3rd & 4th Party Logistics

-Sharmishtha Chatterjee 52006 PGDOM

What is 3PL? It is the Supply chain practice where one

or more logistics functions of a firm are outsourced to a 3PL provider.

It means that a company contracts its logistics like transport, warehousing and customer deliveries to another company outside of its operation.

It is also referred to as Contract Logistics.

Origin of 3RD Party Logistics In the 1980s, due to globalization and

increased use of IT, there was increased demands on firms and possibilities for companies to operate more competitive and lean.

3PL was to keep the firm competitive by keeping it lean without owning much assets, allowing it focus on niche areas and to reduce operational costs.

3PL firm acts as a ‘third party’ facilitators between manufacturers and the buyers

Who is a 3PL Provider? One who performs one or more of the

logistics activities relating to the flow of product, information and funds that could be performed by the firm itself.

Traditionally, 3PLs focused on one of functions of Supply chain such as transportation, warehousing or information technology.

In recent years 3PLs have expanded their range of services to being more commoditized and value-added.

Who is a 3PL Provider? (contd) The 3PL Provider manages and executes

various logistics functions such as Inbound Freight, customs and freight consolidation, warehousing, order fulfillment, distribution and management of outbound freight to the client’s customers.

He does the above using his own assets and resources on behalf of the client company.

Types of 3PL Providers Transportation Based

Services extend beyond transportation to offer a comprehensive set of logistics offerings.

Leveraged 3PLs use assets of other firms.

Non-leveraged 3PLs use assets belonging solely to the parent firm.

Examples: Ryder, Schneider Logistics, FedEx Logistics, UPS Logistics

Types of 3PL Providers Warehouse/Distribution Based

Many have former warehouse and/or distribution experience.

Examples: DSC Logistics, USCO, Exel, Caterpillar Logistics, IBM

Types of 3PL Providers Forwarder Based

Very independent middlemen with forwarder roles. Non-asset owners that provide a wide range of

logistics services. Firm specializing in arranging storage and shipping of

merchandise on behalf of its shippers. It usually provides a full range of services including: tracking inland transportation, preparation of shipping and export documents, warehousing, booking cargo space, negotiating freight charges, freight consolidation, cargo insurance, and filing of insurance claims

Examples: AEI, Kuehne & Nagle, Fritz, Circle, C. H. Robinson, Hub Group

Types of 3PL Providers

Financial Based Provide freight payment and auditing,

cost accounting and control, and tools for monitoring, booking, tracking, tracing, and managing inventory.

Examples: Cass Information Systems, CTC, GE Information Services, FleetBoston

Types of 3PL Providers

Information Based Significant growth and development in

this category of Internet-based, business-to-business, electronic markets for transportation and logistics services.

Examples: Transplace, Nistevo

Third Party Logistics

In-house Logistics Department

Shipper

Transportation

IT support

Warehousing

Others

In-house Operation

Outsourced Operation

3PL

Shipper

Shipper

Shipper

Transportation

Warehousing

IT support

SC integration

Others

Characteristics of 3PL

Perform outsourced logistics activities Process management / Multiple

activities More customized services Mutually beneficial and risk-sharing

relationship Long-term commitments (1~ 3 years)

Levels of Outsourcing Transactional Outsourcing: Based on transactions,

with no long term contracts and no bonding between the 3PL and the outsourcing company.

Tactical Outsourcing: Outsourcing on a long term basis with negotiated contacts and integrated IT systems to facilitate free information flow and create supply chain visibility.

Strategic Outsourcing: Based on long-term relationships with successful outcomes, 3PL companies become partners in supply chain management and establish transactional transparency.

Application of 3PL Firms with wide and/or complex distribution

network. Example IBM Firms that do not focus on logistics as one

of their core competencies e.g Chevron Corp or British Petroleum

In Strategic decisions on Core competence In the case of the creation of a new product

group When a company is taking over the

activities of a M&A

Steps in 3PL Process Awareness: Investigate Possibilities, Inform

Employees (SWOT Analysis) Market Research: Investigate Market trends

in particular service demands (SERVQUAL, Customer Satisfaction Model etc.)

Strategy: Develop and compare logistics concepts

Make or Buy: Build own competence or outsource

Steps in 3PL Process Business Plan: Costs, Benefits, Phasing,

Timing, Risks, Communication and Motivation

Selection: Selecting partner based on market coverage, competency, integrity, vision, etc.

Agreement: Agreeing on a mutual expectations using a set of performance metrics

Evaluation and Renewal: Sustain partnership via mutual financial costs and benefits, joined planning, multilevel contact

Benefits of 3PL

Allows firms to focus on developing their core competencies.

Cost competitiveness and Risk Sharing Improved efficiency, service and

flexibility Industry-specific application

– “build-to-order” systems and e-merchants

Allows superior customer service levels

Some Disadvantages of 3PL Loss of Control over the logistics

function (especially for critical parts) Increased distance from clients. Loss of

direct contact. Discontinuity of services of 3PL provider Difference of opinion or perception of

service level of the 3rd party provider.

Current State-Market size

61.268.7

74.683.2

2005 2006 2007 2008

3PL market is growing

( $ Billions )

Current Use of 3PL by Industry

75.9

71.1

61.4

56.2

53.8

82.2

Percentage of 3PL use in different industries Industry

Computer

Consumer

Retail

Chemical

Medical

Auto

What is 4PL? A Fourth-party logistics provider (abbreviated 4PL) or a

lead logistics provider, is a consulting firm specialized in logistics, transportation, and supply chain management. Typical fourth-party logistics providers are CPCS, SCMO, BMT, Deloitte, Capgemini, 3t Europe and Accenture.

A fourth-party logistics provider is 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.

4PL Providers Manage and direct the activities of multiple

3PLs, serving as an integrator Refinement on the idea of 3PLs 4PLs are not asset based like 3PLs Assembles and manages the resources,

capabilities, and technology of its own organization and other organizations to design, build and run comprehensive supply chain solutions

History of 4PL The term 4PL is generally considered to

have been introduced by Accenture, which registered it as a trademark in 1996. Accenture described the 4PL as an "integrator that assembles the resources, capabilities, and technology of its own organization and other organizations to design, supply chain solutions".

The trademark was later abandoned, and the term has become a part of the public domain

Overview of 4PL

Characteristics of 4PL

4PL only work with intellectual capital and computers

Provide Bird‘s eye view of supply chain

To seek integration To minimize inventory costs To improve efficiency and to reduce lead times

4PL Supply Chain Value Proposition

Revenue Enhancement: With the 4PL focusing on the entire supply chain dramatic customer service improvements can be attained.

Operating Costs Savings: will be reached through economies of scale by outsourcing the complete supply chain.

Working Capital Reduction: The proactive use of technology to manage orders throughout the pipeline will minimize the amount of inventory required

Fixed Capital Reduction: This will allow the client to invest in its core competencies.

4PL Supply Chain Value Proposition

Advantages of 4PL Improved customer service Reduced capital requirements Economies of Scale Reduced Supply Chain costs Increased flexibility Combines the advantages of in- and

outsourcing Manufacturers can focus on core

competencies

Problems of the 4PL Concept Losing sight of original core-concept of SCM

due to loss of control Customer relationships should not be

dismissed on basis of efficiency Resistance to change – the biggest obstacle

to implementation of new approaches Strict functional organization structure

hinders integrated Supply Chains

Example: Transways Express 4PL

One stop transport and logistics supplier

Work with suppliers and customers

It’s all about getting the right things to the right place at the right time at the right cost