The State of 3PL Industry
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Transcript of The State of 3PL Industry
Aniruddha Ray
Amitesh Tyagi
Pervinder Singh Chawla
Saurabh Chaudhuri
3PL (Third Party Logistics) – State of the Industry – 2008-2011
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.
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.
Third Party Logistics
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
Asset-based companies
Increased Service Offerings
Online freight marketplaces
Web-based 3PLs
Increased supply chain integration
Fourth Generation ( 2010 and beyond)
Supply Chain Co-ordination
Process Re-design
Consultant Mode
Global 3PL Market (from 2010 and 2012 3PL Study)
Use of 3PL by industry – 2000 Data
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
Source "What's ahead for 3PLs“ Modern Materials Handling, April, 2000
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
The 3PL Survey 2008 – 13th Edition
3PL – Services Used
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
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
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
2008 - Customer Experience with 3PL
Trend 1 - Integrated Logistics – The Good and The Bad
Trend 1 - Integrated Logistics with IT
Integrated Logistics – State as of 2008
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
Green SCM – Solutions Suggested
SUGGESTIONS
Improve Transportation Efficiency
Improve Equipment
Change Packaging
Shift Modes
Optimize Networks
Retrain Drivers
Move towards Greener Buildings
Trend 3 - Security – Collaboration and Importance
Security – Concerns and Way Ahead
Security - Suggestions
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.
Thank You
Contract Warehousing
Bulk Warehouse
Distribution Center
Incoming Products
Customers Retailers
Outsourced In-house
Activities:
Labor & supervision Receiving, storage, shipping Value Added Services Traffic/transportation
Benefits:
Lower capital investment Lower fixed/variable cost ratio Focus to the core Professional service
Supplier Hub / Regional Fulfillment Center / Regional Distribution Center
Bonded Warehouse
Mfg site/ Point of Use
Incoming Materials Or Products
Outsourced
Activities:
Same as contract warehouse Customs clearance Freight consolidation Shipment visibility Inventory ownership Order fulfillment Value Added Services
Benefits:
Lower capital investment Focus to the core Delayed payment of duties and taxes Pay (for material) on production Visibility of pipeline inventory
Shipment Consolidation and Transportation
Consol. Center
Point of Sale/ Point of Use/ Customers
Incoming Materials Or Products
Outsourced
Activities:
Transport arrangement Customs clearance Freight consolidation Shipment visibility Carrier mgmt / rate mgmt Merge in transit
Benefits:
Shorter cycle time Lower freight costs Visibility of pipeline inventory Inventory consolidation
De-con Center
Customs
Product Returns / Technical Services
Product Return Center
Repair centers
Cu
sto
mer
s
Outsourced
Activities:
Testing / screening Warranty program mgmt Inventory ownership Warehousing and inv mgmt Fulfillment Depot repair mgmt
Benefits:
Centralization of inventory Lower capital investment Focus to the core Reduced reverse logistics costs Speedy response to customers
OEM Warranty Fulfillment
Critical Parts / Service Parts Logistics
Repair centers
Cu
sto
mer
s
Outsourced
Activities:
Failed parts replacement Warranty program mgmt Inventory ownership Warehousing Depot repair mgmt Visibility and Track&Trace
Benefits:
Centralization of inventory Lower transportation cost Improved visibility of inventory Lower capital investment Better after-sales service support
OEM Warranty Fulfillment
Tier 1
Tier 3
Tier 2 Tier 2 Tier 2
Logistics Financial Services
Manufacturers Distributors Supplier Customers / Retailers
Activities:
Inventory finance (factoring, LOC) Distribution finance (asset based lending, receivable finance) Payment solutions (COD) Leasing
Benefits:
Reduced cost of capital Improved cash flow Reduced capital investment
Total Logistics Management
Bulk Warehouse
Distribution Center
Incoming Products
Customers Retailers
Outsourced
Activities:
Logistics planning Network optimization 3rd vendor mgmt Information technology Supply chain visibility
Benefits:
Reduced total logistics costs Global visibility Single logistics solution and contact Focus to the core Reduced investment in logistics