1

CHAPTER 2
Third Party Logistics Providers
DR ROSMAIZURA MOHD ZAIN

CONTENTS
• Definition of 3PL
• 3PL Industry Characteristics
• Types of 3PLs
• In-house vs Third Party Logistics
• Why 3PLs
• Why outsource logistics?
2
• Fears and “Reasons” for not
outsourcing for some companies
• 3PL Services and Integration
• Top 10 Services Outsourced to
3PL
• Advantages of using Third Party
Logistics
• Factors to consider in outsourcing
to Third Party Logistics
3
 4

Layers to Logistics Services

Actors Services
Cargo owners Manufacturing, Retailing

Carriers Transportation

Service integration
Logistics service
Logistics
providers

Lead logistics providers Supply chain

& consultants management

Supply chain integration

 5

a firm or an individual that

needs to have cargo, freight,
goods, produce or merchandise
transported from a point A to a
point B. 
 6

An asset-based carrier, which actually owns

the means of transportation. Typical 2PLs
would be shipping lines which own, lease
or charter their ships; airlines which own,
lease or charter their planes and truck
companies which own or
lease their trucks.
 7

An external supplier that performs all or

a part of a company’s logistics functions.
Services may include: inventory
management, warehousing, financial
services, transport, distribution
 8

An independent, singularly accountable,

non-asset based integrator who will
assemble the resources, capabilities and
technology of its own organization and
other organizations, including 3PLs, to
design, build and run comprehensive
supply chain solutions for clients.
 9

4PL Companies
• UPS Supply Chain Solutions is one of the leading 4PL
companies offering a full service portfolio or services
including global supply chain design and planning,
logistics and distribution, customs brokerage and
international trade services.

• Deloitte’s Logistics and Distribution practice offers

knowledge, skills, and experience to help companies plan
and efficiently operate their networks globally.
• Deloitte specializes in partnering with companies to develop
strategy, identify opportunities, and create innovative
alternatives that provide supply chain improvement for
shareholders and customers.
 10

Difference between 3PL and 4PL

FPL differs from TPL in several respects

• FPL organization is often a joint venture between a

primary client and one or more partners;
• FPL organization acts as a single interface between the
client and multiple logistics service providers; and
• - all, or a major part, of the client's supply chain is
outsourced to the FPL organization.
 11

Third and Fourth Party Logistics

Providers

3PL
4PL
Modes

Parts and Raw

Manufacturers

Consumers
Materials
3PL

Retailers
Distribution Centers
3PL
3PL
Management
 4 2 0 1 6 2 0 T H A N N U A L T H IR D -P A R T Y L O G IS T IC S S T U D Y
14
L o o k in g B a c k o n 2 0 Y e a r s o f T h ir d - P a r t y L o g is tic s In s ig h t s
E x e c u t iv e S u m m a r y
1996 1997 1998
S t u d y la u n c h e d w ith a n e ig h t- p a g e r e p o r t, T h e u s e o f th ir d - p a r ty T h e s tu d y d o c u m e n te d h o w
w h ic h h ig h lig h ts t h a t th e m o s t fr e q u e n tly s e r v ic e s c o n tin u e d to in f o rm a tio n te c h n o lo g y had
o u ts o u r c e d s e r v ic e w a s f re ig h t in c r e a s e w ith t h e m o s t b e c o m e in c r e a s in g ly v ie w e d a s a k e y
tra n s p o r ta t io n a n d th a t U .S . lo g is tic s f r e q u e n t ly o u t s o u r c e d a c t i v it y to th e s u c c e s s o f th ir d - p a rty
ct ho es t ps r ew ve i or eu sr e p o r t e d l y $ 7 7 3 b illio n in b e in g o p e r a tio n s w it h in c r e a s e d r o le s fo r
y e a r.
f re ig h t b ill a u d it in g in f o r m a tio n t e c h n o lo g y e x e c u tiv e s in
a n d p a y m e n t. t h e im p le m e n t a t io n s t a g e o f t h e t h ir d -
p a r t y r e la t io n s h ip .

2007 2006 2005

T o p fiv e c o u n tr ie s w h e r e 3 P L s
w e r e e x p a n d in g
R e s e a r c h e r s e x p a n d e d th e ir s c o p e a n d
C h ic a g o ,
a d d e d w o r k s h o p s in
10 T h e s u r v e y c e le b r a te d
its

a c t iv itie s in c lu d e d Illin o is ; P a ris , F ra n c e ; a n d Years 1 0 -y e a r

an S h a n g h a i, C h in a . F o r t h e f i r s t t i m e , a n n iv e rs a r y
d a n d t h e s t u d y c o n t in u e d
th e s tu d y lo o k e d a t t h e u s e o f 3 P L e x p a n d its g lo b a l r e a c h , a d d in g
to
re s p o n d e n ts
s e r v ic e s in e m e r g in g m a r k e t s , p a r tic u la r ly
C h in a .
fro m S o u th A f ric a .

2008 2009
H a v in g a g r e e n s u p p ly c h a in ta k e s o n m o r e T h e r e p o r t b e g a n s u r v e y in g 3 P L s in a d d itio n t o s h ip p e r s . T h e
e c o n o m i c d o w n t u r n c h a l le n g e d s h ip p e r s t o c o n t e n d w it h
im p o r ta n c e w ith 98% o f re s p o n d e n ts
s a y in g t h a t u n p re d ic t a b le d e m a n d , e x c e s s in v e n to r y , a n d
g re e n s u p p ly c h a in in it ia t iv e s v o la t ili t y in f u e l c o s t s

a re s o m e w h a t o r v e ry a n d c u r r e n c y v a lu a t io n .

im p o r ta n t to th e ir S h ip p e r s r e p o r t u s in g th e d o w n tu r n to a s s e s s th e ir s u p p ly

c o m p a n ie s ’ fu tu r e s . c h a in s ’ s tr e n g th s a n d w e a k n e s s e s a n d m a k e c h a n g e s
d e s ig n e d t o i n c r e a s e a g ilit y , b e m o r e r e s p o n s i v e a n d
re d u c e c o s ts .

20
Years 2015 2014
S h i p p e r s a n d 3 P L s id e n t i f ie d t h e in c r e a s e d v o lu m e o f c r o s s -
O m n i-c h a n n e l c o n t i n u e d to g r o w in im p o r t a n c e , b u t
b o r d e r t r a d e w ith in te r n a tio n a l c o m p a n ie s th a t a r e
33%
i n c r e a s in g ly i n v e s t i n g in A f r i c a . O p p o r t u n i t ie s in o m n i-
o f r e s p o n d e n t s s a id th e y h a v e n o c a p a b ilit y to h a n d le o m n i- c h a n n e l
r e t a i lin g . c h a n n e l in c r e a s e d , w it h c u s t o m e r s d e m a n d in g a
S u p p ly c h a in t a le n t r e m a in e d a c o n c e r n , w ith s e a m le s s e x p e rie n c e a c r o s s r e ta il s a le s
44% c h a n n e ls . 9 7 % o f s h ip p e r s a n d 9 3 % o f 3 P L s a g r e e d th a t
o f r e s p o n d e n ts s a y in g th e y e x p e r ie n c e d d iffic u lty in fin d in g o r im p r o v e d , d a t a - d r iv e n d e c is io n m a k in g is e s s e n t ia l t o t h e
a tt r a c t in g ta le n t.
f u t u r e s u c c e s s o f t h e ir s u p p ly c h a in
A n u m b e r o f c o m p a n ie s tu r n e d to
a c t iv it ie s a n d p r o c e s s e s .
M e x ic o a s a n e a r-s h o re
m a n u f a c t u r in g d e s t in a t io n .
In n o v a tiv e m o b ile a n d c lo u d t e c h n o lo g ie s h e lp e d to a lig n 3 P L - c u s t o m e r
r e la tio n s h ip s .
 5
15

1999 2000 2001

T h e m a rk e t fo r 3 P L s e rv ic e s g re w S h ip p e rs b e g a n t o m e a n i n g f u l l y S t u d y b e g a n a s k in g s h ip p e r s w h i c h 3 P L

by 1 8 % -2 2 % a n n u a lly w ith t h e i n v o lv e 3 P L s a s k e y e le m e n t s in m u lt ip le
c h a r a c te r is t ic s s t a n d o u t

p e r c e n t a g e o f c o m p a n ie s u s i n g t h e ir a b ility t o m e e t t h e n e e d s o f a c t iv it ie s , in t e g r a t io n o f
w a re h o u s in g s e rv ic e s g r o w in g th e ir o w n c u s to m e r s a c t iv it ie s a n d p ro v id e s
to 63% fro m w it h b u s in e s s e s b e c o m in g g lo b a l. s o lu tio n s to lo g is tic s /s u p p ly
5 6 % in th e p re v io u s y e a r. c h a in p ro b le m s t o p t h e l i s t .

2004 2003 2002

S tu d y a d d e d re s p o n d e n ts fr o m S tu d y a d d e d re s p o n d e n ts fro m S t u d y e x p a n d e d to in c lu d e r e s p o n d e n ts fr o m
L a t in
A s ia - P a c if ic . S e c u r ity W e s t e r n E u r o p e in a d d itio n to N o r th
A m e r ic a . U .S .
b e g a n to ta k e o n g re a te r A m e r ic a w it h 3 P L u s e r s r e p o r t in g
lo g is t ic s c o s t s
im p o r ta n c e w ith n e a r ly h a lf r e d u c t io n s in t h e ir c a s h -to -c a s h
w e r e r e p o r te d ly
o f r e s p o n d e n ts c itin g c y c l e s , s u g g e s t in g 3 P L in v o lv e m e n t m a y
U .S . $ 1 ,0 1 5 b illio n . s e c u rity le a d to r e d u c tio n s in th is s u p p ly c h a in
a s “ v e r y im p o r ta n t. ” m e tr ic .

2010 2011
3 P L g lo b a l r e v e n u e s r e a c h e d $542 3 P L g lo b a l r e v e n u e s r e a c h e d $616
b illio n . b illio n
( A s r e p o r t e d in t h e 2 0 1 3 s tu d y ) . ( a s r e p o r t e d in t h e 2 0 1 3 s t u d y ) .
N e a r ly h a lf o f s h ip p e r r e s p o n d e n t s E c o n o m ic lo s s e s fr o m s u p p ly c h a in
re p o rt d is r u p tio n s in c r e a s e d 4 6 5 % b e tw e e n
c o n s o lid a t i n g t h e n u m b e r o f 200 9 an d 2 011.
3 P L s th e y u s e .

2013 2012
A n a ly s t s d e c la r e d 2 0 1 3 to b e th e s t a r t o f E le c tr o n ic s p r o d u c ts in c r e a s e d in p o p u la r it y ,

th e B ig D a ta e r a in s u p p ly in c r e a s in g d e m a n d s fo r a fa s t a n d n im b le

c h a in . s u p p ly c h a i n . 8 0 % o f s h ip p e r s a n d 7 7 % o f

N e a r - s h o r in g — s h ip p e r s ’ m o v e s to w a r d 3 P L s r e p o r te d d o in g b u s in e s s w it h o r w it h in
r e b a la n c in g
an e m e rg in g c o u n try .
s u p p ly c h a in s — s u g g e s t t h a t g lo b a l
e c o n o m ic c o n d i t io n s c h a n g e p r e f e r r e d
s o u r c in g lo c a t io n s . T h e s tu d y fo u n d
3 P L s o ffe r m o r e s e r v ic e s th a n
m o s t s h ip p e r s u s e .

2 0 1 6 T h ird -P a rty L o g is tic s S tu d y

 8 2 0 1 6 2 0 T H A N N U A L T H IR D -PA R T Y LO G IS T IC S S T U D Y
16
2 0 1 6 T h ird -P a rty L o g is tic s S tu d y
A b o u t t h e S t u d y R e s p o n d e n ts …

R e s p o n d e n ts

48% 12% 40%

U ser N o n -U s e r 3 P L /4 P L

In d u s t r y R e p r e s e n t a t i o n

18% 18% 14% 11 % 8%

M a n u f a c t u r in g R e ta il & H e a lt h C a r e & Food & T e le c o m m u n ic a t io n
C onsum er P h a r m a c e u tic a l B e v e ra g e s , In te rn e t &
P ro d u c ts s E le c t r o n ic s

8% 5% 5% 2% 10%
U t ilit ie s , A u t o m o t iv e C o n s t r u c t io n B u s in e s s O th e r
E n e rg y & M a c h in e r y S u p p o rt &
& E x tr a c tio n L o g is t ic s

L o g is t i c s S e r v ic e s P r o v i d e d b y U s e r s
D o m e s tic tr a n s p o r t a tio n

W a re h o u s in
In v e n to ry g
LLP / 4PL m anagem en 80
In te r n a tio n a l
s e r v ic e s t tr a n s p o r ta tio n %
O rd e r
m anagem ent and C u s to m s 66
f u lf illm e n t b ro k e ra g e 60 %
C u s to m e %
r s e r v ic e S e r v ic e
p a rts C ro s s -
48
lo g is t ic s d o c k in g 45 %
%
In fo r m a tio n
te c h n o lo g y 33 34 F r e ig h t
31 %
( IT ) s e r v ic e s 28 % fo r w a r d in g
25 %
22 %
19 % R e v e r s e lo g is t ic s
%
% ( d e fe c tiv e , r e p a ir,
11% 11 % 12% re tu rn )
6% 7% F r e ig h t b il l
12% P ro d u c t a u d it in g a n d
la b e lin g , paym ent
S u p p ly F le e t ap sa sc ek am gb i nl g ,
y , k ittin g T r a n s p o r t a t io n
c h a in m anagem en p la n n in g a n d
c o n s u lta n c y t m anagem ent
 17

Introduction
• LSPs are in a good position to play a strategic role in supply
chain-wide sustainability initiatives, because they connect and
interact with other companies in the network.

• LSPs differ in size, asset base, the range of services offered,

geographical scale of operations, and the type of goods
handled (Delfmann et al., 2002; Wong and Karia, 2010).

• According to Busse and Wallenburg (2011) customers

increasingly expect new and innovative solutions from their
LSPs, thus they tend to be the driving force behind innovations
in the 3PL sector.
Maja Izabela Piecyk Maria Björklund (2015)
18
19
 20

Introduction
• Nowadays companies outsource several of their logistics
activities to so-called third-party logistics (3PL)
companies.

• Corporations have been forced to realign their global

strategies and in order to cut costs, they started to
transfer activities which were previously performed in-
house to the market (e.g. IT, manufacturing or logistics)
focusing instead on their core competencies.

• Logistics outsourcing and third-party logistics originated in

the 1980s as important means for improving supply chain
effectiveness (Maloni and Carter, 2006).
 21

Introduction
• The functions performed by the third party can
encompass the entire logistics process or selected
activities within this process” (Lieb, 1992:29).

• Estimations indicate that the proportion of companies in

the United States that have implemented third-party
logistics has increased by 5-8 per cent annually
(Ashenbaum et al, 2005).
22
 23

The roles of a logistics service provider - An illustrative

empirical example

• Customer B is a manufacturer with production located in

Sweden. From previously relying on local suppliers B started
to source components from China.
• In this case, LSP was involved in the design of the
outsourcing arrangement and made responsible for the total
logistics solution.
• Company B’s production design requires delivery from
suppliers 2-4 days after call-offs. Therefore vendors with
manufacturing in China must supply components from a
location nearby B.
• This was arranged by establishing a warehouse, run by
LSP, close to the production site.
 24

• Manufacturer B specifies the requirements to suppliers

concerning for example delivery times. B and LSP then
jointly work out different solutions that are offered to the
suppliers so they can fulfil the delivery requirements.

• Even though these offerings to the suppliers are

developed jointly by LSP and B, it is LSP that is offering
the solutions. It is also LSP who communicates with the
suppliers during the delivery process, for example, by
handling the call-offs to suppliers.

• LSP also takes care of the daily delivery of components to

the production site and secures that components are
properly unwrapped, and sorted in accordance with B’s
internal production logic.
 25

• Furthermore, LSP processes the invoices on behalf of

suppliers but the payment is handled directly between the
suppliers and B.

• In this case LSP is part of an activity configuration that

has been jointly developed with the outsourcing firm. LSP
is involved in coordination of deliveries by adapting these
to B’s production logic.

• LSP intermediates between the suppliers and the

manufacturer and links the activity configurations of the
suppliers with those of B. The component storage
functions as the ‘linking point’ between the configurations.
 26

• The examples illustrates the diversity in

involvement from LSP’s perspective and hint to
the fact that LSP must be able to offer
customers everything from the undertaking of
single activities to the design and realization
of total solutions.
 27

Challenges ?
LSPs embracing on the sustainability agenda face a
number of challenges, such as :

complexity of network-wide actions,

a need to tailor solutions to individual customers,
and to cooperate with other players in supply chains.
Profit margins in the third party logistics market are low,
thus only limited resources may be available.

Maja Izabela Piecyk Maria Björklund (2015)

 28

In the early 1990s firms formerly specializing in express

parcel deliveries entered the arena (e.g. DHL, UPS, TNT
and FedEx).
These were later accompanied by firms originally focusing
on financial services, IT-services, and management
consulting, which brought their competencies in
information system and supply chain planning.
 29

Logistics Profile:
UPS Logistics Group
• UPS Logistics Group signed a five-year $150
million deal to manage National
Semiconductor’s global supply chain
distribution center in Singapore.
• The DC uses radio frequency, bar-code
scanning, and web-based technology.
• Fills >450K orders per year; receives 12 million
inbound chips daily; and ships four billion
products per year on sales of $2.1 billion.
30
 31

Third-Party Logistics:
Industry Overview

•Many companies have been in the process

of extending their logistics organizations into
those of other supply chain participants and
facilitators.
•One way of accomplishing this extension is
through the use of a supplier of third-party or
contract logistics services.
 32

Implementation and Continuous

Improvement
 33

Definition of 3PL

• 3PLs are external suppliers that perform

all or part of a company’s logistics
functions, including:
– Transportation
– Warehousing
– Distribution
– Financial services
• Terms contract logistics and outsourcing
are sometimes used in place of 3PL.
 34

An alternative definition of TPL has been launched:

A relationship between a shipper and third party which,

compared with basic services, has more customized
offerings, encompasses a broader number of service
functions and is characterized by a longer-term, more
mutually beneficial relationship” (Murphy and Poist,
2000:121).

The use of external companies to perform logistics functions

that have traditionally been performed within an organization.
 35

Types of 3PL Providers

• Transportation-Based
• Warehouse/Distribution-Based
• Forwarder-Based
• Financial-Based
• Information-Based
 36

Foundation services (Types of 3PL Providers)

1. Transportation based

 Originally transportation carriers.

 Developed 3PL subsidiaries in response to
expanding customer requirements.
 Services now include transport management,
dedicated contract carriage, and fulfillment center
operation.
 Services extend beyond transportation to offer a
comprehensive set of logistics offerings.
 37

Foundation services (Types of 3PL Providers)

 Leveraged 3PLs use assets of other firms.
 Nonleveraged 3PLs use assets belonging solely
to the parent firm.
 Ryder, Schneider Logistics, FedEx Logistics, and
UPS Logistics are examples of 3PLs.
 38

Foundation services

2 . Warehouse/Distribution based
 Originally public or contract warehousing
services
 Expanded services into inventory
management and order fulfillment.
 Some have integrated transport services
into offerings
 Wide range of market reach, from local to
global
 DSC Logistics, USCO, Exel, Caterpillar,
Logistics, and IBM are examples of
warehouse/distribution-based 3PLs.
 39

On the Line:
Trade Team
• Excel, the largest provider of brewery
distribution services in Great Britain, and Bass,
the industry’s low-cost producer, formed Trade
Team, the UK’s leading independent logistics
provider to the beverage industry.
• Annual sales of $200 million; 280 million gallons
of beer and other beverages to over 27,000
retail customers; 40-50% market share.
• Has capability to move other products.
 40

Foundation services

3. Forwarder based
 Originated from intermediaries such as freight forwarders,
brokers and agents
 Arrange transport-related services for less-than-volume
shipments and for international shipments
 Essentially very independent middlemen extending
forwarder roles.
 Non-asset owners that capably provide a wide range of
logistics services.
 AEI, Kuehne & Nagle, Fritz, Circle, C. H. Robinson, and the
Hub Group are examples of forwarder-based 3PLs.
 41

Foundation services

4. Financial based
• Helps customers with monetary issues and
financial flows in the supply chain
 Traditional services include freight rating,
freight payment, freight bill auditing,
accounting services
 Expanded services include IT systems
for freight visibility, electronic payment,
carrier compliance reporting, claims
management
 42

Foundation services

• Financial-Based
– Provide freight payment and auditing, cost
accounting and control, and tools for
monitoring, booking, tracking, tracing, and
managing inventory.
– Cass Information Systems, CTC, GE
Information Services, and FleetBoston are
examples of financial-based 3PLs.
 43

Foundation services

5. Information based
 Services include online freight brokering and
cargo planning, routing, and scheduling
 Also offer online access to transport and
warehouse management systems
 Significant growth and development in this
alternative category of Internet-based,
business-to-business, electronic markets for
transportation and logistics services.
 Transplace and Nistevo are examples of
information-based 3PLs.
 44

3PL example
The partnership between Ryder Dedicated Logistics and GM
Saturn division is a good example of 3PL. Saturn focuses on
automobile manufacturing and Ryder manages most of Saturn other
logistics considerations. Ryder deals 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 same information to Ryder. Ryder
makes all the necessary pickups from 300 different suppliers in the
U.S., Canada and Mexico using special decision-support software to
effectively plan routes to minimize transportation costs.
 45

Third-Party Logistics Research Study:

Industry Details
• Of 93 responding executives, 71 percent
indicate a current or possible use of 3PLs.
• Overall percentage of companies using
3PLs is steady, but the computer and
peripheral and consumer products industries
tend to exhibit higher use (90 and 85
percent, respectively).
• Less use in automotive, chemical and retail
(50 to 60 percent usage range).
 46

Third-Party Logistics Research Study:

Industry Details
• Outsourced logistics services include:
– Warehousing (73.7%)
– Outbound transportation (68.4%)
– Freight bill auditing/payment (61.4%)
– Inbound transportation (56.1%)
– Freight consolidation/distribution (40.4%)
– Cross docking (38.6%)
 47

3PL Industry Characteristics

 48

Types of 3PLs

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 client’s 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
 51

WHY 3PL
The effectiveness and the efficiency of the logistics process,
together with a coordinated and integrated supply chain
management, plays a key strategic role in a time-shrunk ,
world wide market place .

In this competitive scenario, where financial resources are

limited, many manufacturers have also understood that
their core competences are not in the logistics-field, and
have therefore progressively sought to buy logistics
services and functions from third party service
providers .
 52

In-house vs Third Party Logistics

Outsourced
Operation
Transportation
Shipper

Shipper Warehousing
3PL
Shipper IT Support
In-house
Operation SC integration

Shipper
In-house Logistics Others
Department
Others
IT support

Transportation Warehousing
 53

Why 3PLs

There is now a global trend toward outsourcing as it appears as a solution to certain problems of
modern enterprises, because there are a lot of functions necessary but non-value added relevant
from the point of view of the customer. By transferring certain activities to real specialists provides that such
providers will help improve the overall result of the company that hires them.

Some advantages

Resource Network Scalability and flexibility

Expertise Continuous optimization

Save time and money

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Why outsource logistics?

Save Time and Money
Using a3PL provider eliminates the need to invest in warehouse
space, technology, transportation, and staff to execute the logistics
process. 3PL providers can save from costly mistakes, and allow your
business to build a global logistical network with lower risk and higher
return.
3PLs save you the time needed to carry out the supply chain. There is no
need to worry about the paperwork, billing, audits, training, staffing, and
optimization involved to get your goods where they need to go

Resource Network
Third party logistics providers have a vast resource network available that
provides advantages over in-house supply chains. Using a 3pl’s resource
network, each step in the supply chain can be executed in the most
efficient, cost effective way.
3PLs can leverage relationships and volume discounts, which results in
lower overhead and the fastest possible service. Choosing a 3PL
provider allows your company to benefit from resources which are
unavailable in-house.
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Why outsource logistics?

Expertise
Outsourcing logistics allows your company to focus on your core
competencies, and leaves the rest to the experts.

Scalability and Flexibility

Businesses with seasonal periods can enjoy stress free transitions
between industry ups and downs, having the ability to utilize more space
and resources when needed.
Using a 3PL provider allows your business to grow into new regions
without barriers. 3PL providers have distribution centers and warehouses
strategically located to allow for quick shipping of goods to anywhere in
the world

Continuous Optimization
3PL providers have the resources at hand to make adjustments and
improvements to each link in the supply chain. 3PL professionals will
ensure your needs are met, by using the fastest, most efficient, and cost
effective methods.
Factors to consider in outsourcing to Third Party
Logistics

56
 Advantages of using Third Party Logistics
Outsourcing enables
companies to focus on
the core businesses
Outsourcing logistics to third party and strengths
logistics enables
companies to implement best
practices

Organizations can outsource

and save a large amount
Deploying third party logistics providers can required for building logistics
insure against such technological changes assets, networks and
facilities such as
warehouses
57
 58

Shipper Benefits Attributed to 3PLs

Measureable Benefits 2011 Survey

Logistics Cost Reduction 13%

Inventory Turn Improvement 9%

Logistics Fixed-Asset Reduction 25%

Order Fill Improvement Rate 79%

Order Accuracy Improvement 87%

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Fears and “Reasons” for not

outsourcing
for some companies
 60

Reasons
1. Personal reason:
if you do not believe in outsourcing or outsourcing is likely to affect your life in some tangible
negative manner, probably you want to stay away from it.

2. No executive support / relationship, no organizational / team support:

if you running and uphill battle in your organization, or your team doesn’t support you, maybe
you need to pick your battles.

3. Low risk tolerance:

if the organization do not tolerate risk well and have high penalties for mistakes trying
outsourcing could be a risk proposition.

4. You need to cut cost, now:

if you need to invest before your realize savings, or other reasons behind you might look for
some other cost saving techniques.

5. No runaway to land:
no matter how skilful you are, how well financed is the project, how perfectly is executed there
is a chance that your outsourcing engagement fails.
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Selecting my 3PL
 62
Contractor Selection Process
1. Review Scope for Outsourcing
2. Identify Type of service required
3. Identify potential service providers
4. Produce RFI and shortlist (Request for
Information)
5. Prepare and issue RFP (Request for
Proposal)
6. Tender evaluation and comparison
7. Contractor selection and risk assessment
8. Contract determination
9. Mobilize and implement
10. Manage ongoing relationship
Service provider selection must follow a clearly defined process with a well planned
approach, clear objectives and adequate level of skills and resources
Source: International Logistics Supply Chain Outsourcing
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3PL Services and Integration

1. Intermediary services
• Surface freight forwarder
 Picks up, assembles and consolidates shipments
 Arranges for carriers to transport and deliver to
final destination
 Serve as shippers and carriers. As carriers, they
are liable for loss and damage

• Air freight forwarder (similar to surface forwarder)

 Specializes in high value, time sensitive goods
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3PL Services and Integration

• Freight brokerage
 Middlemen between shipper and carrier
 Tries to match carrier’s capacity with shipper’s
demand
• Intermodal marketing companies
 Consolidators or agents, facilitate intermodal rail
service
 Assume no liability, legal shipping arrangement is
between shipper and carrier
• Shippers associations
 Non-profit coops, aggregate member cargo for
shipment as consolidated load
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3PL Services and Integration

2. Specialty services
• Dedicated contract carriage
 3PL serves as customer’s private fleet
 Customer gains advantage of private fleet without
capitalization, operating and management
responsibilities
• Drayage
 Short haul trucking, pick up and delivery of
containers
 Typically contracted for by rail or ocean carriers
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3PL Services and Integration

• Pool distribution
 Description
 Large quantity of freight moved as one shipment
in bulk to central distribution point
 Freight unloaded, sorted by customer, delivered
to local destination
 Competes directly with LTL service offered by LTL
motor carriers
 Potential advantages
 Faster transit time, less handling, lower rates,
lower inventory costs
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3PL Services and Integration

• Merge in transit
 Unites shipments from multiple suppliers at a merge
point near end customer
 Customer orders of assorted goods assembled at
merge facility for delivery to end customer
 Advantages: lowers total inventory cost, customer
avoids capital cost of warehousing facility
• Household goods movement (HHG or van lines)
 Operations include local agency with warehouse,
pick-up and delivery equipment, centralized
dispatch, and specialized vehicles for long distance
transport
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3PL Services and Integration

3. Emerging 3PL capabilities

• Customers desire “one-stop shopping” thus, leading
3PLs developing as integrated service providers
• Customers desire global reach, thus, leading 3PLs
expanding service territories
• Both capabilities require:
 Supply chain network design capabilities
 Process implementation and coordination
 Day-to-day execution
 Strong IT tools and multi-modal capabilities
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3PL Services and Integration

4. Approaches to global integration include:

• Leveraging strengths of express delivery services
 Visibility, door-to-door, high reliability
• Acquisitions and partnerships among 3PLs
• Offering portfolio of transportation, e-commerce supply
chain and business services
 Includes inventory, fulfillment, cold chain solutions,
cross docking, brokerage, freight forwarding
• Strategic investments in transport/distribution facilities
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Top 10 Services Outsourced to 3PL

1. Freight payment & auditing

2. Warehouse operations
3. Carrier selection & rate negotiation
4. Logistics information systems
5. Shipment planning
6. Fleet management
7. Packaging
8. Customer relations
9. Customer order processing & fulfillment
10. Total supply chain (logistics) management