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Introduction & Historical background.......................................................................................2 Industry Overview:.....................................................................................................................4 Four Major 3PL Segments:....................................................................................................4 Types of 3PL Providers..............................................................................................................5 Transportation Based..............................................................................................................5 Warehouse/DistributionBased:...............................................................................................5 Forwarder Based:...................................................................................................................5 Financial Based:.....................................................................................................................5 Informational Based:..................................................................................................................6 Why Organizations need to use 3PL services??.........................................................................6 Save time and cost..................................................................................................................6 Expansion...............................................................................................................................6 Narrow Focus on Core activities............................................................................................6 Effectively reach their customers:..........................................................................................6 Increased sales and market share...........................................................................................6 Flexibility in operations.........................................................................................................7 Some Leading Global 3PL service providers.............................................................................7 3PL Services...............................................................................................................................8 Pros and Cons of 3PL...............................................................................................................10 Recent Developments...............................................................................................................11 Conclusion and Recommendations..........................................................................................12 References:...............................................................................................................................15
information, transportation, inventory, warehousing, material handling and packaging which further led to the need of highly efficient systems to attain these goals. The branch of business logistics evolved in the 1950s. The reason for the evolution being the need for supplying ones own business with the materials and shipping out the products in a globalised supply chain. During 80s, there was increased globalization and an increased use of IT. These trends resulted in increased demands on firms and possibilities for companies to operate more competitive and lean. It was during this time that many successful 3PL companies of today emerged. Some of them are: DHL/Exel, FedEX, Kuehne-Nagel, Schenker, UPS, Panalpina, C.H. Robinson, TNT Logistics, Schneider, Maersk Logistics and NYK Logistics. Third party logistics (3PL) or contract logistics is thus the supply chain practice of outsourcing the various logistics functions of inbound freight, customs consolidation, ware housing, distribution, and outbound freight to the client's customers. The 3PL provider executes these logistics functions on behalf of the client company by using own assets resources. This provides the service user company to concentrate more on its core competences while at the same time operating in a leaner fashion without owning many assets, thereby reducing the overall operational costs. The resources and funds that would otherwise have been utilized for the performance of the logistics functions can be now redirected towards improving operational efficiency in other disciplines. India is not aloof as well, when we talk about the utilization of 3rd Party logistics by companies in India, it has been 55% when compared to the global index of 71%. This further testifies the increasing role and understanding of optimal business practices by the Indian firms. With the relaxation in government policies and banking on the highly skilled and educated labor force, the industries in India (specifically; Manufacturing and Services) are in the phase of expansion and with globalization in its full fray, the companies here too are looking to supply its products throughout the globe to increase its market presence and this active participation in the world trade makes Indias position as inevitable in the 3PL usage. Moreover, the rapidly growing Indian Consumer Market and the increase in consumption expenditure has made the Indian customer sensitive towards the quality and speed of the service being provided, due to which the organizations are forced to go for 3rd 3
Party Logistics so that they can concentrate on their competencies i.e. production by outsourcing the critical processes of the Supply Chain to the experts thereby lowering their costs. DHL was the first company to begin 3rdParty Airlift Cargo operations in India in the late 70s.
Asset-based Value-Added Warehousing/Distribution (VAWD):3PLs normally providing long term contract warehousing or distribution centre operations with a host of value-adds.
Warehouse/DistributionBased:
Traditionally, most Warehouse/Distribution based logistics suppliers have been in the public or contract warehousing business and have expanded into a broader range of logistics services. Based on their traditional orientation, these firms are in Inventory Management, Warehousing, Distribution, etc. Examples of such firms are DSC Logistics, USCO, and Excel, Caterpillar Logistics Services, IBM.
Forwarder Based: This category includes companies like Kuehne & Nagel, Fritz, C.H
Robinson and Hub Group. They have expanded their middleman roles as forwarders and/or brokers into the broader range of 3PL services. Essentially, these firms are non-asset owners, are very independent and deal with a wide variety of suppliers in logistics services.
Financial Based: This category of firms provide freight payment and auditing, cost
accounting and control, and tools for monitoring, booking, tracking, tracing, and managing 5
Informational Based: There has been a significant growth and development in this
category of Internet-based, business-to-business, electronic markets for transportation and logistics services. Examples: Transplace, Nistevo are popular companies in this type of 3PL services.
Flexibility in operations: Access to 3PL services brings in a lot of flexibility in the overall operations of the organizations. They take up an important part of their activities which helps in improving their other important operations of the organization.
Federal Express: FedEx provides transportation, e-commerce and business services. The company offers integrated business applications through its operating companies. The company's subsidiary, FedEx Express, is the world's largest express transportation company.FedEx has a host of services to cater to all segments starting from the personal consumer to the complicated supply chain solutions for todays global business environment.
The list of global 3PL service providers can be very lengthy and way beyond the scope of this report. Therefore we shall list a few more of these firms by name, United Parcel Services ( UPS ) NYK Logistics Mearsk Logistics Nerbert Dentressangle ( Previously Christian Salvesen) ABX Logistics Worldwide SA 7
Schneider Logistics
3PL Services
With the increasing number of 3PL service providers, the service users have to distinguish the best provider suitable for their purpose. Various mathematical models considering a variety of factors have been proposed by researchers world over in this regard. Since requirements are unique, solutions also need to be unique and there is no readymade solution to all logistical problems. With the market growing competitive the 3PL service providers also try to differentiate their service offerings by unique services and benefits for the customer in order to gain an upper market share. Well now have a look at few of the services provided and technology used by 3PL providers.
Inbound and Outbound Logistics: Movement of raw materials into the organization and finished goods to the destination. The basic service provided by all 3PL providers.
Inventory and Warehouse management services: The 3PL service might provide to manage the entire inventory of the customer according to stated specifications and contract conditions. This option may be accepted by the customer weighing all the pros and cons of complete outsourcing of inventory and warehouse management activities.
Shipment Tracking and tracing: Most of the global 3PL services provide with this facility where one can track his consignment using the bill of lading details to know the status of the shipment and trace the real time position as well. Services like DHL and UPS provide facility for customers to track. This is offered by extensive back office processing work done by the service and hence comes at cost. So its up to the customer as to whether he needs this kind of a facility for his purpose.
Freight Consolidation, Forwarding and Customs Clearance : Transportation across the globe often calls for more than one mode of transport, air, sea and road. The 3PL provider will provide consolidated solution by picking up the consignment from the consumers place delivering till the final destination, not requiring the customer to take the pains of co ordinating with the various transport service providers otherwise. Furthermore, the consignments will be cleared off from customs formalities at various intermediate points 8
using local agents. This is very essential service which otherwise would make it impossible for the cargo to be transported across the globe. Reverse Logistics: This refers to the process of moving the goods from the final user in the reverse direction, either as part of a rejection, or for recycling for capturing the value or for proper disposal.
Cross Docking: This refers to the direct transfer of goods from one mode of transport to another with minimal or no warehousing. An efficient container handling system, wherein the containers from the ships are straightaway unloaded to the queuing trailers can be an example of cross docking. This reduces the inventory costs as well as provides a higher shelf presence to the products benefitting both the retailer as well as the manufacturer. Wal-Mart runs 85% of its goods through cross docking amounting to 2-3% reduction in the cost of sales of their products.
Bar coding :These are data representation in optical machine readable format which can store the details of a particular material and can be read using optical scanners. The system has been extensively used in the logistics industry for identification of materials
RFID Tags : These are programmable re recordable labels, capable of storing data that can be read without contact. RFID tags can be active, which emits radio waves or passive which just stores the information and can be read in using a radio frequency reader. The tag can be read from several meters and even out of line of sight. This has been extensively used in inventory management and material tracking.
Electronic Data Interchange (EDI) : EDI is the transfer of structured data, by agreed message standards, from one computer system to another without human intervention. This facility offered by the service reduces the paperwork and human labour required in large documentations including bills of lading etc.
From the host of offerings provided, the customer might not need all of them at every time. Since the value added services come at an added cost, the customer has to choose the best option available for him. The differentiation at the service providers has to go to the level of service being customizable to meet the requirements of the customer at all times and 9
providing the best value as perceived by the customer. At all times it might not be the cheapest option that is the viable solution. For instance, DHL has a special service wherein one can send medicines along with proper prescriptions to foreign countries, from India. The cost may be as high as Rs. 3500/- for a pack of 500 gms., but then there are not many options available for this purpose. In the industrial sector, once the decision to outsource is made, the company has decided to do away with the function as a whole. Now comes the question of choosing the best 3PL service from the various ones available. With large amounts of money involved in the logistics functions, company executives often labour hard to come out with the best solution for the problem. Extensive research is done on this issue and various mathematical models have also been proposed by many studies incorporating many factors to be considered in the selection process. Ganesh Vaidyanathan while discussing a Framework for Evaluating 3PL, argued that companies undergoing strategic alliances with the 3PL providers face reduced conflict, increased efficiency and stability, and establish marketplace legitimacy. In another very important very interesting study on supply chain competition by Peter McCullen et al. of Brighton Business School, the supply chain performance has been compared with the performance of an F1 race car on ciruit. The paper unwinds the degree of competition in the field and attention to detail required synonymous to the tuning of a race car, where fractions of second decides the winner. Summing it up, the key word for the customer is customization whereas that for the service provider will be differentiation.
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Experience: The 3PL provider owning the assets to perform the logistics operations contracted has the expertise to operate them and is more familiar with the work than the customer himself. Technology: Improved technology in the respective segment will be adopted by the provider to provide better service and hence to stay competitive in the market. Scalability: The 3PL service with its vast fleet of transportation and warehousing facilities will be able to provide service scaleability with more ease than an inhouse logistics system. This will be very useful in case of seasonal demand fluctuations. CONS: Lack of Control: The customer company effectively has very less control over the freight, once it leaves their premises except for the tracking service offered by the the service providers. This lack of control raises the question of security as well for goods in transit. 3PL Service Optimisatddion: The asset based 3PL firm which in itself is a separate business will look for the optimum utility of the asseststhey own. The 3PLs often attain this goal of best utility of resources by routing the consignments through existing networks or alternative routes in case of non availability of space in the best route. Delayed deliveries finally might affect the parent company in lost business opportunities.
Recent Developments
3PL has already evolved beyond the conventional boundaries of being an outsourcing contractor providing warehousing and transportation solutions with its storage space and transportation fleets. Information technology has played a major role in the development of this field and the developments happening in this sector has been often compared with the rates at which the IT sector itself grows.
4PL or Fourth Party Logistics provider is further evolution of the outsourced logistics function. A 4PL is an integrator that assembles the resources, capabilities, and technology of its own organization to design, and supply other chain organizations
solutions. Unlike the 3PL provider, the 4PL company does not own any 11
assets or resources for executing the outsourced activities. Further they take the role of a consultant, understanding the logistics functions of the client company utilising their intellectual and computer systems and to select the best 3PL service that can fit into the scenario. 4PL has often been confused with non asset based 3PL, which can be just an agent acting on behalf of the 3PL provider with no consulting capabilities to offer for the customer.Arguments as to whether the approach is a right one is still going on. Accenture was the company that coined out the term as well as the idea of 4PL.
4PL relations are often found successful with businesses which do not have the IT and physical assets infrastructure and does not want to invest in those areas. Organisations having these in place might not benefit much out of the 4PL provider rather would complicate the situation. 4PLs acting as an intermediary between the organization and the 3PL provider ensures co ordination of day to day activity while at the same time providing inputs to the parent organization regarding improvement of their own overall activity inlinewith the consumer needs of the time. Thus in times of highly dynamic supply chain requirements, the adoption of 4PL service can be justified. These services are often contracted on a financial incentive basis, wherein the service provider gets a financial incentive for the implementation of a project which results in the improvement of delivery and financial results. "We pay for returns, not ideas. They benefit from ideas/projects that work," says Victor Guzman about 4PL service providers, director logistics and supply chain planning with aerospace products manufacturer Honeywell International Inc.
Though not as common as the term and idea of 4PL is the idea of fifth party logistics or 5PL. 5PL is attributed to Logistics Service Providers who plan, organize and implement logistics solutions on behalf of a contracting party.
The latest in the development arena of the contract logistics industry is a hybrid formed out of a combination of 3PL and 4PL and aptly christened as 7PL (7PL = 3PL + 4PL). 7PL, is the effective fusion of physical and process expertise of 3PLs, with the enhanced knowledgebased macro-strategic consulting and IT capabilities of 4PLs. 3PL providers often promise to provide the total logistics solutions, but many a time fail in doing that. But they are very 12
competent at the operational level and understanding the needs at bare supply chain level. 4PL on the other hand addresses the strategic management perspective of the organisation, thereby raising the question of actual operation and implementation expertise they have. 7PL combines these two elements to provide a holistic approach to bridge the gap between strategy and implementation.
Proper homework: Initial homework is very essential while implementing the 3PL
services. Organizations need to do a comprehensive study of their operations and clearly document advantages, challenges, costs and benefits involved in the operation. Then they need to identify their expectations out of their 3PL services and then they need to set down their expectations in clear terms and calculate their current costs. This is a very step while implementing the 3PL services.
and weaknesses which ultimately helps in identifying most effective and appropriate 3PL service provider. Organizations can make a site visit to the 3PL providers and talk with its existing customer and get a feedback about their performance and operations to help in their decision-making.
Nurture the Relationship: Both the organization using 3PL services and the service
provider must nurture their relationship to make outsourcing successful. There should be mutual trust, respect and a sense of integrity to make their association successful.
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