Third Party Logistics

Presented by Vikram Kumar

September 19, 2013

Definition

• “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)

THIRD PARTY LOGISTICS is an industry to which a shipper (owner of transported goods) outsources various elements of the supply chain to perform some / all logistics management functions including inbound freight, customs, warehousing, order fulfillment, distribution and outbound freight. •Initiated in 1980s when companies began looking for opportunities to improver logistics performance. •FedEx drew attention to 3PL service by offering JIT delivery•FedEx success in 3PL marketplace opened it up to competition •Initially primarily domestic coverage, 3PL industry is now global in character with a revenues approaching $150 billion in NA

Third Party Logistics Defined Third Party Logistics Defined

Cont..

• 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.

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

Why Use 3PL?

Advantages & Disadvantages

• Advantageso Cost reductiono Focus on core competencyo Improved efficiency, service and flexibilityo Industry-specific application – “build-to-order” systems and e-merchants

• Disadvantageso Loss of controlo Impact on in-house workforce

Characteristics of 3PL

Types of 3PL

• 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

Third Party Logistics Provider

A firm which provides multiple logistics services for use by customers.

These services are integrated or “bundled” together by the provider.

These firms facilitate the movement of parts and materials from suppliers to manufacturers and finished products from manufacturers to distributors and retailers.

Among the services which they provide are transportation, warehousing, cross-docking, inventory management, packaging and freight forwarding.

Types of 3PL Provider

• Transportation-Based

• Warehouse/Distribution-Based

• Forwarder-Based

• Financial-Based

• Information-Based

Third Party Logistics

10 Commandments of Outsourcing

1. Develop a strategy for outsourcing

2. Establish a rigorous provider selection process

3. Clearly define expectations

4. Develop a good contract

5. Establish sound policies and procedures

6. Identify and avoid potential points of friction

7. Communicate effectively with your partner

8. Measure performance and communicate results

9. Motivate and reward provider

10. Be a good Partner

3PL Vs. Transportation Services

FY 2003 Fortune 500 Global 3PL Gross Revenues by Industry

Consumer Products, $2.20

Healthcare$2.80

Food $6.40

Insdustrial $18.8 Other $2.90

Automotive, $26.7

Technology $22.20 Retailing $16.20

Automotive Technology Consumer Products

Retailing Health Care Food

Industrial Other

Costs stated in Billion's of Dollars

Customers of 3PL’s

Industry Global Costs

Domestic Costs

Automotive $98.2 $37.4

Technology $156.4 $77.4

Retailing $98.6 $67.2

Consumer Products $13.6 $13.3

Food and Grocery $32.2 $27.8

Healthcare $38.4 $34.0

Industrial and Elements $179.7 $84

Other $63 $25.3

Total Costs $678.3 $366.3

Customers of 3PL’s

Percent of Fortune 500 Companies Using 3PL’s

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

1-100 101-200 201-300 301-400 401-500

2002

2003

Need for Collaborative Relationships

• Supply chain relationships are most effective when collaboration occurs.

• Collaboration is facilitated by the ability of the supply chain partners to readily access and exchange information over the Internet.

Seven Laws of Collaborative Logistics

Current State -- Service Offerings

• Dedicated Contract Transportation / Transportation Procurement

• Inventory Management

• Logistics Management and Consulting

• Freight Audit and Bill Payment

• Customs Services

• Shipment Tracking and Tracing

• Reverse Logistics and Value-added Services

Buyers of 3PL Services

Customer # of 3PL’s Used

General Motors 37

Wal-Mart Stores 33

Ford Motor, HP 27

Procter & Gamble 20

General Electric 17

Georgia Pacific, IBM 16

PepsiCo, Sears 13

Coca-Cola, Sara Lee, Target, Xerox

12

General Mills 11

Delphi, Safeway 10

Services Provided By 3PL’s

Transportation Mgt21%

Private Fleets7%

Intermodal4%

Warehousing21%

Value Added20%

International9%

Integrated9%

Other5%

Lead Logistics4%

Industry Evolution

Third Generation( 2000 and beyond)

First Generation(1970s - 1980s)

Second Generation(1980s - 1990s)

Broader more integrated services

Transportation / warehousing

Freight forwarders / brokers

Shipper’s agents

Non asset-based companies

Asset-based companies increased service offerings

Online freight marketplaces

Web-based 3PLs

Increasing supply chain integration

Top Providers Est. Rev. ($M)

2003 Rank Provider 3PL 2003 Revenue1 Excel $8,300

2 Kuehne & Nagel $6,900

3 Schenker $6,400

4 DHL $5,700

5 P&O Nedlloyd $4,800

6 TGP/TNT $4,700

7 Panalpina $4,600

8 UPS Supply Chain $4,100

9 Nippon Express $4,000

10 C.H. Robinson $3,600

11 Menlo Worldwide $3,100

12 NYK Logistics $3,000