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.
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Introduction
1PL:These can be the shipper (such as a
manufacturing firm delivering to customers) or the
consignee (such as a retailer picking up goods from
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 their trucks

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 and retailers.
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 combines the
capabilities of management consulting, IT technology and 3PL-providers.
4PL not necessarily mean that four parties are involved. The number 4 refers to the fact
that this kind of logistics services is one
level higher than 3PL.
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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
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Myth about 3PL

3PL is only concerned with transportation activities !!!

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Services Provided By 3PL

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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.

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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

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From Push to Pull Logistics

Supplier
Supplier

Supplier

Supplier

Supplier

Supplier

Supplier
Supplier

Supplier

Supplier

Freight flow
Manufacturer
Manufacturer

3PL

Distributor
Distributor
Customer

Push

Returns / Recycling

Pull
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Point-of-sale data

Customer

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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

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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
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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

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Camelot: Partners

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Customers of 3PLs
Industry

Global
Costs

Automotive
Technology
Retailing
Consumer Products
Food and Grocery
Healthcare
Industrial and Elements
Other
Total Costs

$98.2
$156.4
$98.6
$13.6
$32.2
$38.4
$179.7
$63
$678.3

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Domestic Costs
(USA)
$37.4
$77.4
$67.2
$13.3
$27.8
$34.0
$84
$25.3
$366.3

Figure 4-6 3PL Logistics Market Turnover Growth (US $Billion)

$100
$80
$60
$40
$20
$0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

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

3PLs are external suppliers that perform all or
part of a companys logistics functions,
including:
Transportation
Warehousing
Distribution
Financial services

Terms contract logistics and outsourcing are

sometimes used in place of 3PL.
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Types of 3PL Providers

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.

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Types of 3PL Providers

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 worlds largest after an
acquisition, recently purchased by DHL.

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WMS / TMS

RATHER THAN OFFERING WAREHOUSE AND TRANSPORTATION FACILITIES

SEPERATELY , MANY 3PL PROVIDE INTEGRATED FACILITY
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Types of 3PL Providers

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.

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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: Cass Information Systems, CTC, GE
Information Services, and FleetBoston are
examples of financial-based 3PLs.

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Types of 3PL Providers

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

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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

Smaller lots

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
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Nature of E Commerce

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Case Study: ANCHOR 3PL

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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 ?

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Transactional Relationship
Both parties in a vendor relationship are said to be at
arms length
There isnt much discussion with the 3PL company.
Pricing is one of the Most important factors.
Contracts in this scenario are the shortest.

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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.

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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.

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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 Kencos 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.
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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.

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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.

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3PL BUYING PROCESS

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Multi criteria
decision
making
(MCDM)
process in
which a
decision
maker
chooses,
under
several
selection
criteria, the
best option
among
alternatives.

Selecting your supplier using MCDM

Evaluate

Process
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Select

Objective Factors

Transportation Cost
Insurance Cost
IT
Material Handling cost
Reverse Logistics

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Objective Factors Table

Transportat
ion
Insurance

IT

Material Handling
cost

Reverse
Logistics

Sum

OFM

DHL

8.3

1.64

0.25

0.025

FedEx

6.3

1.26

0.2

1.5

0.065

Hitachi

7.4

1.42

0.35

3.6

0.034

12.804 0.58681

Nippon
Express

1.8

0.56

6.3

0.085

17.745

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12.215 0.65677

9.325

Subjective Factors

Reliability
Responsiveness
Safety & Security
Experience & Reputation
Benefits & Risk Sharing

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Subjective Factors Table

Reliability Responsiveness
Weights
DHL

FedEx

Hitachi
Nippon
Express

Safety &
Security

Experience &
Reputation

Benefits & Risk

Sharing

0.25

0.35

0.2

0.1

0.1

4 : Extremely Favorable.
3: Moderately Favorable.
2: Unfavorable.
1: Bad Service.
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Normalized Subjective Factors & SFM

Reliablity

Responsiveness

Safety &
Security

Experience &
Reputation

Benefits & Risk

Sharing

Weights

0.25

0.35

0.2

0.1

0.1

DHL

0.75

0.5

0.5

SFM

0.7125
FedEx

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

0.25
0.5

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Final Decision Measure

Weights
DHL

FedEx
Hitachi
NipponExpress

Decision
Measure

SFM

OFM

0.6

0.4

0.7125

0.656769596

0.69021

0.875

0.925

0.4875

0.586817102

0.52723

0.5

0.3

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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.

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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

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