Third-Party Logistics

The trend of using a strategic partnership in integrated logistics has now become an accepted practice in the industry. These partners are called “third party service providers” or 3PL (short for third-party logistics) firms. These firms are external to the company and provide one or more aspects of their entire logistics service product portfolio. These logistics services can be provided on a stand-alone or an integrated basis. The stand-alone operator is called a “wholesaler,” who extends only one type of service in which it has expertise. It may be any of such services as warehousing, transportation, inventory management, packaging, and so forth. However, the one who provides the total logistic services and offers entire logistic solutions to customer problems is called the “integrator.” The trends in the industry show a preference for integrated logistics solution provid­ers, as the solution to several logistics problems can be had from a single source.

The 1990s witnessed the growth of 3PL firms, when corporations around the world began con­centrating on the entire supply chain and realized that logistics is the key to the success of supply chain. They understood that the most important strategic utilization of logistics is improvement in customer service followed by gaining a market share and reduction in cost. The most important reason for the rapid acceptance of third-party logistics providers has been the quick gains for users of the services of 3PL firms. According to the surveys conducted by the 3PL firms during 1996 and 1998 in the United States, the early users of 3PL firms reported the following benefits:

  • Logistics cost reduced by 7.8 per cent
  • Logistics assets fell by 21.6 per cent
  • Order cycle time reduced from 6.3 to 3.5 days

Initially, corporations were outsourcing only warehousing and transportation to 3PL firms, but as their confidence levels went up and benefits started accruing, the 3PL firms were invited to pro­vide services in the areas of traffic management, multimodal transportation, freight consolidation, cross-docking, freight auditing, payment collections, and so on. More and more companies began using 3PL services as a source of strategic advantage with a view to achieving broader business objectives in addition to cost saving and cycle time reduction. Some of the broader objectives the corporations have in mind when going in for 3PL services are:

  • Reduction in risk and liability
  • Value-added services to customer
  • Source of process improvement
  • Wider market coverage

As this service industry is in a mature stage in the developed countries, there is stiff competition in this sector and consequently the 3PL firms are offering customized services in the niche markets. They are providing value-added services such as consignment tracking, real-time data access and analysis, cross-docking, assembly, and so on.

Source: Sople V.V (2013), Logistics Management, Pearson Education India; Third edition.

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