What Is 3PL?

Strategic partnership
Long term commitment
Multi-function arrangement
Process integration
Large range of 3PL companies
Non-asset owning 3PL companies called 4PL
Provide services but not trucks, warehouses

Prevalent usage with larger companies

3PL Advantages
Focus on Core Strengths
Allows a company to focus on its core
competencies
Logistics expertise left to the logistics experts

3PL Advantages
Provides Technological Flexibility
Technology advances adopted by better 3PL
providers
Adoption possible by 3PLs in a quicker, more costeffective way
3PLs may have the capability to meet the needs of
a firms potential customers

3PL Advantages
Provides Other Flexibilities
Flexibility in geographic locations.
Flexibility in service offerings
Flexibility in resource and workforce size

3PL Disadvantages
Loss of control inherent in outsourcing a particular
function.
Outbound logistics 3PLs interact with a firms customers.
Many third-party logistics firms work very hard to address
these concerns.
Painting company logos on the sides of trucks, dressing 3PL
employees in the uniforms of the hiring company, and
providing extensive reporting on each customer interaction.

Logistics is one of the core competencies of a firm

Makes no sense to outsource these activities to a supplier
who may not be as capable as the firms in-house expertise
Wal-Mart, pharmaceutical companies

3PL Issues
Costs and Customer Orientation
Know your own costs
Compare with the cost of using an outsourcing firm.
Use activity-based costing techniques

Customer orientation of the 3PL

Ability of provider to understand the needs of the hiring
firm and to adapt its services to the special requirements
of that firm.
Reliability.
Flexibility of the provider

3PL Issues
Specialization of the 3PL
Consider firms whose roots lie in the
particular area of logistics that is most
relevant to the logistics requirements in
question.
Firms may have even more specialized
requirements
Firms can use one of its trusted core carriers
as its third-party logistics provider.

3PL Issues
Asset-Owning vs Non-Asset-Owning 3PL
Asset-owning companies
Significant size, human resources, customer base,
economies of scope and scale, and systems
May be bureaucratic with a long decision-making cycle.

Non-asset-owning companies
May have limited resources and bargaining power
May be more flexible
Able to tailor services and have the freedom to mix and
match providers.
May have low overhead costs and specialized industry
expertise at the same time

3PL Implementation Issues

Buying company
Should devote enough time to start-up
considerations (First 6-12 months most critical)
Must identify exactly what it needs for the
relationship to be successful
Be able to provide specific performance measures
and requirements to the 3PL firm.

3PL Implementation Issues

3PL company:
Must consider and discuss requirements honestly
and completely, including their realism and
relevance

Both parties:
Must dedicate time and effort for the relationship
Treat as a mutually beneficial alliance
No transaction pricing mentality

Other Issues
The third party and its service providers must respect the
confidentiality of the data.
Specific performance measures must be agreed upon.
Specific criteria regarding subcontractors should be
discussed.
Arbitration issues should be considered before entering
into a contract.
Escape clauses should be negotiated into the contract.
Methods of ensuring that performance goals are being
met should be discussed