Wednesday, October 23, 2019
A Case Analysis of the Workings of a Third Party Logistics Industry Essay
Introduction            The relevance of Third Party Logistics (3PL) Providers need not be overemphasized. The logistics industry provides a very good opportunity for industries to focus more on their core competencies and significantly reduce their spending while at the same time improving their systems and customer service aspects. Since most of the 3PL companies have all the resources that are necessary for effective logistics function on top of their human capital it is always the case that companies will definitely gain a good experience on top of learning a lot of new strategies in dealing with this type of service.            This paper will provide the basic theories on Logistics and Third Party Logistics. Consequently, it will relate such theories to actual experiences of a particular 3PL Industry leader: Ryder Systems Inc. The paper will be discussing its core services, values and take into close analysis two of the services that they have provided on two of their major clients. Similarly, the discussion of some of the risk factors that are inevitable for the company will also be taken into account. See more: The Story of an Hour Literary Analysis Essay Objectives of the Study            First amongst of the few objectives of the study will be the student’s capability to communicate the concepts that are relevant in the industry that he or she is working in. Second would be to show how big and relevant the market for the logistics industry is. In relation with this is to illustrate how the company which the author works in (i.e. Ryder Systems Inc) is able to have a significant share in this industry.  Part of such objective would be explaining its book of business, products and services and basic corporate values. There should also be direct examples to illustrate how is the company is able to maintain its top clients. Significance of the Study            It is necessary to provide a scholarly study on the area of logistics because there has not been a lot of studies are conducted in this type of industry. Most of the researches that the author have encountered are primarily brief case studies and basic theories that mainly based on the specific corporations that are doing such type of businesses. Having such, most of the literatures are one sided, that is discussing only the good experiences that were encountered in dealing with specific clients. It is the author’s endeavor to bring out a research paper that is based on a holistic perspective so that there would be a thorough discussion of both of the positive and negative areas within the logistics industry. Review of Related Literature Logistics Logistics is the process of administering and controlling the course of goods, energy, information and other resources namely products, services and people from a particular company.  It would be very hard to imagine a particular company without proper logistical function or support. The very rationale of a logistics support primarily lies on proper â€Å"geographical positioning of raw materials, works in process, and finish inventories†at the most reasonable cost, this information is taken from Wikipedia’s introduction part, titled â€Å"Logistics†. Taken from the same reference, Wikipedia categorizes logistics into three types: military, business and production logistics. Military logistics Providing logistical support to the military is more of a matter of life and death. It is very crucial that soldiers’ supplies of food, fuel and ammunition be delivered in the fastest and safest possible manner if not, such would lead to very serious implications. Good examples of such cases are the US-Iraq war, American War of Independence and the Second World War. Business Logistics There are two different focuses in which logistics function in businesses: the internal focus and the external focus which â€Å"covers the flow from originating supplier to end-user†. Part of the business is the assurance of the proper â€Å"coordination of resources in an organization†.  Two forms of logistics in business that are fundamental for the smooth run of the business are the â€Å"steady flow of material through a network of transport links and storage nodes; and also the sequence of resources to carry out projects†. Production Logistics The relevance of logistics within an industry need not be over emphasized. As industries are constantly changing their machines to achieve â€Å"capital efficiency†and â€Å"customer response†, it is very necessary to make more efficient the logistics function. For existing plants, the management often find themselves replacing parts ad even machines in order to ensure the quality and rate of productivity. Hence it is not only the case that timeliness of transporting these parts should be taken into consideration but also the cautiousness that is necessary to guarantee that by the time the machine or parts get to the production site, it is still on a perfect working condition. For the purpose of this paper, the author will concentrate specifically on two types of logistics function, i.e. the business and the production logistics. Third Party Logistics It would be more cost-effective for companies which don’t have a particular specialization on transportation and logistics to outsource using 3PL or third Party Logistics Provider.            3PL is a specialized vendor which takes care of the â€Å"supply management function†of a particular company’s integrated warehousing and transportation, and other services that could be â€Å"made according to customer’s needs prior on market condition and the demands and delivery service requirements for their products and materials.†Few of these services are inventory, material handling and packaging.            According to Hertz, and Alfredsson in their article â€Å"Strategic development of third party logistics providers, Industrial Marketing Management†there are four categories of 3PL providers: Standard 3PL provider: this is the most basic form of a 3PL provider. They would perform activities such as, pick and pack, warehousing, and distribution (business) – the most basic functions of logistics. For a majority of these firms, the 3PL function is not their main activity. Service developer: this type of 3PL provider will offer their customers advanced value-added services such as: tracking and tracing, cross-docking, specific packaging, or providing a unique security system. A solid IT foundation and a focus on economies of scale and scope will enable this type of 3PL provider to perform these types of tasks. The customer adapter: this type of 3PL provider comes in at the request of the customer and essentially takes over complete control of the company’s logistics activities. The 3PL provider improves the logistics dramatically, but do not develop a new service. The customer base for this type of 3PL provider is typically quite small. The customer developer: this is the highest level that a 3PL provider can attain with respect to its processes and activities. This occurs when the 3PL provider integrates itself with the customer and takes over their entire logistics function. These providers will have few customers, but will perform extensive and detailed tasks for them.   Ryder System Inc Company Overview Headed by their Chairman and CEO Gregory T. Swienton, Ryder System Inc is one of the best and leading industries in terms of providing logistics, supply chain management and solutions all over the world. It has been featured in Fortune 500 and has received numerous commendations from its clients and peers within the industry. Few of its customer awards are from Toyota (Best Business Partner of the Year), Mazda (Carrier of the Year), Xerox (Delivery Carrier of the Year), Whirlpool (Gold and Bronze Quality Awards), Alcan (Distribution Supplier of the Year), ARCO (Category 1, Supplier Status), Bombay (Carrier of the Year), Copperweld (Outstanding Supplier of the Year), Domino’s Pizza (Supplier of the Year), etc. Similarly, few of its industry awards came from Forbes, Beacon Council, The Miami Herald, Commercial Carrier Journal, Hispanic Magazine, Logistics Management, Mercer Management Consulting, Internet Week, E Week, Information Week, Centro de Estudos em Logica, Consumer Goods Technology, CIO, National Safety Council, Latina Style, Information Week 500, Business Week, Inbound Logistics Magazine and B to B Magazine. Also, the company has been included in Calvert Social Index since 1990, KLD Research & Analytics: Domini 400 Social Index (DSI), United States Environmental Protection Agency and South Florida Commuter Services: Best Workplaces for Commuters, Governance Metrics International (GMI): Highest Global Rating, Department of Defense Employer Support of the Guard and Reserve (ESGR): Above and Beyond Award, Network Miami, and World Trade.  In relation with this, Ryder has also been included in â€Å"InformationWeek 500 of leading business users of information technology and InternetWeek’s top 100 U.S. companies for effectiveness in using the Internet to achieve tangible business benefits†. As enumerated in Ryder’s official website the products that the company offers are: â€Å"Fleet Management Solutions (FMS), which provides leasing, rental and programmed maintenance of trucks, tractors and trailers to commercial customers; Supply Chain Solutions (SCS), which manages the movement of materials and related information from the acquisition of raw materials to the delivery of finished products to end-users; and Dedicated Contract Carriage (DCC), which provides a turn-key transportation service that includes vehicles, drivers, routing and scheduling†. Corporate Values One of the secrets of success of Ryder lies on its very strong recognition of the relevance of diversity in the workplace. The company focuses a lot on the relevance of the workforce by proving them a whole array of opportunities regardless of color, gender and age. Fleet Management Solutions According to the 2005 Ryder Annual Report on the Financial Statement Section, Ryder’s Fleet Management Solutions (FMS) accounts to 62% of total annual revenue of the company, that is equivalent to $57 Billion. FMS allows its clients to focus on their central business and direct their capital to other parts of their business process. Ryder provides a whole range of products for leasing, commercial rent and contract maintenance solutions. In relation with this, it also had â€Å"value-added fleet support services†like insurance, vehicle administration, fuel services and a wide selection of used trucks, tractors. FMS caters from small to large scale enterprises. Most of its clients came from the following industries: beverage, newspaper, grocery, lumber, wood products, home finishing and metal. Since FMS is divided to three major regions across the whole United States also adding Puerto Rico, the company holds a huge 137,000 US fleet of commercial trucks, tractors, trailers that are leased or rented. Each major region is segmented into 8-16 Business Units (BU) and consequently, each BU has 7-15 Branch Offices. The BU are pretty much like a one-stop store because not only that it has a maintenance facility or a shop office, it also provides services for refueling, safety inspections and preliminary maintenance checks as well as a place for preventive maintenance and repairs. Through FMS Ryder is able to provide the most cost-effective business logistics solutions on top of timeliness, quality and superior service. Full Service Leasing The full service leasing program that is still based on the 2005 Ryder Annual Report is a custom made program which caters perfectly to any demand or need of a particular enterprise. This particular program helps companies to strategize their fleet management function or upgrade their fleet without necessarily having to allocate a specific percentage of their annual capital. Assessing enterprises’ qualifications would depend in their corporate state of affairs, their company’s size, residual size and a balance sheet treatment. Based on these qualifications, a leasing program will be created. After such would be the leasing of trucks that are â€Å"custom engineered†relative to the needs of the enterprise and normally would last for 3-7 year. The full service lease of Ryder has very good leveraging since the company has a good buying power since it purchases vehicles in bulk. Other related services include contact maintenance which primarily deals with the repairs of vehicles, predictive and preventive assessments based on the type of the truck and driving habits of the enterprise, and also Ryder can replace any truck which temporarily went out of service. Another additional feature of this program is the contact related maintenance which are additional services that are not within the agreed contract but is however needed by the enterprise. Supply Chain Solutions This aspect of the services provided by Ryder pertains to the â€Å"direct movement of international funds and related information from the acquisition of raw materials to the delivery of finished products to end users†. The estimated market for this business is estimated to be $237 Billion and accounts to 29% of the company’s total annual revenue. There are three categories in which Ryder operates in this particular service. The Professional Services provided by the company focuses on the classification, analysis, and improvement of its clients’ supply chain solutions in order to assure the enterprise’s consistency, efficiency and flexibility. This service is comprised of expert consultants who conduct extensive case studies, reviews to create a highly effective supply chain strategy. Another service provided by the company is Distribution Operations wherein few of the services being catered upon are: warehouse facilities, administering the flow of products, coordinating warehousing and transportation for inbound material flows, handling import and export for international shipment, replenishment of component parts for manufacturing and ., and a whole lot more. The transportation services on the other hand take care on almost all of the factors that are necessary for an effective and timely transportation network. From planning and execution, Ryder also makes sure that the shipment consolidation, load scheduling and delivery confirmation are real-time and accurate through the use of various technological and web-based solutions. Ryder has the best transportation consultants who work in partnership with the Freight Brokerage Department. Analysis            Having a discussed a brief background of the necessary foundations of an effective logistics company and having elaborated on the basic workings of Ryder System Inc, the author would like to have a brief case analysis of two of the long-time clients that the company have served for their logistics solutions: Whirlpool and Philips.            In relation with this, the author would also discuss the risk factors that are inevitable in this type of business. Risk Factors            The author would like to discuss some of the things that affect the logistics business at Ryder. One relevant factor would be the financial revenue of the company and its stability. Some changes in market conditions such as the rental or sale of used vehicles, ability to retain customers and maintain appropriate utilization rates. It could also be the case that unstable interest rate and currency exchange rate might cause financial instability. Sometimes occasional labor strikes, sudden changes in fuel prices and fuel shortages could be vital determiners of fluctuations.            It is also a necessity that new growth initiatives in Fleet Management Systems (FMS) Business segment be a constant endeavor for the company. By having the company restructure the operational and sales teams, realigning business processes and organizing management it will be assured that the FMS will still be up to date and will still continue to be the biggest contributor for the company’s annual revenue.            Another risk factor that the company has to deal with is the residual risks on the value of their trucks. If the market for buying used vehicles suddenly declines there would be a sure loss on Ryder. In relation with this would be with regard to SCS revenue. Since a significant portion of SCS revenue came from a small number of customers, many of which are in the automotive industry, it could be possible that failure to retain these clients would result to huge financial loss. One of Ryder’s clients which belong in this category is General Motors Corporation (GM) accounting for 35% of Ryder’s SCS total revenue and 18% of SCS operating revenue.  The loss of any of this customer or a significant reduction in the services provided to on this company could impact Ryder’s domestic and international operations and adversely affect SCS financial results. While the company still focuses on diversifying their customer base both outside and within the automotive industry, the company may not be successful in doing so in the short term. In relation with this is the downward pricing pressure that might come from certain SCS customers could result in low revenues. For instance it could be the case that since all SCS services are provided under contractual arrangements that are based on certain assumptions regarding the scope of services, production volumes, operational efficiencies, productivity and other factors. If, as a result of subsequent changes in our customers’ business needs or operations or market forces that are outside of our control, these assumptions prove to be invalid, Ryder could have lower margins than anticipated.            Attracting and retaining drivers could also be an issue since there has been a really tight competition in terms of their availability. The company could either opt to increase their salaries or let trucks sit idle, utilize lower quality drivers or face difficulty meeting customer demands, all of which could adversely affect growth and profitability. Ryder’s attempt to continue to expand international operations may result in additional risks. Since the company is committed to meeting customers’ global needs by continuing to grow our international operations in Canada, Europe, Asia and Latin America and by entering into new markets such as China. The company’s international operations, particularly in Latin America and Asia, are subject to adverse developments in foreign political, governmental and economic conditions, varying competitive factors, foreign currency fluctuations, potential difficulties in identifying and retaining qualified managers and personnel, potential adverse tax consequences and difficulties in protecting intellectual property rights. Since the company operates in a highly competitive industry it is likely the case that the business may suffer if the company will be unable to adequately address potential downward pricing pressures and other competitive factors. Ryder competes with many other transportation and logistics service providers, some of which have greater capital resources than the company does; some of the competitors periodically reduce their prices to gain business, which may limit the company’s ability to maintain or increase prices. In relation with this, advances in technology may require increased investments to remain competitive, and the company’s customers may not be willing to accept higher prices to cover the cost of these investments. Ryder operates in a highly regulated industry, and costs of compliance with, or liability for violation of, existing or future regulations could significantly increase their costs of doing business. The business is subjected to regulation by various federal, state and foreign governmental entities specifically the U.S. Department of Transportation and various state and federal agencies exercise broad powers over Ryder’s motor carrier operations, safety, and the generation, handling, storage, treatment and disposal of waste materials. The company may also become subject to new or more restrictive regulations imposed by the Department of Transportation, the Occupational Safety and Health Administration, the Environmental Protection Agency or other authorities, relating to the hours of service that our drivers may provide in any one-time period, security and other matters. Compliance with these regulations could substantially impair equipment productivity and increase the company’s costs. New regulations governing exhaust emissions could adversely impact the business. The Environmental Protection Agency has issued regulations that require progressive reductions in exhaust emissions from certain diesel engines through 2007. Emissions standards require reductions in the sulfur content of diesel fuel beginning in June 2006 and the introduction of emissions after-treatment devices on newly-manufactured engines and vehicles utilizing engines built after January 1, 2007. Each of these requirements could result in higher prices for tractors, diesel engines and fuel, which are passed on to customers, as well as higher maintenance costs and uncertainty as to reliability, all of which could, overtime, increase costs and adversely affect business and results of operations. Case Studies Whirlpool Corporation The dilemma of Whirlpool Corporation primarily stems out to a highly fragmented warehousing and distribution network. The main warehousing facility of the company is primarily located in La Porte Ind, while having other packaging facilities all over the states. When vendors ship and deliver the parts needed for production, some are directly dropped in the packaging facilities in which is the ideal situation; however a lot of times, the parts are delivered in La Porte which then requires Whirlpool to cross-dock shipments. As result of this, the transportation processes of goods are doubled in addition to repeating the strenuous tasks for inventory. Such a case appears to be ineffective, costly and time consuming because not only that the company is doubling its expenses and is not doing well in terms of time management, but also the primary corporate value which is good customer service is highly compromised. By having late deliveries or goods or merchandise parts, Whirlpool doesn’t appear to stand at its best disposition.            Whirlpool’s Financial Managers are very reluctant in having to invest a lot of their capital in improving their warehousing and logistics solution, however, something must really be done in order to resolve their logistic problems, and hence this is when Ryder came into the picture.            In choosing the right 3PL provider for their logistics solutions, Whirlpool assessed three major logistics provider. They have taken into consideration the contractors’ experience, strategy, capabilities and resources. Out of all the outsourcing companies assessed Ryder was able to get the contract.            The logistics processing service of Ryder to Whirlpool is conducted in this way: Once the bulk shipments from offshore suppliers and onshore suppliers such as Mexico and the United States arrived at the distribution centers, the goods received by the warehouse management systems and have them bar-coded. After which Ryder then performs â€Å"high volume packaging and kitting within the distribution center breaking down shipments such as large cartons containing 500 water pumps into single-item boxes and polybags†. In such a manner, Ryder effectively sorts out the parts and labels them so that it would be easier to identify them once delivered to Whirlpool clients. For the sake of quality and protection of the goods, they are assembled in blister-pack kits together with other components and accessories such as for instance a water pump, two washers and an installation brochure. The process of packaging is very much a holistic process that allows the parts to be ready for delivery.            Once the goods are packed in totes, they are bar-coded and move along the conveyor system. After which they are subjected on the sortation system wherein their bar-codes are matched with the orders entered in the system.            The customers’ orders on the other hand are processed by Whirlpool and enter them into their systems while providing Ryder a nightly file in order to identify and sort out the orders to be delivered the following day.            In order to monitor their performance, Ryder and Whirlpool follow five Key Performance Indicators (KPI); these KPIs are: â€Å"shipment accuracy, inventory accuracy, service performance/fill rates, order cycle time and budget performance†.  In relation with the KPI, Ryder also follows the Net 5 Whirlpool Program which says that â€Å"every division of operation should generate a net of 5% in cost savings.            In sum, by having Ryder took in-charge of the logistics of Whirlpool the company is able to save a net of 7% in their annual logistics operation. Also, as evident, their logistics operations became more proficient and they are able to concentrate on their key competencies which are quality products on top of good customer service. Philips Consumer Electronics of North America The biggest challenge that Philips faced in terms of their logistics functions are in terms of inventory accuracy, the timeliness of product delivery, security in terms of warehousing and delivery and also cross-border delays. In 2001, the company decided to fully outsource their logistics function by having more than 20 contractors bid for the service. Ryder was chosen amongst all of the said 3PL operators because of their relevant past experiences, efficacy in quality control and product management. Consequently, Ryder’s human resource was also taken into relevant consideration because of its diversity and good account of experience. In order to provide a very effective logistics recommendation to Philips, Ryder made an assessment to Philip’s network. Results of such are first the transfer of their Close District Center (DC) in El Paso Texas and replace with a new and larger distribution center at Alliance Park near Dallas Ft. Worth. The reason for such a change would be the bulk of market segments in which high demands of Philips electronics are purchased. By having the new DC inn Alliance Park, not only those products from offshore sources are received within the earliest possible time but also 80% of Philips’ clients were able to receive their products within 2 days. Cross-border traffics that are often caused by customs are significantly minimized as Ryder has already long-standing relationships with various custom offices all over the continent. Ryder has established Philips designated carriers’ pick-up station for the freight which usually came from Juarez Mexico. Sometimes this freight is delivered to the DC at Alliance Park while some are directly delivered to Philips’ customer. The process of dealing with the logistics function of Philips starts with the Electronic Receipt†of shipment delivery which tells Ryder exactly the due date for the delivery of the goods; consequently, the electronic receipt goes straight to the order repository system giving Ryder a 48-hr lead time for the delivery; after such would be the determination of the â€Å"most cost-efficient transportation option that meets the delivery commitment†. Part of the challenge in transporting goods is the diversity of the products that needs to be delivered. From palm sized electronics to wide screen televisions, Ryder has to make sure that on top of optimizing the truck load space, it has also make sure that the goods will be delivered in a very good shape. In relation with this, there are certain products that are in season because of various factors such as strong advertising campaigns, popularity, etc. Hence Ryder has made sure that there should be effective â€Å"slotting analysis†in order to make the flow of goods in and out of the warehouses more efficient. Security concerns such as robbery or smuggling of products due to its high product value are also taken into relevant consideration. Cameras, door alarms, and actual security guards are always in operation. Also, the most expensive products are caged in a special area wherein entrance and exit areas are highly monitored. Employees are also required to pin their IDs all the time specially when entering highly secured areas. Another good thing with Philip’s partnership with Ryder is the immediate feedback provided to Philip’s customer service right after the good is delivered to the customer. Hence such an act provides a real-time inventory and feedback that is very necessary in dealing with customer inquiry and/or complains. Conclusion The logistics industry provides a very good opportunity for industries to focus more on their core competencies and significantly reduce their spending while at the same time improving their systems and customer service aspects. Since most of the 3PL companies have all the resources that are necessary for effective logistics function on top of their human capital it is always the case that companies will definitely gain a good experience on top of learning a lot of new strategies in dealing with this type of service. Logistics is the process of administering and controlling the course of goods, energy, information and other resources namely products, services and people from a particular company.  Specifically, 3PL is a specialized vendor which takes care of the â€Å"supply management function†of a particular company’s integrated warehousing and transportation, and other services that could be â€Å"made according to customer’s needs prior on market condition and the demands and delivery service requirements for their products and materials.†Few of these services are inventory, material handling and packaging. The research focused on one of the leading providers of logistics function which is Ryder Systems Inc. The company is one of the best and leading industries in terms of providing logistics, supply chain management and solutions all over the world. It has been featured in Fortune 500 and has received numerous commendations from its clients and peers within the industry. As enumerated in Ryder’s official website the products that the company offers are: â€Å"Fleet Management Solutions (FMS), which provides leasing, rental and programmed maintenance of trucks, tractors and trailers to commercial customers; Supply Chain Solutions (SCS), which manages the movement of materials and related information from the acquisition of raw materials to the delivery of finished products to end-users; and Dedicated Contract Carriage (DCC), which provides a turn-key transportation service that includes vehicles, drivers, routing and scheduling†.            The research has also discussed the various risk factors that are inevitable in dealing with a third party logistics company. These are the financial revenue of the company and its stability, the need for restructuring the operational and sales teams, realigning business processes and organizing management, residual risks on the value of trucks, SCS revenue, downward pricing pressure that might come from certain SCS customers, attracting and retaining drivers, expand international operations, regulations governing exhaust emissions etc.            Similarly, the research discussed two case studies in which 3PL specifically Ryder has done long-term business with such as Whirlpool and Philips. Literature Cited Hertz, S., & Alfredsson, M., (2003), Strategic development of third party logistics providers, Industrial Marketing Management, (32), 139-149. Sangam VK. (2006). Implementing Third Party Logistics. Retrieved June 22, 2006, from About.com Website: http://logistics.about.com/od/thirdparty/a/uc041805a.htm Retrieved from http://en.wikipedia.org/wiki/Third-party_logistics Third Party Logistics. Retrieved December 22, 2006, from Wikipedia. Org Website. Retrieved from: http://en.wikipedia.org/wiki/3PL About Us. Retrieved December 22, 2006, from Ryder.Com Website: http://www.ryder.com/aboutus_home.shtml Management Team. Retrieved December 22, 2006, from Ryder.Com Website: http://www.ryder.com/aboutus_cinfo_mt.shtml Customer Awards. Retrieved December 22, 2006, from Ryder.Com Website: http://www.ryder.com/aboutus_cinfo_car.shtml Industry Awards. Retrieved December 22, 2006, from Ryder.Com Website: http://www.ryder.com/aboutus_cinfo_iar.shtml Product Line Brochures. Retrieved December 22, 2006, from Ryder.Com Website: http://www.ryder.com/aboutus_cinfo_brochures.shtml Diversity at Ryder. Retrieved December 22, 2006, from Ryder.Com Website: http://www.ryder.com/aboutus_diversity.shtml Investor Relations Home. Retrieved December 22, 2006, from Ryder.Com Website: http://investors.ryder.com/phoenix.zhtml?c=108468&p=irol-irhome
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