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

Types of 3PL ProvidersTransportation BasedServices 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 ProvidersWarehouse/Distribution BasedMany have former warehouse and/or distribution experience. Examples: DSC Logistics, USCO, Exel, Caterpillar Logistics, IBM

Types of 3PL ProvidersForwarder BasedVery 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 claimsExamples: AEI, Kuehne & Nagle, Fritz, Circle, C. H. Robinson, Hub Group

Types of 3PL ProvidersFinancial BasedProvide 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 ProvidersInformation BasedSignificant growth and development in this category of Internet-based, business-to-business, electronic markets for transportation and logistics services. Examples: Transplace, Nistevo

Third Party LogisticsIn-house Logistics DepartmentShipperTransportationIT supportWarehousingOthersIn-house OperationOutsourced Operation3PLShipperShipperShipperTransportationWarehousingIT supportSC integrationOthers

Characteristics of 3PLPerform outsourced logistics activitiesProcess management / Multiple activitiesMore customized servicesMutually beneficial and risk-sharing relationshipLong-term commitments (1~ 3 years)

Levels of OutsourcingTransactional 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 3PLFirms with wide and/or complex distribution network. Example IBMFirms that do not focus on logistics as one of their core competencies e.g Chevron Corp or British PetroleumIn Strategic decisions on Core competenceIn the case of the creation of a new product groupWhen a company is taking over the activities of a M&A

Steps in 3PL ProcessAwareness: 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 conceptsMake or Buy: Build own competence or outsource

Steps in 3PL ProcessBusiness Plan: Costs, Benefits, Phasing, Timing, Risks, Communication and MotivationSelection: Selecting partner based on market coverage, competency, integrity, vision, etc.Agreement: Agreeing on a mutual expectations using a set of performance metricsEvaluation and Renewal: Sustain partnership via mutual financial costs and benefits, joined planning, multilevel contact

Benefits of 3PLAllows firms to focus on developing their core competencies.Cost competitiveness and Risk SharingImproved efficiency, service and flexibilityIndustry-specific application build-to-order systems and e-merchantsAllows superior customer service levels

Some Disadvantages of 3PLLoss of Control over the logistics function (especially for critical parts)Increased distance from clients. Loss of direct contact.Discontinuity of services of 3PL providerDifference of opinion or perception of service level of the 3rd party provider.

Current State-Market size3PL market is growing( $ Billions )

Current Use of 3PL by IndustryPercentage of 3PL use in different industriesIndustryComputerConsumerRetailChemicalMedicalAuto

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 ProvidersManage and direct the activities of multiple 3PLs, serving as an integratorRefinement on the idea of 3PLs4PLs are not asset based like 3PLsAssembles 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 4PLThe 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 4PL4PL only work with intellectual capital and computersProvide Birds eye view of supply chainTo seek integrationTo minimize inventory costsTo improve efficiencyand to reduce lead times

4PL Supply Chain Value Proposition

4PL Supply Chain Value PropositionRevenue 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 requiredFixed Capital Reduction: This will allow the client to invest in its core competencies.

Advantages of 4PLImproved customer serviceReduced capital requirementsEconomies of ScaleReduced Supply Chain costsIncreased flexibilityCombines the advantages of in- and outsourcingManufacturers can focus on core competencies

Problems of the 4PL ConceptLosing sight of original core-concept of SCM due to loss of controlCustomer relationships should not be dismissed on basis of efficiencyResistance to change the biggest obstacle to implementation of new approachesStrict functional organization structure hinders integrated Supply Chains

Example: Transways Express 4PLOne stop transport and logistics supplierWork with suppliers and customers

Its all about getting the right things to the right place at the right time at the right cost

It co-ordinates the entire logistics process between the shipper and connsigneeIt takes care of initial request for quotation, insurance, shipping and custom documentations through smooth computerized process