3PL

THIRD PARTY LOGISTICS

Overview

Introduction

Definition of Third Party Logistics (3PL) 3PL Evolution Current 3PL Market By Services By Operations By Contract Type

Types of 3PL Providers

Role of Third Party Logistics in Supply Chain & Company Performance

Logistics Outsourcing Selection Criteria for 3PL Selection 3PL Relationships Challenges of EPL

Organizations move materials (tangible & intangible) to support their operations

LOGISTICS is responsible for these movements; it manages the transport & storage of materials from original suppliers through supply chains and to its final customers

3PL Definition

A third-party logistics (3PL) is a firm that provides services to its customers of outsourced (or third-party) logistics services for part or all of their supply management function Preferably, these services are integrated, or bundled together, by the provider. Among the services 3PLs provide are transportation, warehousing, cross-docking, inventory management, packaging, and freight forwarding [Wikipedia] A firm that provides multiple logistics services for use by customers. Preferably, these services are integrated, or bundled together, by the provider. Among the services 3PLs provide are transportation, warehousing, cross-docking, inventory management, packaging, and freight forwarding [CSCM]

Evolution

Types of 3PL
SERVICES
Standard 3PL Providers Service Developers 3PL Customer Adapters 3PL Customer Developers

OPERATIONS

Transportation-Based Warehouse/Distribution-Based Forwarder-Based Financial-Based Information-Based Fixed fee. Cost plus. Fixed/Variable pricing

CONTRACT

Types of 3PL
Transportation-Based Warehouse/ Distribution-Based
FedEx UPS Ryder

DSC Logistics IBM

Forwarder-Based

Financial-Based
Cass Information GE Information FleetBoston

Kuehne & Nagle Hub Group Fritz

Services are provided beyond transportation and offer different set of logistics offerings Leveraged 3PL use assets of other firms Non-leveraged 3PL use assets that belong only to the parent firm

Transportation-Based

Some of the companies have warehouse and/or distribution expertise

Warehouse/Distribution-Based

They are independent middlemen who extend forwarder roles They are owners with no-assets, but are capable in providing a variety of logistics services

Forwarder-Based

This type of 3PL provides freight payment and auditing, accounting services and control, tools to monitor, bookings, tracking, tracing and managing inventory

Financial-Based

Drivers & Challenges

Drivers & Challenges

There are a large number of advantages and disadvantages claimed for and against both third party and in-house distribution. The major drivers can be split into different categories as follows: Organizational Financial Service Physical

Drivers - Benefits

Organizational
Focus

on their core business or core competence to wider knowledge cost advantages cash flow fixed cost to variable of scale

Access

Financial
Capital Improved

Converting Economies Operating Clearer

cost savings

picture of actual operating costs

Drivers - Benefits

Service
Greater Value Logistics

flexibility service improvements

added services

Physical
Complexity Industrial Vehicle Delivery Product

relations problems

characteristics or requirements incompatibility

Challenges

Organizational
Lacking Cultural Loss Loss Loss Loss

of the appropriate experience incompatibility

of control over the delivery operation

of control over the companys logistical variables of distribution and logistics expertise of direct influence at the point of delivery integrity of information issue

Brand

Confidentiality

Challenges

Financial
Changeover

costs

Service
If

services are not managed nicely, they may cause great problems for the company reputation, and firm's position party failure can cause major interruption to the operations of company

Third

3PL Market with Figures

3PL Market with Figures

GLOBAL 3PL REVENUES UP FOR 2010-2011
2010 Global 3PL Revenues (US$Billions) 2011 Global 3PL Revenues (US$Billions) Percent Change 2010 to 2011 Region

North America Europe Asia-Pacific Latin America Other Regions Total

149.1 165.1 157.6 27.5 42.3 $ 541.6

159.9 160.4 191,1 39.5 65.2 $ 616.1

+ 7.2% - 2.8% + 21.2% + 43.6% + 54.0% + 13.7%

3PL Market with Figures

INDUSTRIES USING 3PL SERVICES

2012

2013

3PL Market with Figures

80

Outsourcing Spending Patterns (%)

71 66 61 66 60 Total Logistics Expenditures as a Percentage of Sales Revenues

70

60

56

54 46

55 48 42 47 42

50 42 40 39 39 41 38 36 42 33

45 40 31 32 35 30 39

Percent of Total Logistics Expenditures Directed to Outsourcing

36

31

30

Percent of Transportation Spend Managed by Third Parties

20 12 10 12 11 10 11 12 11 12 14

15

Percent of Warehouse Operations Spend Managed by Third Parties Percent of Warehouse Operations Spend Managed by Third Parties

All Regions All Regions North North Europe 12 Europe 13 Asia Pacific Asia Pacific Latin Latin 12 13 America 12 America 13 12 13 America 12 America 13

3PL Market with Figures

Outsourced Logistics Service International Transportation Domestic Transportation Warehousing Freight Forwarding Customs Brokerage Reverse Logistics (defective, repair, return) Cross-Docking Product Labeling, Packaging, Assembly, Kitting Transportation Planning and Management Inventory Management Freight Bill Auditing and Payment Order Management and Fulfillment Information Technology (IT) Services Service Parts Logistics Customer Service Supply Chain Consultancy Services Provided by 3PLs Fleet Management LLP (Lead Logistics Provider) / 4PL Services Sustainability/Green Supply Chain-Related Services All Regions 76% 71 63 53 52 26 25 25 22 19 18 16 13 12 10 10 8 8 6 North America 64% 67 61 54 52 27 29 25 24 16 32 20 16 11 8 14 8 8 3 Europe 86% 81 72 60 57 31 31 31 27 15 13 18 16 14 7 7 8 17 7 Asia-Pacic 79% 76 59 46 44 23 18 21 19 21 11 16 14 12 17 9 8 4 6 Latin America 82% 61 51 47 57 19 19 20 15 17 5 9 9 12 14 9 9 4 6 3PL Percentages 71% 88 83 64 54 60 64 65 70 64 34 65 50 39 67 56 26 39 31

3PL Market with Figures

SATISFACTION & SUCCESS MEASURE
OA to OA from OFR to OFR from Fixed Asset Reduction Inventory Cost Reduction Logistic Cost reduction 0% 11% 25% 26% 25% 89% 87% 72% 83% 80% 67% 81% 79% 65% 73% 58% 70%

2010 2012 2013

9% 8% 15% 13% 15% 20%

40%

60%

80%

100%

So Outsourcing?

3PL Selection Process

Managing 3PL Relationship

The 3PL/client relationship is a relationship where partnership can provide the basis for the business relationship. Good partnerships will encourage the sharing and joint development of a strategic vision. Not only does a client get the benefit of the 3PLs thoughts and experiences, it also achieves their buy-in for the realization of the vision. A high degree of trust and collaboration is required

Managing 3PL Relationship

For almost all new outsourcing arrangements, the initial issue after the contract has been successfully negotiated is the successful implementation of the operation. As with any large business project it is essential to identify and agree a project plan to ensure that responsibilities are clear and that there is a feasible timetable for implementation.

Monitoring & Measuring 3PL

Measure whether the 3PL is meeting set service levels at an acceptable cost Establish metrics (indicative):
Monitoring Monitoring

against the contract

against the SLA (service level agreement): The service level agreement should identify KPIs and link the suppliers payment to performance against them control information and metrics

Budgetary

Management Review

meetings:

Objectives

Identify the reasons why a company outsource the logistic operations Manage, support and fulfill customer demand in all serviced regions How to select the right 3PL Logistic partner in order to reach logistic optimization In which business sectors there is 3PL Logistics implementation Explain how 3PL Logistics optimize price setting, increase sales and reduce shipping costs to maximize customer satisfaction

References

Alan Rushton, Phil Croucher and Peter Baker. The Handbook of Logistics and Distribution Management. 4th. 2010. C. John Langley, Jr., Ph.D., and Capgemini. 2013 Third-Party Logistics Study: The State of Logistics Outsourcing. 2013. C. John Langley, Jr., Ph.D., and Capgemini. 2012 Third-Party Logistics Study: The State of Logistics Outsourcing. 2012. Ansari, Al, & Modarres, Batoul. Challenges of outsourcing logistics to third-party providers. International Journal of Logistics Systems and Management. 2010, Vol. 7, 2 Martin Christopher. Logistics and Supply Chain Management. 4th. 2011 Ansari Al, Diane Lockwood & Modarres, Batoul. Outsourcing logistics to third-party prooviders: practitioners perspectives. International Journal of Logistics Systems and Management. 2010, Vol. 6, 1

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