3PL & 4PL

Session 16 -17

03/18/15

ITS, UC Irvine

Overview
Define Third Party Logistic
How 3PL is different from
transportation providers
Why businesses use 3PL
Services provided by 3PL companies
How to choose a 3PL for your
business
The move to 4PL: what is new, what
is next, changes, etc

SCM Process Footprint

From a process perspective the supply chain can be viewed as

set of processes used to produce and deliver goods and
services to customers
SUPPLIER

SUPPLY CHAIN

CUSTOMER

Supply chain design

Demand forecasting

PLAN

Inventory planning

SOURCE

Distribution planning

DELIVER
MAKE

Production planning
Capacity planning
Transportation Planning
Order Fulfillment
Shop scheduling

Warehouse Management

Manufacturing Flexibility

Inventory Management

Procurement

Production Management

Transportation management

Sourcing

Manufacturing Flow
Management

Visibility, Event Management

& Track & Trace

Product Life Cycle

Management

Trading Partner
Management

Reverse Logistics
Trade Management

Third Party Logistics

Third-party Logistics is simply the use of an
outside company to perform all or part of
the firms materials management and
product distribution function.
-- SimchiLevi (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 longterm, more mutually beneficial relationship
-- Murphy & Poist (1998)
ITS, UC Irvine

Logistics Service Providers

A 3PL(logistics provider)is a company
which has expertise in logistics
management(transportation,
warehousing, inventory management,
distribution, customer support and
service).
They are in the business of supplying /
coordinating the logistics function across
multiple links in the supply chain.
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Logistics Service Providers

They would have invested in
technology that would allow them to
manage information on consignment
movement, billing, auditing and
payment efficiently.

3PL Vs. Transportation

Services

Why Use 3PL?

Third Party Logistics

Outsourced
Operation

Transportation

Shipper
Shipper

3PL

Warehousing
IT support

Shipper
In-house Operation

SC
integration

Shipper
In-house Logistics
Department
Others

IT support
Transportation
03/18/15

Others

Warehousing
ITS, UC Irvine

Industry Evolution
Third Generation
( 2000 and beyond)

Second Generation
(1980s - 1990s)

First Generation
(1970s - 1980s)

Online freight marketplaces

Web-based 3PLs

Increasing supply chain

integration
Non asset-based companies
Asset-based companies
increased
service offerings
Transportation / warehousing

Freight forwarders / brokers

Shippers agents

Broader more integrated services

03/18/15

ITS, UC Irvine

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Logistics Service Providers

Asset owning 3PL :
Advantages : Economies of scope and scale due
to the infrastructure and systems in place and
large customer base and human resources
Disadvantages : They may tend to favor their own
divisions in awarding work, be somewhat
bureaucratic and longer decision making cycles.

IM5M/KSSM

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Logistics Service Providers

Non asset owning 3PL:
Advantages : More flexible and able to tailor
services and the freedom to size and match
providers. They may also have low overhead
cost and specialized industry expertise.
Disadvantages : Limited resources and lower
bargaining power.

Outsourcing in SC: 3 PL and

4 PL
Warehousing

Inventory
Delivery control

Transportation

Supply
Chain
Optimization

Customer
Service

Value
added
Service

Special
Handling
Requirement

Cost
Control

Change
Management

Activities carried out by a traditional distributo

Activities carried out by 3 PL

Activities carried out by 4 PL

IM5M/KSSM

13

3PL Successes KPI GainsDell*

A Selection of Indicators

In-sourced
Baselines

Outsourced
Results

Reduced Inventory Holding

10-20d

7-12d

Improved Lead Time

48-24h

24-6h

Inventory Accuracy

80-90%

95-99%

Product Availability

90-95%

95-99%

Picking Accuracy
98%
99.5%
Pick/Pack Throughput per Emp 150-157
Overall Throughput per Emp
75-100
Space Utilization
80%
Reduced Damaged Products

100%
1-2%

Actual results from a 3PL outsourced program for an international beverage brand
IM5M/KSSM
leader, August 2001, Malaysia

225-250 OM/MA, h
125-150 OM/MA, h
700.1-0.5%
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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)

ITS, UC Irvine

Third-Party Logistics
(3PL):
Definitions

3PLs are external suppliers that

perform all or part of a companys
logistics functions, including:
Transportation
Warehousing
Distribution
Financial services

Terms contract logistics and

outsourcing are sometimes used in
place of 3PL.
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ITS, UC Irvine

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Third-Party Logistics
(3PL):
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.
Nonleveraged 3PLs use assets belonging
solely to the parent firm.
Ryder, Schneider Logistics, FedEx
Logistics, and UPS Logistics are examples
of 3PLs.
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ITS, UC Irvine

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Trigger Events to Third Party

Decision

Capacity (Space) Constraints

Cost Pressures
Lack of Needed Expertise
Labor Issues
Changing Customer Requirements
New Products and Markets
Mergers and Acquisitions
Organizational Change; Reengineering

Types of 3PL Providers

Warehouse/Distribution-Based
Many, but not all, have former
warehouse and/or distribution
experience.
Transition to integrated logistics has
been less complex than for the
transportation based providers.
DSC Logistics, USCO, Exel, Caterpillar
Logistics, and IBM are examples of
warehouse/distribution-based 3PLs.
03/18/15

ITS, UC Irvine

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Third-Party Logistics
(3PL):
Types of 3PL Providers

Forwarder-Based

Essentially very independent middlemen

extending forwarder roles.
Non-asset owners that capably provide a
wide range of logistics services.
AEI, Kuehne & Nagle, Fritz, Circle, C. H.
Robinson, and the Hub Group are
examples of forwarder-based 3PLs.

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Third-Party Logistics
(3PL):
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.
Cass Information Systems, CTC, GE
Information Services, and FleetBoston
are examples of financial-based 3PLs.

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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

Contract Logistics
Success Stories
1. Toyota (Georgetown, KY)
Ryder Distribution Resources provides turnkey
consolidated delivery of auto parts from key U.S.
manufacturers
Includes a wide range of material management activities:
Transportation, Verification of correct orders, Inventory
control
2. Land Rover (North American operation)
Caterpillar Logistics Service: world wide parts warehousing
and distribution services to dealers, including guaranteed 48hour expedited deliveries
3. Motorola (emergency parts)
Skyway Systems, Inc.: critical parts logistics center in L.A.
to
ship parts air freight to technicians nationwide

On the Line:
Trade Team
Excel, the largest provider of brewery
distribution services in Great Britain, and
Bass, the industrys low-cost producer, formed
Trade Team, the UKs leading independent
logistics provider to the beverage industry.
Annual sales of $200 million; 280 million
gallons of beer and other beverages to over
27,000 retail customers; 40-50% market
share.
Has capability to move other products.
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Third-Party Logistics
Research Study: Industry
Details
Of 93 responding executives, 71 percent

indicate a current or possible use of 3PLs.

Overall percentage of companies using
3PLs is steady, but the computer and
peripheral and consumer products
industries tend to exhibit higher use (90
and 85 percent, respectively).
Less use in automotive, chemical and
retail (50 to 60 percent usage range).
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Current use of 3PL by industry

Industry

Percentage of 3PL use in different industries

Computer
Consumer
Retail
Chemical
Medical
Auto
03/18/15

ITS, UC Irvine

Source "What's ahead for 3PLs Modern

Materials Handling, April, 2000
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Current State
-- Market Size
3PL market is
growing
($
Billions )

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ITS, UC Irvine

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Armstrong & Associates

(2003)
3 PL Segment
2003 Gross Revenue ($
Billion)
Dom. Trans Mgmt Asset based
9.2
Dom. Trans Mgmt Non - Asset based 21.4
Intl. Trans. Mgmt. 23.5
Value Added Warehouse/ Distr. 19.8
Software 3.0
---------------------------------------------------------------Total
76.9
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ITS, UC Irvine

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Segment wise Growth of 3PL

Ind. In India

Segment 2003-04 2002-03 Growth %

--------------------------------------------------------------Transport Services 2,800

2,322
21.0
Shipping Services 7,300
5,684
28.0
Transport support 3,300
3,004
11.0
Services
Courier services
780 800 -3.0
Warehousing 1,400
1,089
29.0
Total**
15,160
12,899
18.0
** Excl. Airlines, Listed Companies only.

Figure 11-13
3PL Factors for Selecting and Evaluating
3PLs

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Third-Party Logistics
Research Study:
Industry Details

Quantifiable measures of 3PL

success:

Logistics costs reduced by 8.2 percent.

Logistics assets reduced by 15.6
percent.
Average order cycle length changed
from 10.7 to 8.4 days.
Overall inventories reduced by 5.3
percent.
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Third-Party Logistics
Research Study:
Industry Details

Reported problem areas:

Service level commitments not realized.

Strategic management skills lacking.
Cost reduction goals not realized.
Cost creep and price increases occurring.
Improvements and achievements lacking.
Control of outsourced functions diminished.
Consultative, knowledge-based skills lacking.
Technology capabilities not being delivered.
Time and effort spent on logistics not reduced.
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Niche Markets Online

Logistics Providers
Online Freight Marketplaces
Spot market
Auction and RFQ
Exchange
Meta-marketplaces (A cluster of closely related
goods and services that center around a
specific consumption activity)

Application Service Providers (ASPs)

Purchasing Consolidation Market
Infomediaries

Online Logistics Providers-Opportunity

The Freight Transportation Industry is
Ideally Suited e-commerce
High Fragmentation of Shippers and Carriers
Many Intermediaries
Complex Supply Chains
High Search Costs
Significant Opportunities for Economies of Scale

Several Models Emerging

JetEx Logistics
JetEx Logistics is one source for all transportation,
shipping and distribution services. JetEx Logistics
is an asset based 3PL provider offering the latest
in technology, equipment and services to ensure
your products and shipments arrive on time,
every time, across town or across country.
As an asset based 3PL provider we use a
combination of both owned and contracted assets
with access to over 200,000 trucks (LTL &
Truckload Carriers) nationwide and will provide
you the best possible resources to facilitate your
transportation and distribution supply chain
needs.

A Note on Fourth-Party
Logistics

The 4PL is a SC integrator that

assembles and manages the resources,
capital, tech, and capabilities of all SC
partners that provide complementary
services to design, build, and deliver a
comprehensive solution.
4PLs manage and direct the activities
of multiple 3PLs, serving as an
integrator.

Two key distinctions

Why 4PL is unique:
1.A 4PL delivers a comprehensive
supply chain solution and;
2.A 4PL delivers value through the
ability to have an impact on the
entire Supply Chain.

4 PL Market
Buoyed by these trends, the 4PL
market as a whole is expected to
witness considerable revenue growth
from approximately EUR 4.7 billion in
2002 to about EUR 13 billion by 2010.
The 4PL market in western Europe is
set to make its presence strongly felt
in the chemicals, electronics/hightech and automotive sectors.
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ITS, UC Irvine

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Figure 11-15
Fourth-Party Logistics (Registered
Trademark of Accenture, Inc.)

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5 PL 1. TRANSPORTATION
Courier, Air, Rail, Road, Inland Waterways,
Ocean or
Multi-modal
- Service provider details
- Services offered
- Market rates
- Different routes
- Transshipment points
- Transit times
- Insurance coverages
- Imbalance of containers

5 PL cont
2. TECHNOLOGY:- Global positioning system
- Swipe card system
- Bar coding
- Packaging
3. IT:- Specialised softwares (e.g.. Fleet
Management)
- Tailor-made softwares

4. STATUTORY INFORMATION:- Road permits

- Central Govt./ State Govt. taxation
- Overloading rules
- Pollution control rules
5. REFERENCE DOCUMENTS:- Cabotage laws
- Service tax manuals
- Concor manuals
- ICD/ CFS manuals

Questions?