Cost Optimization for Line Haul Transportation of 3pl Players
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
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
References: http://www.cscmpindia.com/Events/20112003/3.PDF, 3PL Challenges in India, Dr. B.S. Sahay http://www.tvslogisticsservices.com/the-company.asp, About us, TVS Logistics Website, August 15, 2010