For a firm to be competitive, it has to work in collaboration with other external partners.

The 3PL
brought about outsourcing which brings about reduction of cost, improving of performance, focusing on
core business and strategic alliances. The 3PLs are specialize in their services through differentiation
with their services ranging from Transportation, distribution, warehousing, inventory management,
packaging, and reverse logistics.

Spencer et al. [17] identified 23 specific criteria used by selected USA firms to choose their 3PL in the JIT
context.

 on-time performance,
 service quality,
 good communication,
 reliability,
 service speed,
 Flexibility,
 customer support,
 easy to work with,
 management quality,
 early notification of disruptions,
 order cycle time,
 willingness to customize service,
 reputation,
 price,
 location, variety of available services,
 cost reduction,
 special expertise,
 decreased labor problems,
 technical competence,
 decreased asset commitment,
 increased competition, and
 global capabilities.

When it comes to cost and quality criteria , comparing private, contract, and public, public and contract
warehouses do not provide the same level of service quality as private warehousing. In contrast, cost
differentials do not seem to be critical to 3PL use.

According to McGinnis et al the criteria are : on time shipment and deliveries, superior error rates,
financial stability, creative management, ability to deliver as promised, availability of top management,
responsiveness to unforeseen occurrences, ability to meet performance requirements, and price.

Morash et al. suggested that logistics performance is determined by “demand capabilities” which
include pre-sale and post-sale customer services, delivery speed, delivery reliability, and responsiveness
to target market and “supply capabilities” which comprise widespread distribution coverage, selective
distribution coverage, and low total cost distribution. Dapiran et al. [23] and Millen et al. [24] showed
that cost is the most important selection factor of 3PL. Other important criteria are: services, personal
knowledge of the contractor, coverage provided, previous experience and references, experience in
project management and new systems’ implementation, and perceived competence.

Daugherty et al. suggested that the logistics service capabilities provided by a 3PL should include
dedication to emergency assistance, ability in handling changes of environment, flexibility in meeting
external needs, provision of emergency service, ability in proposing recommendations to potential
problems, helping corporation in implementing cost reduction and analysis of problem solution, ability
in responding to the uncertain needs of operational situations, ability in anticipating transportation
problems, ability in proposing counter measures when unable to provide service, and ability in providing
service or operational status report.

Analytic Hierarchy Process (AHP) can be used to select 3PL.

 the general company considerations (price, financial considerations, experience in the same
industry, location, asset ownership, international scope, growth forecasts, yearly efficiency),
 capabilities (optimization capabilities, creative management, customer service, supply chain
vision, responsiveness),
 quality (service quality, continuous improvement, KPI measurement and reporting),
 client relationship (availability of top management, cultural fit, service cancellation, reputation)
and
 labor relations (human resource policies, availability of qualified talent).

criteria to evaluate the 3PL

performance
Authours
Spencer Malt McGinnis Menon Fawcett
Leahy et al. 
  et al z et al et al and Smith 
on-time performance, ü   ü ü    
service quality, ü ü     ü
good communication, ü          
reliability, ü         ü
service speed and delivery ü       ü ü
Flexibility, ü       ü ü
customer support, ü         ü
easy to work with, ü          
management quality, ü          
early notification of disruptions, ü          
order cycle time, ü          
willingness to customize service, ü         ü
reputation, ü          
 price, ü ü ü ü ü  
location, variety of available
services, ü         ü
cost reduction, ü          
special expertise, ü          
decreased labor problems, ü          
technical competence, ü          
decreased asset commitment, ü          
increased competition, and ü          
global capabilities. ü          
superior error rates     ü ü    
financial stability     ü ü    
creative management     ü ü    
availability of top management     ü ü   ü
responsiveness to unforeseen
occurrences     ü ü   ü
performance requirements,     ü ü    
 innovation in services         ü ü

What value-adding services can 3PLs provide?

Information and communications technology (ICT) has become an important element of 3PL
competitive capability as it enables higher levels of supply chain integration. ICT capabilities can assure
the rapid customisation of products and maintain competitive lead-times. Small logistics service
providers, on the other hand, have more difficulties in setting up ICT applications due to reluctance to
change and insufficient human and financial resources. This has further complicated the competitive
position of small logistics service providers - it seems that they have underestimated the potential of ICT
as an enabler for increasing cost-efficiency and improving customer service.

integration of traditional services (transportation and warehousing) with information-based services

(e.g. tracking and tracing (T&T), booking, freight rate computation, routing and scheduling).

https://www.proquest.com/docview/235914468?accountid=14565&pq-origsite=summon

Reverse Logistics

A Foreign Trade Zone offers great benefits for importers and exporters of goods, allowing for duty
deferral, and excise tax deferral until products are transferred from the FTZ to U.S. consumption.

Packaging services include packaging goods into consolidates containers, cartons, or store displays.
Assembly services include assembling multiple pieces of a product by hand or with special tools.

Building POP Displays to hold or display products in stores.

Shrink-wrapping services can include shrink-wrapping individual or multiple products with branded,
custom or clear shrink-wrap.

Kitting and Bagging include combining multiple products into one store-ready kit or bag.

Labeling services include labeling individual products or items, country of origin labeling, branded labels,
bar-codes or unique ID labels.

Fulfillment/e-commerce is a large part of the e-commerce world today. Order fulfillment usually
consisting of small orders, by the item or a few items, and shipped out by parcel, are handled within
value added services of a 3PL.

Advantages and Disadvantages of 3PL(direct from book pg250)

https://read.kortext.com/reader/pdf/93623/250

Focus on Core Strengths

The most frequently cited benefit of using 3PL providers is that it allows a company to focus on its core
competencies. With corporate resources becoming increasingly limited, it is often difficult to be an
expert in every facet of the business. Logistics outsourcers provide a company with the opportunity to
focus on that company’s particular area of expertise, leaving the logistics expertise to the logistics
companies. (Of course, if logistics is one of the company’s areas of expertise, then outsourcing may not
make sense.)

EXAMP LE 8- 2

The partnership between Ryder Dedicated Logistics and General Motors’ Saturn division is a good example of these
benefits. Saturn focuses on automobile manufacturing and Ryder manages most of Saturn’s other logistics
considerations. Ryder deals with vendors; delivers parts to the Saturn factory in Spring Hill, Tennessee; and delivers
finished vehicles to the dealers. Saturn orders parts using electronic data interchange (EDI) and sends the same
information to Ryder.Ryder makes all the necessary pickups from 300 different suppliers in the United States,
Canada, and Mexico, using special decision-support software to effectively plan routes to minimize transportation
costs.

EXAMP LE 8- 3
British Petroleum (BP) and Chevron Corp. also wished to stick to their core competencies. To do this, they formed
Atlas Supply, a partnership of about 80 suppliers, to deliver items such as spark plugs, tires, window-washing fluid,
belts, and antifreeze to their 6,500 service stations. Rather than use the distribution networks of either BP or
Chevron or create a new one, Atlas outsourced all logistics to GATX, which is responsible for running five
distribution centers and maintaining inventory of 6,500 SKUs at each service station. Each service station orders
supplies through its oil company, which forwards the order to Atlas and then to GATX. Each station has a pre-
assigned ordering day to avoid system bottlenecks. GATX systems determine appropriate routes and configurations
and transmit orders to the DC. The next day, the DC selects and packs the orders, and trucks are loaded in the
appropriate order based on the delivery schedule.As deliveries are made, returns and deliveries from Atlas suppliers
are picked up. GATX electronically informs Atlas, Chevron, and BP of the status of all deliveries.The companies
save enough on transportation costs alone to justify this partnership, and the two oil companies have managed to
reduce the number of DCs from 13 to 5 and significantly improve service levels.

Provide Technological Flexibility

The ever-increasing need for technological flexibility is another important advantage of the use of 3PL
providers. As requirements change and technology advances, and technology such as RFID becomes
more prevalent, the better 3PL providers constantly update their information technology and
equipment. Often individual companies do not have the time, resources, or expertise to constantly
update their technology. Different retailers may have different, and changing, delivery and information
technology requirements, and meeting these requirements may be essential to a company’s survival.
Third-party logistics providers often can meet these requirements in a quicker, more cost-effective way.
Also, third-party providers already may have the capability to meet the needs of a firm’s potential
customers, allowing the firm access to certain retailers that might not otherwise be possible or cost-
effective.

Provide Other Flexibilities

Third parties also may provide greater flexibility to a company. One example is flexibility in geographic
locations. Increasingly, suppliers are requiring rapid replenishment, which in turn may require regional
warehousing. By utilizing third-party providers for this warehousing, a company can meet customer
requirements without committing capital and limiting flexibility by constructing a new facility or
committing to a long-term lease. Also, flexibility in service offerings may be achieved through the use of
third parties, which may be equipped to offer retail customers a much larger variety of services than the
hiring firm. In some cases, the volume of customers demanding these services may be low to the firm,
but higher to the 3PL provider, who may be working for several different firms across different
industries. In addition, flexibility in resource and workforce size can be achieved through outsourcing.
Managers can change what would be fixed costs into variable costs, in order to react more quickly to
changing business conditions.

EXAMP LE 8-5

SonicAir, a division of UPS, provides an even more sophisticated third-party service. This company serves
specialized customers who supply equipment for which every hour of downtime is very expensive; SonicAir rapidly
delivers service parts where they are needed. SonicAir maintains 67 warehouses and uses specialized software to
determine the appropriate inventory level for each part at each warehouse. When an order is placed, the system
determines the best way to deliver the part and sends it out, usually on the next flight, where it is delivered by one of
the company’s ground couriers. This service enables customers to store fewer parts at each field service bureau than
would otherwise be necessary—and still provide the same level of service. With some parts valued at hundreds of
thousands of dollars, this is clearly a cost savings to the customer. At the same time, this business is very profitable
for SonicAir because customers are willing to pay well for this level of service .

Important Disadvantages of 3PL

The most obvious disadvantage of the use of 3PL providers is the loss of control inherent in outsourcing a particular
function. This is especially true for outbound logistics where 3PL company employees themselves might interact
with a firm’s customers. Many third-party logistics firms work very hard to address these concerns. Efforts include
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.

Also, if logistics is one of the core competencies of a firm, it makes no sense to outsource these activities to a
supplier who may not be as capable as the firm’s in-house expertise. For example, Wal-Mart built and manages its
own distribution centers and Caterpillar runs its parts supply operations. These are competitive advantages and core
competencies of these firms, so outsourcing is unnecessary. In particular, if certain logistics activities are within the
core competencies of the firm and others are not, it might be wise to employ 3PL providers for only those areas that
outside providers can handle better than the hiring firm. For example, if VMI replenishment strategies and materials
handling are core competencies of a company but transportation is not, a 3PL firm could be contacted to handle
shipments from the dock to the customer exclusively. Similarly, pharmaceutical companies build and own DCs for
controlled drugs, but often use public warehouses located closer to the customer for items that are less expensive and
easier to control.

Implementation Issues/Consideration before engagement

 Effective communication- The logistics provider, in turn, must consider and discuss these requirements
honestly and completely, including their realism and relevance.
 technological level- Along the same line, a firm should avoid 3PL providers who utilize proprietary
information systems, because these are much more difficult to integrate with other systems.
 confidentiality - The third party and its service providers must respect the confidentiality of the data that
you provide them.
 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

REF

https://www.sciencedirect.com/science/article/pii/S0305048314000711

MS Spencer, DS Rogers, PJ. Daugherty
JIT systems and external logistics suppliers
International Journal of Operations and Production Management, 14 (6) (1994), pp. 60-
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