTLINE Introduction and definitions Literature review Future research

INTRODUCTION Outsourcing: Contracting of the management functions and operational control of the logistics functions to unrelated third-party companies Began in 1990s Grown at an 25% annual rate since

INTRODUCTION Reasons of Outsourcing: Turning non-core functions over to external suppliers in order to: - Leverage resources - Spread risks - Concentrate on issues critical to survival and future growth

INTRODUCTION Reasons for Outsourcing: Overcoming lack of internal capabilities Reducing inventory Improving service Improving operations

INTRODUCTION Third Party Logistics (TPL) Providers: External providers who manages, controls, delivers logistics activities in behalf of a shipper The activities performed can include all or a part of the logistics activities but at least management and execution of transport and warehousing should be included

Non-core functions are outsourced Core versus non-core differs by company and industry Non-core can be important and critical but does not define the company INTRODUCTION

Functions usually outsourced: Inbound and outbound transportation Warehousing Distribution Information systems Reverse logistics E-commerce INTRODUCTION

Functions usually not outsourced: Supplier management Demand management Inventory ownership Strategic planning Cost control

Lack of quantitative analysis Most conceptual and empirical Murphy and Poist give an extensive survey on the growth of TPL market Sheffi: reasons for the growth of TPL in USA: Core business, better transportation, cost saving, improved service, need for more professional logistics services LITERATURE REVIEW

Wang and Regan considered risks of using TPL providers - Possibility of inefficient management - Loss of logistics innovative capacity - Hidden costs - Dependence on TPL provider - Conflicts of culture LITERATURE REVIEW

Leahy et al. Examined the determinants of successful TPL relationships from the provider perspective Roberts considered the choosing process for logistics provider: Cost, quality of the people and level of service provided LITERATURE REVIEW

Reverse logistics can be extremely complex Many companies with limited resources outsource reverse logistics NetReturn: An Internet system that FedEx has developed for reverse logistics management LITERATURE REVIEW

Companies using TPL for reverse logistics could reduce up to 10% of annual logistics costs. (Krumweide) K-Mart uses TPLs like GENCO Distribution System. Krumweide provides a decision making model for possible implementation of reverse logistics by TPLs. LITERATURE REVIEW

Spicer and Johnson considered TPLs as an approach for Extended Producer Responsibility (EPR). EPR: A policy to promote total life cycle environmental improvements of product systems by extending the responsibilities of the manufacturer especially to take-back, recycling and final disposal of the product. LITERATURE REVIEW

For many product categories TPL take- back is shown to be the most effective way to meet the goals of EPR programs. Third party warehousing has an increasing trend. Operational efficiency of TPW has important implications for the success. LITERATURE REVIEW

Chen et al. considered TPW as a space provider. Demand for space is a random variable Multi-period contracts - initial commitment on space Adjustment during the contract period according to realization of the demand Simple form solutions are found LITERATURE REVIEW

Goh et al. also considered warehouse sizing issues TPW usually lease in discrete chunks of gross floor area Piecewise linear total warehousing costs Closed from solutions for optimal warehouse size that minimize the total cost of ordering, holding and warehousing LITERATURE REVIEW

Cetinkaya and Lee considered a supplier and a TPW TPW holds inventory and responsible for outbound transportation cost For economies of scale TPW consolidates many small shipments into one large shipment. During this time customers wait LITERATURE REVIEW

Parameters that determine - how often to dispatch a truck - how often and in what quantities the stock should be replenished at the TPW are tried to be found Closed form expressions are obtained. LITERATURE REVIEW

Need for quantitative analysis Quantifying benefits of using TPL providers Evaluating different TPL providers and selecting the best one to work with: - Different lead times - Different service level guarantees - Different operating characteristics FUTURE RESEARCH

Specific Problem to be Analysed: Supplier, retailer and TPW Third party is responsible for warehousing and outbound transportation For economies of scale TPW consolidates many small shipments into one large shipment Retailers use periodic review order policy FUTURE RESEARCH

Customers may wait for some time with penalty w r to the retailers For such cases retailers charge w t penalty to the TPW FUTURE RESEARCH

time Consolidated load QcQc TcTc time Inventory 2Q c TcTc QcQc T r =kT c TPW

FUTURE RESEARCH time Inventory ToTo T c =nT o RETAILER QrQr QrQr

FUTURE RESEARCH

QUESTIONS?