3PL AND 4PL

Third Party Logistics(3PL)
Kuldeep Uttam IIT Roorkee

Content of Presentation
• Introduction to 3PL
• Evolution of 3PL
• Benefits & Services Provided by 3PL
• Types of 3PL
• New Technology in 3PL
• Relationship Management in 3PL
• Environmental Concern in 3PL
• CASE STUDY: Selecting a 3PL using M.C.D.M.

Introduction
• 1PL:These can be the shipper (such asa
manufacturing firm delivering to customers) or the
consignee (such as a retailer picking up goodsfrom
a supplier). They dictates the origin (supply) and
the destination (demand) of the goods.
• 2PL : A second-party logistics provider (2PL) is an asset-based carrier, which actually
owns the means of transportation. Typical 2PLs would be shipping lines which own, lease or
charter their ships; airlines which own, lease or charter their planes and truck companies
which own or lease theirtrucks
• 3PL:A firm which provides multiple logistics services for use by customers.
These firms facilitate the movement of parts and materials from suppliers to manufacturers
and finished products from manufacturers to distributors andretailers.
Among the services which they provide are transportation, warehousing, cross-docking,
inventory management, packaging and freight forwarding.
• 4PL:The most innovative and upcoming form of outsourcing logistics is Fourth Party
Logistics.
• 4PL can be considered as a comprehensive supply chain solution which combinesthe
capabilities of management consulting, IT technology and 3PL-providers.
• 4PL not necessarily mean that four parties are involved. The number “4” refers to thefact
that this kind of logistics services is oKunldeeelepvUettlamhiIgIThReorortkheean3PL.

Evolution of 3PL
The evolution of 3PL market is explained with reference to three distinct phases
In 1980's many transportation and warehousing firms developed into 3PL
providers( e.g. Excel Logistics )
In the early 1990's firms that specialized in express parcel deliveries entered the
markets
( e.g. DHL, TNT , UPS and FedEx )
In the late 1990's , companies originally specializing in financial services , I.T.
services and management consulting entered the market by developing
competence in information systems and supply chain planning

Myth about 3PL
3PL is only concerned with transportation activities !!!

Services Provided By 3PL

Benefits of 3PL
• 173 logistics professionals from manufacturing and retail
companies responded to the survey, which was conducted by
“Eye for transport”.
• Responses were contacted in a targeted email campaign.

Why use 3PL
Focus on core competences
Providing better quality service
Limiting investment opportunities
Cost reduction > Control
Political considerations
Customers demand order accuracy , excellent service and timely delievery.
Avoid Capital Expenditures
Cut Costs
Increase Flexibility (service/financial)
Focus on Core Business
Improve Service
Lack of Scale
Acquire Talent
Avoid Labor Problems
Source: A.T. Kearney Kuldeep Uttam IIT Roorkee

Supplier Supplier Supplier
Manufacturer
Customer
Distributor
Supplier Supplier Supplier Supplier
Supplier Supplier Supplier
Manufacturer
Distributor
Customer
3PL
Returns / Recycling Point-of-sale data
Freight flow
Push Pull
From Push to Pull Logistics

Total Cost of Ownership
• Microsoft's huge economies of scale
• Rapid application development
• Lower costs of maintenance and support
• Rapid implementation and training
• Annual enhancements and upgrades
• Blazing fast data entry

Advanced Technologies
• RF barcode scanning and RFID
• EDI
• Integrated interf aces f or wireless mobile
devices
• Web access and real-time data visibility
• Tools to automate customer communications
• Real-time business intelligence and reporting
• Document imaging and management

Camelot: Partners

Customers of 3PL’s
Industry Global
Costs
Domestic Costs
(USA)
Automotive $98.2 $37.4
Technology $156.4 $77.4
Retailing $98.6 $67.2
Consumer Products $13.6 $13.3
Food and Grocery $32.2 $27.8
Healthcare $38.4 $34.0
Industrial and Elements $179.7 $84
Other $63 $25.3
Total Costs $678.3 $366.3

Figure 4-6 3PL Logistics Market Turnover Growth (US $Billion)
1996 1997 1998 1999
2000 2001 2002 2003 2004 2005
$100
$80
$60
$40
$20
$0

Source: 2005 Tenth Annual 3PL Study, Georgia Tech and Cap Gemini LLC. Used with permission

Types of 3PL Providers
• 3PLs are external suppliers that perform all or
part of a company’s logistics functions,
including:
– Transportation
– Warehousing
– Distribution
– Financial services
• Terms contract logistics and outsourcing are
sometimes used in place of 3PL.

• Transportation-Based
– Services extend beyond transportation to offer a
comprehensive set of logistics offerings.
– Leveraged 3PLs use assets of other firms.
– Nonleveraged 3PLs use assets belonging solely to
the parent firm.
– Examples: Ryder, Schneider Logistics, FedEx
Logistics, and UPS Logistics are examples of 3PLs.

• Warehouse/Distribution-Based
– Many, but not all, have former warehouse and/or distribution
experience.
– Transition to integrated logistics has been less complex than
for the transportation based providers.
– Examples: DSC Logistics, USCO, Exel*, Caterpillar Logistics, and
IBM are examples of warehouse/distribution-based 3PLs.
– * Exel regained their position as the world’s largest after an
acquisition, recently purchased by DHL.

WMS / TMS
RATHER THAN OFFERING WAREHOUSE AND TRANSPORTATION FACILITIES
SEPERATELY , MANY 3PL PROVIDE INTEGRATED FACILITY

• Forwarder-Based
– Essentially very independent middlemen
extending forwarder roles.
– Non-asset owners that capably provide a wide
range of logistics services.
– Examples: AEI, Kuehne & Nagle, Fritz, Circle, C. H.
Robinson, and the Hub Group are examples of
forwarder-based 3PLs.

• Financial-Based
– Provide freight payment and auditing, cost
accounting and control, and tools for monitoring,
booking, tracking, tracing, and managing
inventory.
– Examples: Cass Information Systems, CTC, GE
Information Services, and FleetBoston are
examples of financial-based 3PLs.

• Information-Based
– Significant growth and development in this
alternative category of Internet-based, business-
to-business, electronic markets for transportation
and logistics services.
– Examples: Transplace and Nistevo are examples of
information-based 3PLs.

Shifts of Logistical Operations in the
Internet Economy
Traditional logistics E-logistics
Orders Predictable Variable
Order cycle time Weekly Daily or hourly
Customer Strategic Broader base
Customer service Reactive, rigid Responsive, flexible
Replenishment Scheduled Real-time
Distribution model Supply-driven (push) Demand-driven (pull)
Demand Stable, consistent More cyclical
Shipment type Bulk Smallerlots
Destinations Concentrated More dispersion
Warehouse reconfiguration Weekly or monthly Continual, rules-based
International trade compliance Manual Automated
TECHNOLOGY HAS ALLOWED 3PL TO OFFER COMPELX AND
WIDE RANGING SERVICES TO THEIR CLIENTS

Nature of E Commerce

Case Study: ANCHOR 3PL

Relationship Perspectives
AS Supply chain MANAGER CAN YOU AFFORD TO KEEP A 3PL AT ARMS LENGTH OR
SHOULD YOU BUILD A CLOSE STRATEGIC PARTNERSHIP WITH YOUR 3PL PROVIDER
?

Transactional Relationship
• Both parties in a vendor relationship are said to be at
“arm’s length”
• There isn’t much discussion with the 3PL company.
• Pricing is one of the Most important factors.
• Contracts in this scenario are the shortest.

Collaborative Relationship
The relationship suggested by a strategic alliance is one in
which two or more business organizations cooperate and
willingly, modify their business objectives and practices to
help achieve long-term goals and objectives.
• There is a greater interaction and discussion between the 3PL
company as compared to transactional relationship.

Strategic Relationship
• 3PLs are now assuming a more consultative role with
customers, stretching beyond simply execution to more
strategic designs.
• Greatest interaction among the 3PL , business and customers
are observed in the strategic relationship.
• Represents an alternative that may imply even greater
involvement than the collaborative partnership.
• Transactional relationships have given way to strategic
partnerships.

Case Study: Kenco Group
• A 3PL based in Chattanooga, Tennesee.
• More than 100 facilities and 30 million square feet
across 25 states and Canada.
• Kenco's client roster includes Whirlpool, Cummins,
DuPont, Kohler, Green Mountain Coffee Roasters, and
GlaxoSmithKline
• The average customer relationship spans 17 years.
• One of Kenco’s recent clients, switching to one service
provider, is saving more than $10 million over the life
of the initial contract.
• Both 3PL and clients prefer long term partnership as it
is the most beneficial.

Environmental Concern in 3PL
• There has been rapid growth in the attention directed toward
environmental burden, and it is now important to consider environmental
issues.
• The main purpose of companies such as shippers and 3PL providers is to
reduce costs and secure more profits, which may not coincide with
environmental concerns.
• However, efforts to conduct business in an environmental manner have
also been growing rapidly. Environmentally friendly logistics concepts such
as green logistics and reverse logistics have been catching on.

Environmental Concern in 3PL
• “ISO14001” certification is one example. Each firm has an incentive to
acquire it to enhance the reputation and market value of the firm. Indeed,
the number of shipping companies that address environmental issues in
their CSR (Corporate Social Responsibility) activities is increasing.
• Some 3PL providers have such certifications and promote themselves to
shippers as environmental friendly companies. For shippers that are
interested in environmental issues, certification seems to be an important
factor in the selection of a 3PL provider.

3PL BUYING PROCESS
Multi criteria
decision
making
(MCDM)
process in
which a
decision
maker
chooses,
under
several
selection
criteria, the
best option
among
alternatives.Kuldeep Uttam IIT Roorkee

Selecting your supplier using MCDM
Evaluate Process Select

Objective Factors
• Transportation Cost
• Insurance Cost
• IT
• Material Handling cost
• Reverse Logistics

Objective Factors Table
Transportat
ion Insurance IT
Material Handling
cost
Reverse
Logistics Sum OFM
DHL 8.3 1.64 0.25 2 0.025 12.215 0.65677
FedEx 6.3 1.26 0.2 1.5 0.065 9.325 1
Hitachi 7.4 1.42 0.35 3.6 0.034 12.804 0.58681
Nippon
Express 9 1.8 0.56 6.3 0.085 17.745 0

Subjective Factors
• Reliability
• Responsiveness
• Safety & Security
• Experience & Reputation
• Benefits & Risk Sharing

Subjective Factors Table
Reliability Responsiveness
Safety &
Security
Experience &
Reputation
Benefits & Risk
Sharing
Weights 0.25 0.35 0.2 0.1 0.1
DHL
3 2 4 4 2
FedEx
4 4 2 3 4
Hitachi
2 1 3 2 3
Nippon
Express
1 3 1 4 1
4 : Extremely Favorable.
3: Moderately Favorable.
2: Unfavorable.
1: Bad Service.

Normalized Subjective Factors & SFM
Reliablity Responsiveness
Safety&
Security
Experience&
Reputation
Benefits &Risk
Sharing SFM
Weights 0.25 0.35 0.2 0.1 0.1
DHL 0.75 0.5 1 1 0.5
0.7125
FedEx 1 1 0.5 0.75 1
0.875
Hitachi 0.5 0.25 0.75 0.5 0.75
0.4875
Nippon
Express 0.25 0.75 0.25 1 0.25
0.5

Final Decision Measure
SFM OFM Decision
Measure
Weights 0.6 0.4
DHL
0.7125 0.656769596 0.69021
FedEx
0.875 1 0.925
Hitachi
0.4875 0.586817102 0.52723
NipponExpress
0.5 0 0.3

4th Party Logistics
• 4PL is an emerging new outsourcing concept.
• A supply chain integrator who assembles and manages the resources,
capabilities, and technology of its organization with those of service
providers to deliver a comprehensive supply chain solution.
• 4PL can be considered as a comprehensive supply chain solution which
combines the capabilities of management consulting, IT technology and
3PL-providers.

Future Concern
• The total market for freight transportation intermediaries is still growing
with the boom of e-commerce;
• The conventional 3PLs will not fade, but will face with the competition
from the online logistics providers;
• The companies have to combine the logistics expertise with advanced
technology to evolve.
• Strategic alliance will be important to obtain comprehensive and
integrated supply chain solution capability.
• Medium sized and Large carriers may resist and try to continue business as
usual or simply become e-commerce enabled using current business
models

3PL AND 4PL

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