3rd Party Logistics
(3PL)

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A supply chain practice where one or more logistic functions of a firm are outsourced. Explanation of 3rd Party Logistics (3PL). ('80)

What is 3rd Party Logistics (3PL)? Description

3rd Party Logistics (3PL) is the supply chain practice where one or more logistics functions of a firm are outsourced to a 3PL provider. Typical outsourced logistics functions are: inbound freight, customs and freight consolidation, public warehousing, contract warehousing, order fulfillment, distribution, and management of outbound freight to the client's customers.

On top of this, also Value Added Services can be provided, such as: repackaging, assembling and return logistics. The 3PL Provider manages and executes these particular logistics functions using its own assets and resources, on behalf of the client company.

The thoughts behind this are to keep the firm competitive by keeping it lean without owning much assets, allowing it to focus on niche areas and to reduce operational costs. Third Party Logistics is also referred to as Contract Logistics.

3PL is evolving from predominately transactional-based to more strategic in nature. At the same time 3PL is gradually evolving into 4PL. A Fourth Party Logistics provider is a supply chain services provider that searches the best logistical solutions for its client, typically without using own assets and resources. Relatively new is the term 5PL or even 7PL, indicating Total Supply Chain Management Outsourcing.

Origin of 3rd Party Logistics (3PL). History

In the 80s, there was increased globalization and an increased use of IT. These trends resulted in increased demands on firms and possibilities for companies to operate more competitive and lean. Some successful 3PL companies emerged, such as DHL/Exel, Kuehne + Nagel, Schenker , UPS, Panalpina, C.H. Robinson, TNT Logistics, Schneider, and NYK Logistics.

Usage of 3rd Party Logistics (3PL). Applications

Firms with a wide and/or complex distribution network. Example: IBM.
Firms that do not focus on logistics as one of their core competencies. Example: Chevron Corp or British Petroleum.
In strategic discussions on Core Competence.
In the case of the creation of a new product group.
When a company is integrating activities of a takeover. Compare Acquisition Integration Approaches

Steps in 3rd Party Logistics (3PL). Process

The application of 3PL is normally done in a number of phases:

Awareness. Investigate possibilities, inform employees, SWOT Analysis.
Market Research. Investigate market trends, in particular service demands. See: SERVQUAL, Customer Satisfaction Model, and Quality Function Deployment.
Strategy. Develop and compare logistics concepts.
Make or Buy. Build own competence or outsource. Outsource completely or partly.
Business Plan. Costs, benefits. Phasing. Timing. Risks. Communication and motivation.
Selection. Selecting partner based on market coverage, competency, integrity, vision, etc.
Agreement. Agreeing on mutual expectations using a set of performance metrics.
Evaluation and Renewal. Sustain partnership via mutual financial costs and benefits, joined planning, multi-level contacts, open information exchange.

Strengths of 3rd Party Logistics (3PL). Benefits

3PL allows a firm to gain competitive advantage via:

Allowing firms to focus on developing their Core Competences.
Cost competitiveness.
Freeing up resources (money).
Benefit from the logistics know-how and international distribution networks of specialized 3PL Logistics providers, allowing for superior customer service levels.

Limitations of 3rd Party Logistics (3PL). Disadvantages and Risks

To implement 3PL successfully, one may need to bear in mind some possible pitfalls:

Loss of control over the logistics function (especially for critical parts).
More distance from clients. Loss of human touch.
Discontinuity of services of 3PL provider.
Differences of opinion or perception of the service level of the third party provider.

Assumptions of 3rd Party Logistics (3PL). Conditions

It can be inferred that the firm engaging this practice is likely:

A firm that does not focus on logistics as one of its core competencies.
At least a mid-sized corporation such that the logistics cost is substantial enough to justify the engagement of the outsourcing services.

Book: Edward A Silver - Inventory Management and Production Planning and Scheduling -

Book: David Simchi-Levi - Designing and Managing the Supply Chain -

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Recent User Comments

    			 
             Adrian James - Australia
  	       
  		     3PL Value Chain
  	  		 "Does anyone have a 3PL Value Chain?"
  			   
    	  		 0

    			 
             Imran - india
  	       
  		     Types of 3PL providers
  	  		 "What are the types of 3PL providers??"
  			   
    	  		 1

    			 
             Srinivasabalaji - India
  	       
  		     3PL Actvity Cost
  	  		 "What are the approximate end to end cost for a 3PL on Global Freight Forwarding activities - Ocean freight forwarding?
"
  			   
    	  		 0

    			 
             Manda Lameck B. - Malawi
  	       
  		     3PL in Third World Countries
  	  		 "The reading on this well summarised 3pl has really assisted me understand on what it is. However I doubt its effectiveness and efficiency in the third world countries. Could someone comment please."
  			   
    	  		 0

    			 
             Joseph Ngo - Singapore
  	       
  		     Difference 3PL and 4PL?
  	  		 "What is the difference between a 3PL & a 4PL?"
  			   
    	  		 1

Best User Comments

    			   
    			     supreet nanra - India
  	         
  				   Examples of 3PL / 4PL
  				   "This information is truly appropriate.. But who can add an elaborated example to it?"
    			   
        	  		 1

    			   
    			     Richard - UK
  	         
  				   Criteria for 3PL selection
  				   "Who has good generic criteria to select a 3PL?"
    			   
        	  		 1

    			   
                 Abdullah Fuentes - KSA
  	         
  				   End to End 3rd Party Logistic Provider (3PL)
  				   "In Saudi Arabia, there is an emergenging trend of going for 3PL (outsource) and a number of petrochemical producers have started this practice. The area, however, is concentrated in cargo movements.  Are there establishments or firms currently in Saudi Arabia that provide end to end supply chain?"
    			   
        	  		 0

    			   
    			     Okeowo Michael - Nigeria
  	         
  				   What is 3PL Logistics
  				   "Thanks for all your articles.  It's a little bit unclear to me what 3PLs are all about, are they independent logistic companies? I hope somebody will enlighten me about this. Thanks."
    			   
        	  		 0

    			   
    			     Suraj Rathi - India
  	         
  				   3PL in India
  				   "There is still a great task ahead for the stable growth of 3PLs in India. It is still in the nascent stage. The future of logistics lies in 3PLs."
    			   
        	  		 0

    			   
    			     Faisal Khan - China
  	         
  				   Decision-making for 4PL Solutions
  				   "How does an end customer decide if they need 3pl or 4pl supply chain solutions?"
    			   
        	  		 0

    			   
    			     Bala Kumar.M.K - Inida
  	         
  				   3PL Difficulties
  				   "What are the difficulties / challenges faced by a 3PL?"
    			   
        	  		 0

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                      └► Jack Marcus (US)
                      
                    Types of 3PL Providers
                    "Susanne Hertz and Monica Alfredsson (Strategic Development of Third Party Logistics Providers, Industrial Marketing Management (Elsevier Science) 32 (2): pp. 139–149, 2003) mention Four categories of 3PL providers:

1. Standard 3PL Provider: the most basic form. Performs activities such as pick and pack, warehousing, and distribution (business) – the most basic functions of logistics. For a majority of these firms, the 3PL function is not their main activity.

2. Service Developer: offers its customers advanced value-added services such as: tracking and tracing, cross-docking, specific packaging or advanced security system. A solid IT foundation and a focus on economies of scale and scope will enable this type of 3PL provider to perform these types of tasks.

3. Customer Adapter: essentially takes over the complete control of the client's logistics activities at their request. Improves the logistics dramatically, but do not develop a new (generic) service. The customer base for this type of 3PL provider is typically quite small.

4. Customer Developer: the 3PL provider integrates itself with the customer and takes over their entire logistics function. These providers will have merely a few customers, but will perform extensive and detailed tasks for them."

└► Edmund (USA)	Cirteria for 3PL Selection	"Finding a cost effective 3PL that can meet time sensitivity requirements while remaining flexible to your organization's unforeseen changes."
└► Aruna Bhatta (Uk)	Thnks a lot for all your comments	"I wish to thank you all for your comments . I have been busy with my thesis which now is completed. the title being " a conceptual model for selecting and evaluating a third party reverse logistics provider" .. awaiting for venting "
└► Aruna Bhatta (UK)	Criteria for 3PL Selection	"- Transport and distribution systems - Storage and Warehousing Systems - Technically equipped 3PL (to ensure a smooth information flow, Tracking of Goods) - Customer Support - IT Infrastructure: legacy systems and web-platform - Physical Infrastructure - Financial strengths - Capacity to handle products depending of their location in the PLC - Goodwill and reputation / Organisational Performance Criteria - Level of Collaboration between the 3PL and the company - Long term / strategic/exclusive alliances - Operating and pricing flexibility - Cultural Match and Compatibility."

                       
                        └► Joseph Ngo (Singapore)
                        
                      Outsource Logistics
                      "The articles look goods to me and it give me some info of a 3PL logistics is operated."

└► Aruna Bhatta (UK)	Hope it Clarifies	"3PLs are independent logistics companies but can be linked to a particular companies as a support. Third party logistics are those entities who specialize in activities which smoothen the running of the supply chain pipeline and provide a wide selection of services, value-adding services and even global logistics so that wholesalers, distributors, retailers do not have to invest money to support their own amenities."
└► Abdullah Fuentes (Saudi Arabia)	3PL Logistics	"The best definition/description what a 3PL is, could be found in any website hosting 3PL Logistics. These are normally organization known as services providers which take a portion of corporation activities (e.g. freight forwarding) using all their resources in providing the services (manpower, equipment, etc)."
└► Haresh L (India)	What is 3PL	"Third party logistics provider(3PL) is essentially a logistics company to whom a company outsources its transportation requirements. With the emergence of IT, companies can partner with a 3PL and focus on their core operations and improve core competencies instead of struggling with transportation on their own. By this they can reduce their capex, expand reach, improve efficiency and streamline operations. For example, Dell partners with FedEx to deliver computers to its customers. Internationally there are logistics providers like DHL, FedEx and UPS. In India we have Gati, Blue Dart, etc who provide companies supply chain solutions."