Cost Optimization for Line Haul Transportation of 3pl Players

Topics: Logistics, Supply chain management, Variable cost Pages: 14 (4604 words) Published: June 17, 2011
Cost Optimization for line haul transportation of 3PL Players Abstract
Logistics costs (i.e., inventory holding, transportation, warehousing, packaging, losses and related administration costs) have been estimated at 13-14 per cent of Indian GDP. There is a rise in the no. of companies outsourcing their logistics operations to 3PL providers. The 3PL providers provide mainly transportation services, warehousing services and inventory management. The research was carried out on a 3PL company, which provides comprehensive logistics solutions primarily to the automotive industry. Their inbound logistics deals with the collection of consignments (forgings and auto-components) from the suppliers and delivering them to customers. Collection and delivery is according to the schedule given by these customers. We introduced the concept of a time window as a possible solution for 3PL players by having them collect the material from the suppliers a few days earlier (say two days). This gives them a two day extra window in which they can send the material. The huge variation in the truck prices and the advantages of consolidation could be exploited using this extra time window available. The model validation gives a cost saving of 1.46% for the Line haul operations (two day window) and an annual savings of ~13.46 lakh per hub per year for the 3PL player considered. This model reduces the transportation cost but increases the storage cost. Hence, this model will be validated only if this tradeoff results in net savings for a 3PL player. This was vindicated by the actual data of the 3PL player. Even though the approach adds inventory to the supply chain, this case shows a cost saving only because of the variation in the truck price and the opportunity to consolidate. This method opens up potential avenues for 3PL players in terms of value added services like packaging, store and delivery model and in terms of further cost reduction measures such as planning return trips, having contracts for truck sourcing and pricing instead of relying on the spot market. Introduction

However, the logistics industry is facing serious challenges in being able to provide efficient services to its diverse customer base that is spread across a large geographical area. There are many problems for the efficient implementation of logistics for these 3PL players also, since they have to face a lot of variability in terms of customer demand, truck availability, collection schedules and lack of window for planning. About the 3PL industry in India

Indian logistics scenario is very unique with respect to the regional concentration of manufacturers and geographically wide and diversified distribution activities. There are inefficiencies present in infrastructure and technology utilization which makes it hard for the logistics providers to bridge the gap. The participation of industry in 3PL services is given below.

Figure [ 1 ]: Participation by Industry in 3PL Logistics
Indian logistics industry is still mainly concentrated around transportation, with the next major activities being warehousing and inventory management. The logistics scene is dominated by many unregulated players in the industry and they do not have advanced technological capabilities. Most of these players provide low cost advantage by employing cheap labour and the way to get cost advantage in these cases is to obtain even cheaper labour. This has led to inefficient use of resources, lack of progress in logistics management. The Indian logistics business is valued at US$ 14bn and has been growing at a CAGR of 7-8 percent. Much of this growth is also expected in the automobile logistics players segment. With the price competition based industry, the 3PL provider with the lowest cost and the most efficient operations is expected to succeed, putting a tremendous pressure on the existing players to optimize their service offerings and to reduce their cost of operations.

The inbound...
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