3rd Party Logistics and Automotive Industry

 

Introduction:

Outsourcing of logistics function is a business dynamics of growing importance across manufacturing industries. Shorter response time for global supply uncertainties changed the traditional thought about logistics, it is no more a backroom function; rather its importance grew to a strategic boardroom function. In order to handle its logistics activities effectively and efficiently, an organization may consider the following options – in-house operation, creation of a logistics subsidiary or it can outsource the function and buy the service. Recently, there has been a growing interest in the 3^rd option, i.e. outsourcing of logistics functions to third party logistics (3PL) service providers.

3PLs provide comprehensive logistics solutions to the automotive industry. These include inbound logistics, outbound logistics, warehousing and value added services like line feeding, high sub-assemblies and SCM consultation.

Automotive logistics:

Main line of services and solutions offered for the automotive industry by a 3PL service provider are:

• Inbound/Outbound/Interplant transportation
• Milk run collection & consolidation
• Warehousing , Inventory management & line feeding
• After market distribution
• International Logistics

Other optional services and solutions include:

• Global network management
• Lean warehousing, including vendor-managed inventory (VMI), subassembly and sequencing
• Lean logistics management
• Data gathering and maintenance
• Leveraged procurement
• Collaborative network engineering solutions
• Dynamic optimization and execution
• Real-time Web-based part-level track and trace
• Freight audit and payment
• Web-based dashboard reporting
• Parts distribution
• Supply chain design and optimization
• Full-service supply chain consulting

Customisation for the automobile industry

Receipt of goods, storage, order picking, sequencing, internal transportation and line feeding are included in the general service offered by a service provider to an automotive company. This customised service is referred as factory logistics.  Container management and management of spare parts warehouses also significant as part of this special logistics.

Common terminologies in material supply activities for a automotive organization:

CKD – Completely knocked down: For CKDs, all parts are packed as a “Set” or “Vehicle Set” to manufacture a vehicle. This set is made up of the deliveries from the manufacturer and all suppliers.

PbP  – Part-by-Part: The PbP process is primarily used to supply production factories with large parts volumes. The parts are brought together from the individual deliveries from manufacturers and suppliers, and delivered to the foreign production factories, with optimised loading equipment, in the cross-docking process.

SLCs – Supplier Logistics Centres: Operating SLCs for leading automobile manufacturers includes material planning, warehousing and handling services, quality controls, pre-assemblies and sequence-accurate line supply.  

Optimised production batch sizes, reduction of storage requirements and drop of transport costs at the supplier’s end by grouping goods flows are the key advantages.

Comparison of various 3PL services pricing model across industry. (Source: Internet)

Model Type	Description
Transactional Billing	Activity based cost model and is the most popular. The charges are constructed  as follows:  •    unloading per FTL, •    receipt & put away( by unit, pallet, carton)        storage ( per pallet per week) •    order assembly ( base fee plus per unit/line/pallet) •    hourly rate to cover rework, etc.
Cost Plus model	Mechanism involves estimating the total cost of running operations and profit as a Management Fee which is fixed as a percentage of the total cost
Percentage of Sales Turnover or volume.	Floor price or minimum price covers the fixed cost expenses of the warehouse. The revenue earned by the 3PL varies with the sales revenue. The variable cost that has a major impact on the costing is labour. 3PL service providers manage this costing by employing minimum number of human resources and add on temporary labour when required

There several disadvantages of outsourcing one of the key supporting activities.

Variation of the demand from line (production variation) is the root cause for the deviation of actual activities from the planned one; it also affects service providers plan and misplace of trust between two parties. Incapability of supplier to meet steep rise of demand of parts leads to difficulties to achieve desired level of inventory for 3PL. unplanned storage, scrap handling, reverse logistics activities result in duplication of work. Unpredictable vehicle arrival pattern leads to variation of resource-loading for logistics. More people are deployed to counter same time arrival of inbound vehicles. Need of skeleton worker become acute to avoid any kind of problem/line stoppage.            These workers can be fully utilized only when there is a certain volume and multi-shift operations. Outsourcing also may lead to lack of ownership of the entire logistics operation of individual shops/ work-stations