THIRD PARTY LOGISTICS 3PL

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

•FedEx •UPS •Ryder

Transportation-Based

• DSC Logistics

• IBM

Warehouse/ Distribution-Based

• Kuehne & Nagle

• Hub Group • Fritz

Forwarder-Based

• Cass Information

• GE Information

• FleetBoston

Financial-Based

Types of 3PL

Transportation-Based

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

Warehouse/Distribution-Based

Some of the companies have warehouse and/or distribution expertise

Forwarder-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

Financial-Based

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

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 If services 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

Region

2010 Global

3PL Revenues (US$Billions)

2011 Global 3PL Revenues

(US$Billions)

Percent Change 2010 to

2011

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%

GLOBAL 3PL REVENUES UP FOR 2010-2011

2012 2013

3PL Market with Figures INDUSTRIES USING 3PL SERVICES

12 12 11 10 11 12 11 12 14 15

42 39 38

33

46

55

47

31 35

39

56 54

41 42

66

71

61

45

66

60

39 36 36

31

42

48

42

32

40

30

0

10

20

30

40

50

60

70

80

All Regions12

All Regions13

NorthAmerica 12

NorthAmerica 13

Europe 12 Europe 13 Asia Pacific12

Asia Pacific13

LatinAmerica 12

LatinAmerica 13

Outsourcing Spending Patterns (%)

Total Logistics Expenditures as aPercentage of Sales Revenues

Percent of Total Logistics ExpendituresDirected to Outsourcing

Percent of Transportation Spend Managedby Third Parties

Percent of Warehouse OperationsSpend Managed by Third PartiesPercent of Warehouse OperationsSpend Managed by Third Parties

3PL Market with Figures

3PL Market with Figures

Outsourced Logistics Service All Regions

North America

Europe

Asia-Pacific

Latin America 3PL

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 3PLs

10

14

7

9

9

56

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 Services

6

3

7

6

6

31

3PL Market with Figures

0% 20% 40% 60% 80%100%

Logistic Cost reduction

Inventory Cost Reduction

Fixed Asset Reduction

OFR from

OFR to

OA from

OA to

15%

8%

26% 58%

65%

67%

72%

13%

9%

25% 70%

79%

80%

87%

15%

25%

11% 73%

81%

83%

89%

201020122013

SATISFACTION & SUCCESS MEASURE

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.

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:

Monitoring & Measuring 3PL

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, 1

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