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.
- Marketing 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
Forum discussions about 3rd Party Logistics. Below you can ask a question about this topic, share your experiences, report a new development, or explain something.
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New Trends in Transport and Logistics
What are the new developments in the transport and logistics industry with special emphasis on the following: growth of 3PLs, 4PLs, increased bulk carriage, increased use of unit loads, air freight an...
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Looking for Reliable 3PL Vendor in India
I recently signed on a new 3PL vendor in India to provide us with gift suggestions and services. When the orders were placed, I asked several times for ETA's and tracking information and he bailed out...
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 3 comments
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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....
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The best, top-rated topics about 3rd Party Logistics. Here you will find the most valuable ideas and practical suggestions.
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3PLs Market in Saudi Arabia
Due to economic expansion in Saudi, please share your thoughts on the 3PL market opportunity, especially in the area of warehousing and transportation....
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Advanced insights about 3rd Party Logistics. Here you will find professional advices by experts.
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Criteria Selection and Evaluation of a Third Party Reverse Logistics Provider Selecting a Reverse Logistics Provider I have been busy with my thesis which is now completed. The title being "A Conceptual Model for Selecting and Evaluating...
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Sharing Resources and Know-how Logistics Outsourcing Best Practice A fast way to integrate and improve an outsourcing partnership is achieved when the most skilled trainer from any partic...
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Definition of 4PL What is a 4th PArty Logistics Provider? 4PL is a term that some believe to be coined by consultancy firm Accenture. Their definition of 4PL is: "an integrator t...
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Various sources of information regarding 3rd Party Logistics. Here you will find powerpoints, videos, news, etc. to use in your own lectures and workshops.
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Transportation in the Supply Chain Logistics, Supply Chain Management, Transport Logistics, Intermodal Transport This presentation focuses on transportation in the supply chain. The presentation includes the following sections:
1. K...
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Compare with 3rd Party Logistics (3PL):
Vendor Managed Inventory
| Outsourcing |
Inventory Management |
Lean Manufacturing |
CPFR |
SERVQUAL |
Customer Satisfaction
Model |
Quality Function Deployment
| Core Competence |
Business Process Reengineering |
Vertical Integration
| Value Chain |
Benchmarking |
Kraljic Model
Return to Management Hub: Supply Chain & Quality
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