3 PL Third-party logistics (3PL) service providers are companies who provide a range of logistics activities for their clients. These are companies independent from the buyers and sellers but takes over some of their logistics function.
3PL Defined Businesses that provide one or many of the following logistics services: Transportation Management Public/Contract Warehousing Distribution Management Freight Consolidation
Types of 3PL Providers Transportation Based Services extend beyond transportation to offer a comprehensive set of logistics offerings. Examples: UPS Logistics
Transportation Customs Incoming Point of Sale/ Materials Consol. De- Point of Use/ Or Center con Customers Products Cente Outsourced r Activities: Benefits: Transport arrangement Customs clearance Shorter cycle time Shipment visibility Lower freight costs Carrier mgmt / rate mgmt Visibility of pipeline inventory I
Types of 3PL Providers Warehouse/Distribution Based Many have former warehouse and/or distribution experience. Examples:Caterpillar Logistics, IBM
Contract Warehousing Incoming Bulk Distribution Customers Products Warehouse Center Retailers Outsourced In-house Activities: Benefits: Labor & supervision Lower capital investment Receiving, storage, shipping Lower fixed/variable cost ratio Focus to the core Professional service
Types of 3PL Providers Financial Based Provide freight payment and auditing, cost accounting and control, and tools for monitoring, booking, tracking, tracing, and managing inventory. Examples: GE Information Services,
Logistics Financial Services Customers / Supplier Manufacturers Distributors Retailers Activities: Benefits: Inventory finance (factoring,) Reduced cost of capital Distribution finance (asset based Improved cash flow lending, receivable finance) Reduced capital investment Payment solutions , Leasing
Why Use 3PL’s? Save time Don’t need to invest in: Trucks Training Development Help expand New markets International No roads
Why Use Cont. Narrow your focus Allows you to focus on your strengths Reach more customers more effectively Can ensure delivery times can help a company run leaner
Management Focus Furthering your company Consider potential benefits and drawbacks 3pl’s can increase profitability
Risks of Out-sourcing Logistics Loss of internal logistics management capabilities Biased choice of service providers Leakage of sensitive data and information Service degradation Less reliable? Longer order cycle time? Emergency response? Loss of control and representation Reduced contact with final customer 3PL for outbound logistics interact with your customers, you become less visible to your customers 13
Tips for Successful Implementation1) Have an outsourcing strategy. Know what your outsourcing strategy is. It needs to be well thought out and measured against in house solutions and capabilities. SWOT analysis. As a company you should understand the strengths, weaknesses, opportunities and threats of outsourcing logistics, rather than keeping them in house.2) Do your homework. Do a comprehensive study Clearly document advantages, challenges, costs and benefits. Document expectations Set down expectations in clear terms and include current costs.
Tips Continued… Create a robust selection process. Invite companies in to give a formal presentation without giving requirements. This can help document their strengths and weaknesses. Make a site visit to the 3PL, and talk with its existing customer.3) Measure and review performance Have a efficient and accurate measurement system. Qualitative measures that focus on effectiveness and quantitative measures that focus on efficient utilization. Have an efficient costing system This will help you to understand the costs involved in outsourcing. “Are we making money doing this?”
Tips Continued…4) Create an Implementation Strategy Create a project plan road map Be clear who does what, create a project management team with members from both organizations and review progress vs. planned milestones.5) Nurture the Relationship Both Parties must nurture the relationship to make outsourcing successful. Create mutual trust, respect and a sense of integrity.
4PL Providers Manage and direct the activities of multiple 3PLs, serving as an integrator Refinement on the idea of 3PLs 4PLs are not asset based like 3PLs