Sales management 11
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This document provides examples of three third-party logistics (TPL) providers: ASG, Transfargo, and DHL. It describes how each company gradually expanded into TPL services over time through acquiring new customers and outsourced logistics activities. It also discusses some of the advantages and challenges faced by each company in developing their TPL business models and customer relationships.
Sales management 11
- 2. PGDM (IIM Raipur) Bakhresa FMCG (South Africa) Relationship Manager (HDFC Bank) MD- Shyam Hospital Faculty(MBA)- GLA University, Mathura Swarit Yadav
- 3. Topics International channels of distribution Multimodal transport system Containerization Multimodalism in india Third party logistics Service providers Risk of outsourcing and risk management
- 4. Third party logistics Provider A TPL provider is an external provider who manages, controls, and delivers logistics activities on behalf of a shipper. The first party is the shipper or supplier and the second party is the buyer. The third party is a firm acting as a middleman not taking title to the products but to which logistics activities are outsourced. Typical services outsourced to TPL providers are transport, warehousing, inventory, value-added services, information services and design, and reengineering of the chain.
- 5. Third party logistics Provider
- 6. Third party logistics Provider
- 7. ASG Example
- 9. ASG Example ASG has been, for a long time, one of the dominating national and international transport firms and freight forwarders in Sweden utilizing different means of transportation such as rail, road, sea, and air. The firm has a rich network of industrial relations in the Nordic countries. The TPL services were developed gradually over time and the firm changed from being more of a traditional transport and freight- forwarding firm taking on new types of services for different customers. In the early 1970s, ASG expanded heavily into warehousing since many customers saw the advantages of using the transport firm for warehousing and handling their product in direct access to the distribution network and getting scale economies by coordinating activities with other firms. In several cases, ASG even established a dedicated warehouse to a specific customer. The more advanced of the early solutions in the TPL business were based on import agents or foreign manufacturers that wanted to compete on equal terms with local producers in the Scandinavian countries. As such, imported refrigerators were painted on demand from local distributors and carpets were cut on customer order.
- 10. ASG Example Over time, as different types of TPL services were developed for an increasing amount of customers, the question of neutrality became an important issue. Should it be necessary for the TPL part of the business to use the parent firm for its customers’ transports? The TPL part first became a separate unit in ASG and then, just a few years ago, it was turned into a separate firm. The TPL part is now free to choose other transport firms in their solutions for customers. However, ASG still is the dominating partner for the transports. As the TPL development continued, the firm developed different niches of wine and spirits, grocery, pharmaceuticals, spare parts for automotive industry, and others. Within these niches, a special knowledge was developed for the field and the customers. Still there were possibilities to coordinate activities of different customers in the warehouses specialized for these niches. An example of the long-term development of such a niche is the automotive spare parts. ASG started by creating a large dedicated warehouse for spare parts to the Nordic market of one automotive firm.
- 11. ASG Example The customer wanted ASG to take over the spare part logistics activities from their sales firms in the Nordic countries. ASG was to work as an internal warehouse of the automotive firm using the customers’ systems, which also made it possible to compare ASG’s performance to other units in the customer group. It also made it easier for the sales firms of ASG’s customer to criticize ASG, since they lost their responsibility over the logistics activities. A problem with using the customers’ system was the difficulties to coordinate the activities with other automotive firms, since they could not co-utilize the resources. However, the customer and the warehouse system have been used for references to other automotive firms. Due to the restriction on the systems and unwillingness to change from the customer’s side, the changes and new development seem to have taken place more on the dealer’s side. New special services for protection of goods, more differentiated transport services are developed on dealers request and other new services are added.
- 12. ASG Example Gradually, ASG got new automotive customers taking over logistics services of spare parts for the Nordic countries or Scandinavia. The other automotive firms, however, specifically wanted to share and coordinate to get higher efficiency. In one case, a customer had to withdraw as a result of a merger. Then ASG had to find another suitable automotive customer for that specific warehouse in order to get scale and scope economies. Developing the customer know- how was partly made by recruiting personnel from the different niche industries. Lately, ASG has set up a warehouse for the first customer in automotive spare parts in Bangkok. This warehouse shoves large similarities with the existing system, but in this case, the warehouse is shared with another automotive firm. A strategic alliance of a customer made it possible to coordinate the activities. To a large extent, the TPL part of ASG logistics is still focused on the Nordic countries and Nordic distribution. However, due to the new merger with Danzas, which has a stronger global coverage, the internationalization of the TPL business has changed dramatically. Danzas has adopted the TPL niche strategy of ASG.
- 14. The Transfargo example Transfargo is a medium-sized firm not so much into transportation as in warehousing. The company is mainly buying transport services from other more established firms. Its transportation network is limited to Nordic countries and a few destinations to the rest of Europe. Transfargo has over time acquired a number of computer firms as customers. This has given them specific knowledge, which they are using to attract new customers. Among those, computer spare parts and connected services have become an important field for the company. HP is one large firm that after a long selection process decided on using Transfargo for spare parts service on the Nordic market. The decision was influenced by the knowledge and experience developed through the existing customers of Transfargo in the same field. As a result of its HP agreement, Transfargo has established new offices and looked for special service delivery points all over the Nordic countries. This way, Transfargo also developed its network signing agreements with new agents and representatives all over the Nordic countries. In some cases, the partners of Transfargo even made agreements with other partners supplying service to specific geographical areas.
- 15. The Transfargo example The existing partners of the traditional transport business in the Nordic countries could only be used in a few cases. The independent service technicians of HP are also very active in their relationship with Transfargo in discussing how to be more efficient and to give better service. Transfargo even has developed into servicing to the customers’ customers themselves by recruiting some service technicians. Lately, Transfargo has established relationships to some small, newly started IT firms as customers that need assembly and configuration of PCs as well as delivery. These customers leave their whole logistics operations to Transfargo. Transfargo has almost totally become a TPL firm. Its limited transportation network also gave them the advantage of less ties to traditional business, giving them a more neutral position when outsourcing to larger transport firms.
- 16. DHL Example The third example of a logistics firm is DHL, a large worldwide integrator, which started as an express firm for documents and still mainly is based on express services but for a variety of goods. It is one of the dominating global players in the express service business being able to service the main part of the world within 48 h. The global network is, to a large extent, based on air transports mainly using its own airplanes, which gives the possibility to have high quality and speed. Due to this, the cost of the transportation is higher than for more traditional transport firms and so the focus is on capacity utilization. The customers either have high-value goods or time is an extremely important factor. Typical services demanded would be spare parts services, repair and return, creating a special set up at the introduction of new products on a market, getting spare parts at production stops, etc.
- 17. DHL Example Many of the logistics services are advanced and developed for global customers. Several of the customers that are buying services for the Nordic countries are actually large international firms where the deal covers distribution over entire Europe. The TPL agreement is often made somewhere else. The DHL resources and systems are extensive in terminals, means of transportation, handling equipment, etc. Its global network is based on a combination of partners and subsidiaries. Even logistics customers seem to come mainly because of its advanced global transport systems.
- 18. DHL Example Most customers, however, also use other transport firms complementary to DHL for less expensive transports or in areas where DHL’s coverage is limited. A problem and opportunity for the development of TPL business for DHL seem to be the domination and excellence of the advanced transport systems. Almost all TPL customers are already customers in its transportation network. Many customers are in need of quick or temporary solutions based on their growth or lack of planning.
- 19. DHL Example Other more stable TPL customers are still very focused on the access to the global transport system and perhaps less on the advanced logistics services. Creating specific knowledge and niches seems to be more difficult for the different subsidiaries. However, DHL has specific logistics centers where the logistics development is much stronger depending on customer needs. The global coverage makes it possible to set up warehouses for logistics services in specifically attractive areas. DHL is serving HP for a large part of Europe but not in the Nordic countries where Transfargo is the partner. Therefore, the TPL business in DHL seems to be much more tied to its eight specific express logistics centers (ELCs) in the world combined with distribution to/from these centers.
- 20. DHL Example DHL logistics services also make configuration and upgrading of computers in certain support centers, which is combined with collecting and delivering of the computers. The coordination of the TPL customers seems to have been of lower interest due to the large number of TPL customers. This is going to change since they have changed their intentions to divide the TPL business into different niches and to manage them more separately. In its transportation network, DHL has very little possibilities for customer adaptation and in the TPL business this is a necessity. DHL logistics services are a strong part in the large DHL international transport firm rather than being separated. DHL has now been partly acquired by Deutsche Post.
- 21. CAT Logistics Cat Logistics is a logistics firm that started 1987 as a spare part service firm for the large international firm Caterpillar. The successful concept of Caterpillar spare part logistics was benchmarked with many other firms and became a base for the Cat Logistics, which now is a separate unit owned by Caterpillar. Cat Logistics is working mainly with customers logistics solutions and warehousing systems and does not own or manage any transportation systems, but has formed close relationships to many transport firms. Cat Logistics has become specialized in globally integrated solutions. Its customers are mainly from manufacturing industries of durable goods. Cat Logistics now has a worldwide coverage and they are now established in several European countries.
- 22. CAT Logistics The base in Europe for Cat Logistics was the spare part systems of Caterpillar, inventory and central warehouse systems including all different types of logistics services. Many large Swedish international manufacturing firms have established central warehouse system for Europe and are using Cat Logistics as TPL for their European business. It also offers their services globally, making use of their global network of warehouses. Over time they have specialized in automotive, electronics, and industry products. Cat Logistics normally starts by either taking over the total warehouse of the customer or bringing the customer over to Cat’s warehouses. Then, it starts a process of rationalizing and redesigning the warehousing and inventory systems.
- 23. CAT Logistics Cat Logistics often covers all logistics services for the customer in a specific area. One example is the case of a large logistics customer of DHL Europe, which was combined with Cat Logistics, taking over all spare parts logistics activities in Spain and Portugal. By increasing the turnover and efficiency in handling, Cat Logistics can free space in the customers’ warehouse, and bring in other customers. Knowledge in how to redesign and change supply chains of the customer is developed gradually.
- 24. CAT Logistics Thereby, the need for administrative personnel at each warehouse will be low. The main parts in Cat Logistics offer are based in inventory, warehouse, and operations management and its existing know-how of the IT system. As one large electronic company decided to outsource one of its largest warehouse and the connected logistics activities, Cat Logistics was established in Sweden. The electronic firm wanted fewer suppliers but with higher integration. They wanted someone who was competent to take over the entire warehouse and to be able to create synergies, either through outsourced activities from other customers or a connection through flows. The reason why Cat Logistics finally got the contract in competition with other TPL firms was their industrial background.
- 25. CAT Logistics They were assumed to have more insight in the needs of the end customer and to have a more neutral attitude towards transportation firms. Cat also had an outspoken plan to establish in Scandinavia and therefore the company was considered to take the assignment seriously and was interested in developing relationships with other customers. The electronics company counted on decreasing volumes when the contract was written. Cat Logistics was therefore obliged to take in at least one other customer into the warehouse. The forecast failed and instead of a decrease in volumes, it turned into an all- time high. Cat Logistics on the other hand had already taken on a new customer to the same warehouse.
- 26. CAT Logistics This meant that yet another warehouse was established in Holland. The relationship between the electronics company and Cat Logistics has meant new development not only in Holland but worldwide as it has taken over spare part services together with DHL for claims worldwide. Cat Logistics does not perform the transportation on their own, but has a special agreement with transport firms. Therefore, Cat Logistics as a logistics provider can easily be combined with other transport firms. Cat Logistics sees themselves as more objective in its approach than a logistics firm.