Third Party

Logistics
Presented by
Vikram Kumar
September 19, 2013

Definition
Third-party Logistics is simply the use of an
outside company to perform all or part of the
firms materials management and product
distribution function.
-- Simchi-Levi (2000)

Third Party Logistics Defined

THIRD PARTY LOGISTICS is an industry to which a shipper
(owner of transported goods) outsources various elements of
the supply chain to perform some / all logistics management
functions including inbound freight, customs, warehousing,
order fulfillment, distribution and outbound freight.
Initiated in 1980s when companies began looking for opportunities to
improver logistics performance.
FedEx drew attention to 3PL service by offering JIT delivery
FedEx success in 3PL marketplace opened it up to competition
Initially primarily domestic coverage, 3PL industry is now global in
character with a revenues approaching $150 billion in NA

Cont..
3PLs are external suppliers that perform all or part
of a companys logistics functions, including:

Transportation
Warehousing
Distribution
Financial services

Terms contract logistics and outsourcing are

sometimes used in place of 3PL.

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

Why Use 3PL?

Advantages & Disadvantages

Advantages
o
o
o
o

Cost reduction
Focus on core competency
Improved efficiency, service and flexibility
Industry-specific application
build-to-order systems and e-merchants

Disadvantages
o Loss of control
o Impact on in-house workforce

Characteristics of 3PL

Types of 3PL
There are three types of third party logistics providers:
1. Asset Based 3PL companies that use their own trucks, warehouses and
personnel to operate the clients business
2. Management Based 3PL companies that provide the technological and
managerial functions to operate the logistics functions of their clients, but
do so using the assets of other companies and do not necessarily own any
assets
3. Integrated Providers 3PL companies that can either be asset based or
management based that supplement their services with whatever services
are needed by their clients

Third Party Logistics Provider

A firm which provides multiple logistics services for use

by customers.
These services are integrated or bundled together by
the provider.
These firms facilitate the movement of parts and
materials from suppliers to manufacturers and finished
products from manufacturers to distributors and retailers.
Among the services which they provide are
transportation, warehousing, cross-docking, inventory
management, packaging and freight forwarding.

Types of 3PL Provider

Transportation-Based
Warehouse/Distribution-Based
Forwarder-Based
Financial-Based
Information-Based

Third Party Logistics

10 Commandments of Outsourcing
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

Develop a strategy for outsourcing

Establish a rigorous provider selection process
Clearly define expectations
Develop a good contract
Establish sound policies and procedures
Identify and avoid potential points of friction
Communicate effectively with your partner
Measure performance and communicate results
Motivate and reward provider
Be a good Partner

3PL Vs. Transportation Services

FY 2003 Fortune 500 Global 3PL

Gross Revenues by Industry

Customers of 3PLs
Industry

Global
Costs

Domestic Costs

Automotive
Technology

$98.2
$156.4

$37.4
$77.4

Retailing
Consumer Products
Food and Grocery
Healthcare
Industrial and Elements
Other
Total Costs

$98.6
$13.6
$32.2
$38.4
$179.7
$63
$678.3

$67.2
$13.3
$27.8
$34.0
$84
$25.3
$366.3

Costs stated in Billion's of Dollars

Customers of 3PLs
Percent of Fortune 500 Companies Using 3PLs

Need for Collaborative

Relationships
Supply chain relationships are most
effective when collaboration occurs.

Collaboration is facilitated by the ability of

the supply chain partners to readily access
and exchange information over the Internet.

Seven Laws of Collaborative

Logistics

Current State
-- Service Offerings
Dedicated Contract Transportation / Transportation
Procurement
Inventory Management
Logistics Management and Consulting
Freight Audit and Bill Payment
Customs Services
Shipment Tracking and Tracing
Reverse Logistics and Value-added Services

Buyers of 3PL Services

Customer
General Motors
Wal-Mart Stores
Ford Motor, HP
Procter & Gamble
General Electric
Georgia Pacific, IBM
PepsiCo, Sears
Coca-Cola, Sara Lee,
Target, Xerox

# of 3PLs Used
37
33
27
20
17
16
13
12

General Mills
Delphi, Safeway

11
10

Services Provided By 3PLs

Industry Evolution
Third Generation
( 2000 and beyond)

Online freight marketplaces

Web-based 3PLs
Increasing supply chain integration

Second Generation
(1980s - 1990s)

Non asset-based companies

Asset-based companies increased
service offerings

Transportation / warehousing
First Generation
(1970s - 1980s)

Freight forwarders / brokers

Shippers agents

Broader more integrated services

Top Providers

Est. Rev. ($M)

2003 Rank

Provider

3PL 2003 Revenue

Excel

$8,300

Kuehne & Nagel

$6,900

Schenker

$6,400

DHL

$5,700

P&O Nedlloyd

$4,800

TGP/TNT

$4,700

Panalpina

$4,600

UPS Supply Chain

$4,100

Nippon Express

$4,000

10

C.H. Robinson

$3,600

11

Menlo Worldwide

$3,100

12

NYK Logistics

$3,000