Third Party Logistics

Types of Third Party Providers Asset‑Based

Services Offered Through Use of Supplier's AssetsOften Dedicated Services (Contract Carriage, Warehousing)

 

Management‑Based Non‑Asset‑BasedAct as Coordinators/ConsultantsStrength is Information

 

Integrated Asset‑BasedService Beyond Capacity of Assets

 

Administrative Non‑Asset‑Based, Focus on Administrative Services

Freight Bill Auditing/PaymentClaims Management/Adjustment

Third Party Logistics

Asset‑Based Third Party Providers 

Own Their Own Equipment  

AdvantagesProvide Name RecognitionFinancial StrengthEquipment AvailabilityHave In‑House ExpertiseAbility to Handle Emergencies

 Disadvantages

Internal PoliticsLack of Management Commitment from ParentDifficult to Ensure Customer of Neutrality

 

Third Party Logistics

Management‑Based Third Party Providers

Do Not Invest in Equipment Contract with Other Companies 

AdvantagesFlexibility in Dealing with CarriersFrequently Have Excellent Information SystemsNeutral Provider Ensures Serving Customer's Best Interest

 

DisadvantagesLack of Name RecognitionUnknown Financial StabilityLack of ExpertiseDifficult to Handle Emergencies

Third Party Logistics

Freight Bill Payment 43 53 63 72Shipment Consolidation 43 49 49 66Direct Transportation Service 49 61 56 62Custom Brokerage 40 41 67 62Warehouse Management 56 59 42 60Freight Forwarding 44 45 59 53Carrier Selection 29 43 51 51Tracking/Tracing 33 44 51Measure Carrier Performance 47Rate Negotiation 29 37 47 38Re-labeling /Re-packaging 21 25 23 38Order Fulfillment 24 33 33 34Product Returns 21 25 23 30Reverse Logistics 26IT System Operation 20 16 21

Functions Outsourced to Third Party Providers Percentage of Firms Citing Usage

Category 2000 2001 2002 2003

Third Party Logistics

Buyers of 3PL Services # of 3PLs Used

General Motors 37

Wal-Mart Stores 33

Ford Motor, Hewlett-Packard 27

Procter & Gamble 20

General Electric 17

Georgia-Pacific, IBM 16

Du Pont, Home Depot 14

Altria Group, PepsiCo, Sears Roebuck 13

Coca-Cola, Sara Lee, Target, Xerox 12

General Mills 11

Delphi, Safeway 10

Colgate-Palmolive, Deere, Kroger, Lucent Tech 9

Dow, Exxon, Honeywell, IP, Kmart, Weyerhaeuser 8

Major Users of Third Party Logistics

Third Party LogisticsImpact of 3PL Use on Firms

Employee Morale 22 45 33 Logistics Costs 10 14 77 Customer Satisfaction 6 29 65 Systems Development 10 47 43 Logistic Service Levels 1 14 85 Supply Chain Integration 2 35 63

Category Negative No Impact Positive

Third Party Logistics3PL Cost Benefits to Firms

Percent of Respondents3PL Service Reporting BenefitsWarehouse Management 30Rate Negotiation 16Shipment Consolidation 14Freight Bill Payment 30Direct Transportation Service 14Fleet Management/Operations 8Carrier Selection 6Freight Forwarding

Third Party Logistics3PL Service Benefits to Firms

Warehouse Management 22Order Fulfillment 11Freight Bill Payment 9Direct Transportation Service 9 Fleet Management/Operations 9Tracking/Tracing 7

Percent of Respondents3PL Service Reporting Benefits

Third Party Logistics

Labor Cost Savings 2.08 1Specialization 2.29 2Reduce Asset Use 2.36 3Inadequate Resources 2.43 4Transportation Cost Savings 2.54 5Expanding Workload 2.54 5Lack of Flexibility 4.07 7 .  1= Most important; 5 = Least Important

Reasons for Using Third Party Providers

Category Importance Rank

Third Party Logistics

Loss of Management Control 1.62 1Company Policy Dictate 3.44 2Waiting for Industry Trends 3.59 3Lack of Specialized Vendors 3.67 4Organizational Resistance 3.74 5Human Resource Problems 4.04 6  

1 = Most important; 5 = Least Important

 Reasons for Not Using Third Party Providers

Category Importance Rank

Third Party Logistics

Service Level Consistency 3.33 1Management Control 3.42 2Customer/Vendor Relations 3.82 3Company Policy Restraints 3.95 4Company Employee Relations 4.10 5Departmental Resistance 4.13 6  1 = Major Problem; 5 = Not a Problem 

Problems with Using Third Party Providers

Category Importance Rank

Third Party Logistics

• Develop key performance indicators and targets and incorporate them into the 3PL contract

• Carefully develop internal logistics costs before meeting with potential providers

• Seek broad company inputs at the RFP Stage

• Solicit multiple RFPs and closely check references

• Be sure the cultures of the two organizations are similar

• Don’t give up complete control of your supply chain to the provider

Suggestions for First Time 3PL Users

Third Party Logistics

• Select only the services you really need

• Make sure you understand the technology issues before proceeding to the contract stage

• Prepare to change you assumptions after the startup

• Move slowly before signing the contract

• Retain your own links with carriers

• Manage your provider very closely

Suggestions for First Time 3PL Users

Third Party Logistics

Transit Time Reliability/Consistency 1.301 1Door to Door Transport Rates/Cost 1.405 2Total Door to Door Transit Time 1.551 3Willingness to Negotiate Rates 1.611 4Financial Stability of Carrier 1.807 5Equipment Availability 1.878 6Frequency of Service 1.892 7Pickup and Delivery Service 1.899 8Freight Loss and Damage 2.037 9Shipment Expediting 2.054 10Quality of Operating Personnel 2.108 11Shipment Tracing 2.118 12Willingness to Negotiate Services 2.162 13Scheduling Flexibility 2.267 14Line Haul Service 2.389 15Claims Processing 2.338 16Quality of Carrier Salesmanship 2.635 17Specialized Equipment 3.476 18 .

Carrier Selection CriteriaImportance

Selection Criteria Score Rank