Third Party Logistics Providers (3PL)

3 PL

Third-party logistics (3PL) service providers are companies who provide a range of logistics activities for their clients. These are companies independent from the buyers and sellers but takes over some of their logistics function.

3PL Defined

Businesses that provide one or many of the following logistics services: Transportation Management Public/Contract Warehousing Distribution Management Freight Consolidation

Types of 3PL Providers

Transportation Based
Services extend beyond transportation to offer a comprehensive set of logistics offerings. Examples: UPS Logistics

Transportation
Incoming Materials Or Products
Customs

Consol. Center

Decon Cente Outsourced r Benefits:

Point of Sale/ Point of Use/ Customers

Activities: Transport arrangement Customs clearance Shipment visibility Carrier mgmt / rate mgmt

Shorter cycle time Lower freight costs Visibility of pipeline inventory I

Types of 3PL Providers

Warehouse/Distribution Based
Many have former warehouse and/or distribution experience. Examples:Caterpillar Logistics, IBM

Contract Warehousing
Incoming Products Bulk Warehouse
Outsourced

Distribution Center
In-house

Customers Retailers

Activities: Labor & supervision Receiving, storage, shipping

Benefits: Lower capital investment Lower fixed/variable cost ratio Focus to the core Professional service

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: GE Information Services,

Logistics Financial Services

Supplier Manufacturers Distributors Customers / Retailers

Activities:
Inventory finance (factoring,) Distribution finance (asset based lending, receivable finance) Payment solutions , Leasing

Benefits:
Reduced cost of capital Improved cash flow Reduced capital investment

Why Use 3PLs?

Save time

Dont need to invest in:

Trucks Training Development

Help expand

New markets International

No roads

Why Use Cont.

Narrow your focus

Allows you to focus on your strengths Can ensure delivery times can help a company run leaner

Reach more customers more effectively

Management Focus

Furthering your company Consider potential benefits and drawbacks 3pls can increase profitability

Risks of Out-sourcing Logistics

Loss of internal logistics management capabilities Biased choice of service providers Leakage of sensitive data and information Service degradation

Less reliable? Longer order cycle time? Emergency response?

Loss of control and representation Reduced contact with final customer

3PL for outbound logistics interact with your customers, you become less visible to your customers

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Tips for Successful Implementation

1) Have an outsourcing strategy.

Know what your outsourcing strategy is. It needs to be well thought out and measured against in house solutions and capabilities. SWOT analysis. As a company you should understand the strengths, weaknesses, opportunities and threats of outsourcing logistics, rather than keeping them in house.

2) Do your homework.

Do a comprehensive study
Clearly document advantages, challenges, costs and benefits.

Document expectations
Set down expectations in clear terms and include current costs.

Tips Continued

Create a robust selection process.

Invite companies in to give a formal presentation without giving requirements. This can help document their strengths and weaknesses. Make a site visit to the 3PL, and talk with its existing customer.

3) Measure and review performance

Have a efficient and accurate measurement system.

Qualitative measures that focus on effectiveness and quantitative measures that focus on efficient utilization.

Have an efficient costing system

This will help you to understand the costs involved in outsourcing. Are we making money doing this?

Tips Continued
4) Create an Implementation Strategy

Create a project plan road map

Be clear who does what, create a project management team with members from both organizations and review progress vs. planned milestones.

5) Nurture the Relationship

Both Parties must nurture the relationship to make outsourcing successful.

Create mutual trust, respect and a sense of integrity.

4PL Providers

Manage and direct the activities of multiple 3PLs, serving as an integrator Refinement on the idea of 3PLs 4PLs are not asset based like 3PLs