Third Party Logistics & Outsourcing
What is Logistics?
Logistics has been defined as the art of managing the supply chain and
the science of managing and controlling the movement of goods and
other resources from the point of origin to the point of requirement or
consumption.
It may also involve the integration of information, transportation,
inventory, warehousing/stock-yards, packaging and transportation.
Logistics is the geographic repositioning of materials/resources/products
to the required location at the lowest overall cost possible without
detriment to service quality.
The origins of logistics can be traced back ancient Greece where logos is
the Greek word meaning ratio, calculation, reason and Greek military
with the name Logistikas were responsible for ensuring supplies were
distributed correctly.
The Oxford English Dictionary defines LOGISTICS as “The branch of
military science having to do with procuring, maintaining and
transporting material, personnel and facilities”
I‟m sure you‟ll agree that the above definition captures the term
accurately.
How is Logistics Managed?
Logistics management is that part of a supply chain which plans,
implements, co-ordinates and controls effective & efficient forward (and
reverse) flows of goods, products, services and other related information
between points required by the customer and managed by professionals
such as logisticians.
In recent years there has been a huge increase in software development to
assist logisticians automate logistics and work flows and given the
complexities of customer requirements most systems are customised
solutions.
Outsourcing and Third Party Logistics Providers
What is a 3PL?
A third party logistics provider (abbreviated 3PL) is an organisation that
provides outsourced or “third party” logistics services to other
organisations for part or all of their supply chain functions.
3PL‟s generally specialize in transport services and warehousing and
occasionally other related services such as re-work and work up solutions
customized and scaled to customers needs based on a number of factors
including:
Geographic location
Market‟s served
Market condition
Customer demands
Service Delivery
Equipment Required
Types of 3PL providers
3PL providers can be categorised:
Standard 3PL: This type of 3PL would perform very basic activities such
as warehousing, transportation
Service Developer: This type of 3PL will offer enhanced value added
services (over and above those that the standard 3PL provider offers)
including IT, track and trace, cross-docking, packaging specifics/re-work,
security and a more focussed approach to scope for efficiencies and
managing economies of scale.
Customer Adapter: This type of 3PL provider tends to come in at the
request of the customer to take over the complete control of the
company‟s logistics activities.
Customer Developer: This type of 3PL provider tends to be at the highest
level and in most cases will integrate itself with the customer and assume
all logistics and process activities.
Non Asset-based Logistics Providers
This type of 3PL tends to be brought in by the customer to run that
customers own assets such as warehousing, transport, vehicles and will
also perform most duties including booking, routing, man-management,
safety and auditing.
For a given contract the 3PL may only possess, management staff, IT and
freight expertise.
This type of 3PL will tend to work on a contract management fee which
to earn they must meet pre-determined targets for operational efficiencies,
negotiations with sub-contractors, improvements in customer service and
be complimentary to its customers pre-existing assets.
This type of operation is favoured by large multi-site retailers/FMCG
organisations where they will engage a DHL or a Wincanton to manage a
number of sites for a contract term.
4PL: This is a refinement on the idea of a 3PL and they are an integrator
that assembles resources and capabilities of its own organisation and
other organisations to design, build and run bespoke supply chain
solutions.
It could be argued that a 4PL is the same as a non-asset based 3PL
Who should consider use of a 3PL?
Retailers, producers and such like are always under extreme pressure to
reduce costs and retailers see warehousing and transport as just that : a
cost!!
There is a definite and continuing trend towards outsourcing of services
to 3PL providers.
Various pieces of research have shown that cost savings can be made by
outsourcing and by as much as 8 – 12% savings.
How is this cost saving possible?
By outsourcing it is assumed that the customers chosen provider has the
best fit for their requirements by bringing increased efficiency in the
supply chain.
The 3PL should be able to pass on cost saving to the customer through
benefits of scale as it is likely that the 3PL‟s primary functions are in the
fields of warehousing, transportation, cross-docking etc and therefore
have the necessary resources and skills for the task.
The 3PL will consider all modes of transport including rail – which we
hear more about in a later presentation – marine, air and of course road as
they see best fitting requirements.
Not only will the 3PL consider these modes but will consider
combinations of all modes as they see best fitting the performance and
cost criteria.
The main opportunity for cost saving is the overhead for providing the
service is assumed to be already in place – within the 3PL‟s organisation
- to service other customers and therefore the cost associated is spread
across multiple customers and locations.
Other Benefits?
The 3PL should also bring improvements to the supply chain leading to
greater customer satisfaction and enable the customer to concentrate their
focus on running and improving their business without the need to worry
about the supply chain.
Logistics is merely one step in the supply chain „Plan – source – produce
– deliver (logistics) – return‟ but as it is the link between producer and
customer it is by far the most important link and has the greatest
opportunity for improving customer satisfaction and therefore potential
growth that getting the right 3PL is important.
Possible long term strategic partnership/fully integrated logistics as is
commonplace in the Automotive and Electronics Industries.
Is there a place for 3PL’s in the Forest Products Sector
There are many examples existing 3PL involvement particularly in the
paper, board and flooring markets so the answer must be yes there is a
place for 3PL‟s but what about logs, residues and other products?
Is there a place for 3PL’s in your sector?
Hopefully what I have spoken about gives you an idea of what 3PL‟s can
provide by way of operational efficiencies, potential cost-saving,
improved supply chain & customer satisfaction but the questions you may
want to ask of your own supply chain are?:
Is there indeed a need for a 3PL in my supply chain?
Would extension of 3PL services be feasible operationally and would it
fit in with your existing service provision without too much customisation
whether in part or the whole of my supply chain?
Assuming it is an operational fit can I remove costs by transferring all or
part of my supply chain to a 3PL?
Do I know my real supply chain costs?
Am I prepared to give up control in exchange for possible improvements
to my supply chain and customer‟s satisfaction?
Or am I happy continuing with current arrangements because we‟ve
always done it that way. „If it ain‟t broke don‟t change it‟?
Can a 3PL bring advantages working with some of my existing supply
chain providers and involving them in a customised solution?
Summary
There is no one answer to whether 3PL involvement will work for your
individual company as each individual company will have different needs
and require different solutions which comes back to point made earlier
about customisation of services.
If certain elements are only looked at in isolation then the ideal fit will
never be found but through dialogue with a 3PL and others in the supply
chain it may be that better solutions can be found and potentially come
with all the service, performance, customer and cost benefits associated
mentioned previously.
Food for Thought?
David Murray
Rail Contracts Manager: John G Russell (Transport Ltd)
0141 810 8200