3PL THIRD PARTY LOGISTICS

Overview
 Introduction
 Definition of Third Party Logistics (3PL)
 3PL Evolution
 Current 3PL Market
 Types of 3PL Providers
 By Services
 By Operations
 By Contract Type
 Role of Third Party Logistics in Supply Chain & Company
Performance
 Logistics Outsourcing
 Selection Criteria for 3PL Selection
 3PL Relationships
 Challenges of EPL
 Organizations move
“ materials (tangible &
intangible) to support
their operations
”
 LOGISTICS is responsible for these movements; it manages the
transport & storage of materials from original suppliers through
supply chains and to its final customers
3PL Definition
 A third-party logistics (3PL) is a firm that provides services to its
customers of outsourced (or third-party) logistics services for
part or all of their supply management function Preferably,
these services are integrated, or bundled together, by the
provider. Among the services 3PLs provide are transportation,
warehousing, cross-docking, inventory management,
packaging, and freight forwarding
[Wikipedia]
 A firm that provides multiple logistics services for use by
customers. Preferably, these services are integrated, or
bundled together, by the provider. Among the services 3PLs
provide are transportation, warehousing, cross-docking,
inventory management, packaging, and freight forwarding
[CSCM]
Evolution
 Types of 3PL
▪ SERVICES
• Standard 3PL Providers
• Service Developers 3PL
• Customer Adapters 3PL
• Customer Developers

▪ OPERATIONS
• Transportation-Based
• Warehouse/Distribution-Based
• Forwarder-Based
• Financial-Based
• Information-Based

▪ CONTRACT
• Fixed fee.
• Cost plus.
• Fixed/Variable pricing
Types of 3PL
Warehouse/
Transportation-Based
Distribution-Based

•FedEx • DSC
•UPS Logistics
•Ryder • IBM

Forwarder-Based Financial-Based

• Cass
• Kuehne &
Information
Nagle
• GE
• Hub Group
Information
• Fritz
• FleetBoston
 Services are provided beyond
transportation and offer
different set of logistics offerings
 Leveraged 3PL use assets of
other firms
 Non-leveraged 3PL use assets
that belong only to the parent
firm

Transportation-Based
 Some of the companies have
warehouse and/or distribution
expertise

Warehouse/Distribution-Based
 They are independent
middlemen who extend
forwarder roles
 They are owners with no-assets,
but are capable in providing a
variety of logistics services

Forwarder-Based
 This type of 3PL provides freight
payment and auditing,
accounting services and
control, tools to monitor,
bookings, tracking, tracing and
managing inventory

Financial-Based
Drivers & Challenges
Drivers & Challenges
There are a large number of
advantages and disadvantages
claimed for and against both third
party and in-house distribution. The
major drivers can be split into
different categories as follows:

▪ Organizational
▪ Financial
▪ Service
▪ Physical
Drivers - Benefits
 Organizational
 Focus on their core business or core competence
 Access to wider knowledge
 Financial
 Capital cost advantages
 Improved cash flow
 Converting fixed cost to variable
 Economies of scale
 Operating cost savings
 Clearer picture of actual operating costs
Drivers - Benefits
 Service
 Greater flexibility
 Value added services
 Logistics service improvements
 Physical
 Complexity

 Industrial relations problems

 Vehicle

 Delivery characteristics or requirements

 Product incompatibility
Challenges
 Organizational
 Lacking of the appropriate experience
 Cultural incompatibility
 Loss of control over the delivery operation
 Loss of control over the company’s logistical
variables
 Loss of distribution and logistics expertise
 Loss of direct influence at the point of
delivery
 Brand integrity
 Confidentiality of information issue
Challenges
 Financial
 Changeover costs
 Service
 Ifservices are not managed nicely, they
may cause great problems for the company
reputation, and firm's position
 Third party failure can cause major
interruption to the operations of company
3PL Market with Figures
 3PL Market with Figures
GLOBAL 3PL REVENUES UP FOR 2010-2011

2010 Global 2011 Percent Change 2010 to

Region Global 3PL Revenues
3PL Revenues 2011
(US$Billions)
(US$Billions)

North America 149.1 159.9 + 7.2%

Europe 165.1 160.4 - 2.8%

Asia-Pacific 157.6 191,1 + 21.2%

Latin America 27.5 39.5 + 43.6%

Other Regions 42.3 65.2 + 54.0%

Total $ 541.6 $ 616.1 + 13.7%

3PL Market with Figures
INDUSTRIES USING 3PL SERVICES

2012 2013
 3PL Market with Figures
80
Outsourcing Spending Patterns (%)
71
70
66 66

61 60
60 Total Logistics Expenditures as a
56 55
54 Percentage of Sales Revenues

50 48 47
46 45 Percent of Total Logistics Expenditures
42 41 42 42 42 Directed to Outsourcing
39 39 40 39
40 38
36 36 35
33 Percent of Transportation Spend Managed
31 31 32 30 by Third Parties
30

Percent of Warehouse Operations

20 Spend Managed by Third Parties
14 15 Percent of Warehouse Operations
12 12 11 11 12 11 12 Spend Managed by Third Parties
10
10

0
All Regions All Regions North North Europe 12 Europe 13 Asia Pacific Asia Pacific Latin Latin
12 13 America 12 America 13 12 13 America 12 America 13
3PL Market with Figures
All North 3PL
Outsourced Logistics Service Europe Asia-Pacific Latin America
Regions America Percentages
International Transportation 76% 64% 86% 79% 82% 71%
Domestic Transportation 71 67 81 76 61 88
Warehousing 63 61 72 59 51 83
Freight Forwarding 53 54 60 46 47 64
Customs Brokerage 52 52 57 44 57 54
Reverse Logistics (defective, repair, return) 26 27 31 23 19 60

Cross-Docking 25 29 31 18 19 64
Product Labeling, Packaging, Assembly, Kitting
25 25 31 21 20 65
Transportation Planning and Management 22 24 27 19 15 70

Inventory Management 19 16 15 21 17 64
Freight Bill Auditing and Payment 18 32 13 11 5 34
Order Management and Fulfillment 16 20 18 16 9 65
Information Technology (IT) Services 13 16 16 14 9 50
Service Parts Logistics 12 11 14 12 12 39
Customer Service 10 8 7 17 14 67
Supply Chain Consultancy Services Provided by
10 14 7 9 9 56
3PLs
Fleet Management 8 8 8 8 9 26
LLP (Lead Logistics Provider) / 4PL Services 8 8 17 4 4 39

Sustainability/Green Supply Chain-Related

6 3 7 6 6 31
Services
3PL Market with Figures
SATISFACTION & SUCCESS MEASURE

OA to 89%
87%
72%
OA from 83%
80%
67%
OFR to 81%
65% 79% 2010
OFR from 73%
2012
11% 58% 70%
Fixed Asset Reduction 25% 2013
26%
Inventory Cost Reduction 9% 25%
8%
15%
Logistic Cost reduction 13%
15%
0%
20%
40%
60%
80%
100%
So… Outsourcing?
3PL Selection Process
 Managing 3PL Relationship

The 3PL/client relationship is a relationship where ‘partnership’ can provide the basis for the
business relationship. Good partnerships will encourage the sharing and joint development
of a strategic vision. Not only does a client get the benefit of the 3PL’s thoughts and
experiences, it also achieves their buy-in for the realization of the vision.
A high degree of trust and collaboration is required
 Managing 3PL Relationship

For almost all new outsourcing arrangements, the initial issue after the contract has been
successfully negotiated is the successful implementation of the operation. As with any large
business project it is essential to identify and agree a project plan to ensure that
responsibilities are clear and that there is a feasible timetable for implementation.
Monitoring & Measuring 3PL

 Measure whether the 3PL is meeting set

service levels at an acceptable cost
 Establish metrics (indicative):
 Monitoring against the contract
 Monitoring against the SLA (service level
agreement): The service level agreement should
identify KPIs and link the supplier’s payment to
performance against them
 Budgetary control
 Management information and metrics
 Review meetings:
Objectives
 Identify the reasons why a company
outsource the logistic operations
 Manage, support and fulfill customer
demand in all serviced regions
 How to select the right 3PL Logistic
partner in order to reach logistic
optimization
 In which business sectors there is 3PL
Logistics implementation
 Explain how 3PL Logistics optimize
price setting, increase sales and
reduce shipping costs to maximize
customer satisfaction
References
• Alan Rushton, Phil Croucher and Peter Baker. The Handbook of Logistics and Distribution
Management. 4th. 2010.
• C. John Langley, Jr., Ph.D., and Capgemini. 2013 Third-Party Logistics Study: The State of Logistics
Outsourcing. 2013.
• C. John Langley, Jr., Ph.D., and Capgemini. 2012 Third-Party Logistics Study: The State of Logistics
Outsourcing. 2012.
• Ansari, Al, & Modarres, Batoul. Challenges of outsourcing logistics to third-party providers.
International Journal of Logistics Systems and Management. 2010, Vol. 7, 2
• Martin Christopher. Logistics and Supply Chain Management. 4th. 2011
• Ansari Al, Diane Lockwood & Modarres, Batoul. Outsourcing logistics to third-party prooviders:
practitioners perspectives. International Journal of Logistics Systems and Management. 2010, Vol. 6,
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