Interoperability and ecosystems: Assembling the industrial metaverse
The State of 3PL Industry
1. 3PL (Third Party Logistics) –
State of the Industry – 2008-2011
Aniruddha Ray
Amitesh Tyagi
Pervinder Singh Chawla
Saurabh Chaudhuri
2. Third Party Logistics - Definition
“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.”
-- Council of Supply Chain Management Professionals
“Third-party Logistics is simply the use of an outside company to perform all or part of the
firm’s materials management and product distribution function.”
-- Simchi-Levi (2000)
“A relationship between a shipper and third party which, compared with the basic services,
has more customized offerings, encompasses a broad number of service functions and is
characterized by a long-term, more mutually beneficial relationship”
-- Murphy & Poist (1998)
In the "PL" terminology, it is important to differentiate the 3PL from the:
1PL, which are the actual shipper or the consignee,
2PL, which are actual carriers such as YRC Worldwide, UPS, FedEx,
4PL, which are consulting firms such as CPCS, SCMO, BMT, Deloitte, and Accenture.
3. Categories of 3PL Providers
Hertz and Alfredsson (2003) describe four categories of 3PL providers:
Standard 3PL provider - Perform activities such as, pick and pack, warehousing, and
distribution (business) – the most basic functions of logistics. For a majority of these
firms, the 3PL function is not their main activity.
Service developer - offer their customers advanced value-added services such as:
tracking and tracing, cross-docking, specific packaging, or providing a unique security
system. A solid IT foundation and a focus on economies of scale and scope will enable
this type of 3PL provider to perform these types of tasks.
The Customer Adapter - Comes in at the request of the customer and essentially takes
over complete control of the company's logistics activities. The 3PL provider improves
the logistics dramatically, but do not develop a new service.
The Customer Developer - The highest level of a 3PL provider with respect to its
processes and activities. Integrates itself with the customer and takes over their entire
logistics function. These providers will have few customers, but will perform extensive
and detailed tasks for them.
7. Use of 3PL by industry – 2000 Data
Industry Percentage of 3PL use in different industries
Computer 82.2
Consumer 75.9
Retail 71.1
Chemical 61.4
Medical 56.2
Auto 53.8
Source "What's ahead for 3PLs“ Modern
Materials Handling, April, 2000
8. 3PL Survey 2008 - Analysis Agenda
Current State of the Market:
Summarize the current use of 3PL services
Examine why customers do/don’t outsource — to 3PL providers
Identify customer needs
How well 3PL providers are responding to those needs
How customers select and manage 3PL providers
Special Topics - Look into key issues relating to 3PL use –
Provision of Integrated service offerings
Green supply chain
Supply chain Security
11. Why 3PL - Benefits
Save Time
Don’t need to invest in:
Trucks,
Training,
Development
Help expand to
New markets
International
Narrow your focus
Allows you to focus on your strengths
Don’t get spread too thin
Reach more customers more effectively
Can ensure delivery times
Can help a company run leaner
12. Why not 3PL – Risks and Concerns
High Co-ordination costs
Loss of internal logistics management capabilities
Biased choice of service providers
Leakage of sensitive data and information - Security
Service degradation
Less reliable? Longer order cycle time?
Emergency response?
Loss of control and representation
Collaboration with Competitors – Knowledge Sharing
Reduced contact with final customer
3PL for outbound logistics interact with your customers, you become less
visible to your customers
13. Service Offerings
Basic Service Providers
Warehouse management
Order processing , Order fulfilment
Transportation carrier selection
Value-added Service Providers:
Shipment/Order consolidation
Import/export Customs
Logistics information systems (EDI, reporting)
Fleet management/operations (e.g. cross-docking)
Product assembly/installation
Logistics Integrators:
Full responsibility for key supply chain operations
replenishment/order-filling policies
product returns
customer spare parts inventory replenishment
Rate negotiation
18. Trend 2 - Green Supply Chain
Uncertainty about “Green” –
What is it and How to attain it
Will it result in cost savings or cost escalation
Green Action Plan –
Getting Educated (what, how etc)
Measure the environmental impact of current SCM
Identify Change Levers
Embark on Business Case supported initiatives
23. 3PL Study 2012 – Key Trends Now
3PLs Value Creation Increase but so does InSourcing - 64% report increase
in 3PL Usage, 24% are returning to InSourcing.
Consolidation of 3PL Providers – 58% users are consolidating 3PL partners
(based on value-add)
Logistics Spending is Consistent – 12% of Revenue and 48% on
Outsourcing.
Transportation Spend Dominates - 56% on transportation and 39% on
warehouse
The Success Rating Perception Gap Remains – 88% users and 94% 3PL
providers are happy with performance. But 33% users feel there is scope of
more innovation.
The IT Gap Remains - 54% of shippers are satisfied with 3PL IT capabilities.
93% indicate that ITcapabilities are a necessary element of 3PL expertise.
New 3PL Selection Criteria - Fuel efficiency and carbon emissions are
becoming more important.
25. Contract Warehousing
Incoming Bulk Distribution Customers
Products Warehouse Center Retailers
Outsourced In-house
Activities: Benefits:
Labor & supervision Lower capital investment
Receiving, storage, shipping Lower fixed/variable cost ratio
Value Added Services Focus to the core
Traffic/transportation Professional service
26. Supplier Hub / Regional Fulfillment
Center / Regional Distribution Center
Incoming
Materials Bonded Mfg site/
Or Warehouse Point of Use
Products
Outsourced
Activities: Benefits:
Same as contract warehouse
Lower capital investment
Customs clearance
Focus to the core
Freight consolidation
Delayed payment of duties and taxes
Shipment visibility
Pay (for material) on production
Inventory ownership
Visibility of pipeline inventory
Order fulfillment
Value Added Services
27. Shipment Consolidation and
Transportation
Customs
Incoming Point of Sale/
Materials Consol. De-con
Point of Use/
Or Center Center
Customers
Products
Outsourced
Activities: Benefits:
Transport arrangement Shorter cycle time
Customs clearance Lower freight costs
Freight consolidation Visibility of pipeline inventory
Shipment visibility Inventory consolidation
Carrier mgmt / rate mgmt
Merge in transit
28. Product Returns / Technical Services
Repair centers
Customers
Product
Return
Center OEM Warranty
Fulfillment
Outsourced
Activities: Benefits:
Testing / screening Centralization of inventory
Warranty program mgmt Lower capital investment
Inventory ownership Focus to the core
Warehousing and inv mgmt Reduced reverse logistics costs
Fulfillment Speedy response to customers
Depot repair mgmt
29. Critical Parts / Service Parts Logistics
Repair centers
Customers
Tier 1
Tier 2 Tier 2 Tier 2
Tier 3 OEM Warranty
Fulfillment
Outsourced
Activities: Benefits:
Failed parts replacement Centralization of inventory
Warranty program mgmt Lower transportation cost
Inventory ownership Improved visibility of inventory
Warehousing Lower capital investment
Depot repair mgmt Better after-sales service support
Visibility and Track&Trace
30. Logistics Financial Services
Customers /
Supplier Manufacturers Distributors Retailers
Activities: Benefits:
Inventory finance (factoring, Reduced cost of capital
LOC) Improved cash flow
Distribution finance (asset based Reduced capital investment
lending, receivable finance)
Payment solutions (COD)
Leasing
31. Total Logistics Management
Incoming Bulk Distribution Customers
Products Warehouse Center Retailers
Outsourced
Activities: Benefits:
Logistics planning Reduced total logistics costs
Network optimization Global visibility
3rd vendor mgmt Single logistics solution and contact
Information technology Focus to the core
Supply chain visibility Reduced investment in logistics