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Chapter 3
Third party Logistics
(3PL)
Third Party Logistics
• “Third-party Logistics is simply the use of an outside company to
perform all or part of the firm’s 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 longterm, more mutually beneficial relationship”
-- Murphy & Poist (1998)
ILM-1
2
Third Party Logistics
Outsourced
Operation
Transportation
Shipper
Shipper
3PL
Warehousing
IT support
Shipper
In-house Operation
SC
integration
Shipper
In-house Logistics
Department
Others
Others
IT support
Transportation
Warehousing
3
3PL Providers
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Characteristics of 3PL
• Perform outsourced logistics activities
• Process management / Multiple activities
• More customized services
• Mutually beneficial and risk-sharing relationship
• Long-term commitments (1~ 3 years)
ILM-1
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Why Use 3PL?
ILM-1
6
3PL Vs. Transportation Services
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Models of 4PL
A) Lead logistics provider: The 4PL provider acts as an in house
freight management company, it might or might not have a role
in the selection of 3 PL partners. It takes care of transport
invoicing and the monitoring of the performance of the 3 PLs.
B) Solution Integrator: In this variant of the model, the 4PL acts
as the integrator of various 3PLS and as a single window for
freight negotiations, 3PI selection and freight management on
behalf of its client.
C) Industry Innovator: Under this model the 4PL uses its
expertise and resources to create a solution not for any single
client, but for offering 4PL services to a number of clients in an
industry.
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Services Offered by Third Party Logistics Providers
Standard
Advanced
Complete
Warehouse
management
Transportation
Dispatching
Delivery
documentation
Customs
documentation
Assembly
Packaging
Returns
Labeling
Stock accounting
Order planning
and processing
IT management
Invoicing
Payment
collection
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Why is it Needed?
• Advantages
o Cost reduction
o Focus on core competency
o Improved efficiency, service and flexibility
o Industry-specific application
– “built-to-order” systems and e-merchants
• Penetrate new markets
• Reduce the inherent financial investment risks associated with
owning logistics assets like trailers and warehouses.
• Coordinate producers and distributors within a global approach.
• Access new technologies, sophisticated warehousing operations, or
new delivery options.
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Services by 3PL
•
•
•
•
Basic services
Physical contract logistics services
Management contract logistics services
Integrated contract logistics
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Associated Risks
• Strategic risk- same services to competitors
• Commercial risk- manufacturer reputation and future
orders are in hands of 3PL
• Management risk- Costs and real value of service
provided must be visible at both the ends.
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When to opt for 3PL
• The prerequisite for the company before hiring a
logistics provider is to explain him clearly as what
is expected out of his services.
• In logistics terminology it is known as ‘Base case’.
The base case is defined as the situation the
company presents before the arrangement with a
3PL ,in terms of the metrics it considers relevant
for its performance.
• Generally there are four dimensions a company
looks into before deciding to outsource the
services of logistics service provider.
Continuation.
They are
• 1. Company needs (is logistics a core competence ?)
• 2. Tangible values( are there any measurable advantages?)
• 3. Management commitment
• 4. Provider capabilities.
Viewing seriously all the above dimensions with other
company specific requirements involves an overall
evaluation of the entire logistics system, including inbound,
in plant and outbound logistics.
Thank You