CASE STUDY: Managing linkages in the Value Chain System-TNT Logistics

CASE STUDY: Managing linkages in the Value Chain System-TNT LogisticsPresented by,ANCY K STEPHENASWANI VISWANThe case study deals with the strategic partnership of TNTs logistics operation with BMW, Eaton , and Michelin.80% of big European and North American companies outsource parts of their logistics operation to outside contractors.Outsourced function-freight transport & warehouse management supply chain expenditure paid to outside contractors (3PLS) increase from 44% to 49%- US surveyTNT is the worlds 2nd largest logistics contractor after EXCEL

TNT and BMW is undergoing strategic partnership rather than contractorsTNT manages BMWS North American supply chain from the moment a part is dispatched by a supplier until its installationTNT promise to use their expertise and access to global freight networks to reduce their customers costs & bring greater efficiency to their supply chains.Companies have tended to see 3PLS primarily as a way to reduce costs but a more efficient supply chain can create value throughout business.TNT also conducts basic sub-assembly work for Eaton , a truck components maker.When TNT took control of Michelins North American distribution network, it also bought 18 warehouses in the USA & Canada and hired 600 logistics staff for its operation.However , not all companies have embraced 3PL as fully as BMW, EATON & Michelin. Many such as WAL-MART believe logistics is too important to outsource and thereby uses in-house logistics.In Europe outsorcing is well developed but powerful unions limit its scope.Ex: it is difficult for TNT to work as closely with BMW in Europe as it does in Spartanburg because the car maker has an agreement with Germen unions that 3PL cannot be involved in assembly-line networkGreatest potential is in China where logistics services are urgently needed to support manufacturing growth.

Analyst forcast annual growth of about 8-10% in the 3PL sector but the competition is intensifying.

When you compete on price there is always someone willing to do a job cheaper. So we have to differentiate ourselves by adding more values-David Kulik, MD TNTQuestions:

1.Evaluate the German automaker BMWs decision to outsource part of its North American value chain system?????

In the absence of TNT:Wrong part delivery of raw materials and time delay for the correction.TNT:Supporting the BMWs operations starting from raw material collection upto installation of z4 sports car.Micro monitors the operation Greater reliability in the supply chain has allowed BMW to reduce the inventory in its spartanburg warehouse.Usage rate of inbound delivery trucks has increased from 61% to79% and on-time delivery rate has exceeded TNTs target of 99.2%

TNT used lean operation strategy in the beginning and hence production halted for 33mts.So TNT paid $19000 penalty for the mistake.Later they corrected the discrepancies and adopted strategy of checking for defects at every stage of the supply chain.Hence TNT retained the partnership with BMW2. Why is BMW willing to relinquish these value chain activities while the US retail giant Wal-Mart consider these activities too important to trust to a third partyComparison between 3pl & in-house logistics.Advantages of 3pl

Sometimes company is not able of having its own logistics activities because of the potential financial conditions logistics activities such as transportation, warehousing are not able of managing them.Save time and money

Gain expertise

Scalability

BMW can reduce the number of labors by outsourcing the logistics activities

Flexibility in their operations

Quality Control

Resource network

The third party logistics provider will have sufficient facilities and space to perform all the required tasks such as heavy transport facility and warehousingBetter control over activities

Disadvanteges

Supplier failure can cause major interruption to the operations of the company

logistics activities in some cases become too much costly

Distance from Clients increase cost of logistics

Discontinuation of Services due to lack of raw material.

Loss of Control Over the Logistics Function

3. To what extend might Wal-Mart be losing out on value create by not employing third party logisticsReduced Quality for the products

Focus on operations leads to reduced customer satisfaction

increased logistics costs in the absence of 3PL

Thank you