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Third Party Logistics (3PL)

Mayuresh Unde
27th August, 2011

Third Party Logistics


Third-party Logistics is simply the use of an outside
company to perform all or part of the firms materials
management and product distribution function.
-- Simchi-Levi (2000)

A relationship between a shipper and third party


which, compared with the basic services, has more
customized offerings, encompasses a broad number of
service functions and is characterized by a long-term,
more mutually beneficial relationship
-- Murphy & Poist (1998)
The company acts as a third party facilitator between seller/manufacturer (the first
party) and buyer/user (the second party).

3PL Vs Transportation Services

Types of 3PL providers


Transportation

Emphasis on
using
Transportation
based assets
Co-operation
for more
comprehensive
logistics
offerings

Warehouse /
Storage

Primary focus
on
Warehousing &
Inventory
Management
One of the
oldest
contracting or
out-sourcing
method

Forwarder

Financial

Information

Very
independent
middlemen
with forwarder
roles.
Non-asset
owners that
provide a wide
range of
logistics
services.

Provide freight
payment and
auditing, cost
accounting and
control, and
tools for
monitoring,
booking,
tracking,
tracing, and
managing
inventory.

Significant
growth and
development in
this category of
Internet-based
services
Business-tobusiness,
electronic
markets for
transportation
and logistics
services.

Levels of 3PL providers


Transactional Outsourcing: Based on transactions, with no
long term contracts and no bonding between the 3PL and the
outsourcing company.
Tactical Outsourcing: Outsourcing on a long term basis with
negotiated contacts and integrated IT systems to facilitate
free information flow and create supply chain visibility.
Strategic Outsourcing: Based on long-term relationships
with successful outcomes, 3PL companies become partners
in supply chain management and establish transactional
transparency.

Implementation Steps of 3PL provider


Perform Due Diligence
SWOT Analysis
Define Outsourcing Strategy
Identify challenges & document expectations
Define advantages, costs
Selection of 3PL based on a robust selection process
Create an Implementation Strategy
Define project plans, roles & responsibilities
Define contract terms, joint investments, losses shared
Measure & Review Performance
Define an effective performance measurement plan
Periodic reviews
Nurture the relationship
Create mutual trust, respect and a sense of integrity

3PL Pros & Cons


Advantages
o
o
o
o
o

Cost reduction
Focus on core competency
Improved return on assets & inventory turns
Improved efficiency, service and flexibility
Access / Expansion to unfamiliar markets

Disadvantages
o Loss of control
o Impact on in-house workforce
o Inability to change rapidly for changing business needs

Comparative Analysis

4PL
4PL is a firm that leverages the capabilities of 3PLs and suppliers of
technology based services through a centralized point of contact

Thank You!

Q&A