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The State of 3PL Industry

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A report on 3PL Industry analysis based on 3PL Survey 2008 and connecting to current trends.

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The State of 3PL Industry

  1. 1. 3PL (Third Party Logistics) –State of the Industry – 2008-2011 Aniruddha Ray Amitesh Tyagi Pervinder Singh Chawla Saurabh Chaudhuri
  2. 2. Third Party Logistics - Definition “a firm [that] provides multiple logistics services for use by customers. Preferably, these services are integrated, or bundled together, by the provider. Among the services 3PLs provide are transportation, warehousing, cross-docking, inventory management, packaging, and freight forwarding.” -- Council of Supply Chain Management Professionals “Third-party Logistics is simply the use of an outside company to perform all or part of the firm’s materials management and product distribution function.” -- Simchi-Levi (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 long-term, more mutually beneficial relationship” -- Murphy & Poist (1998)In the "PL" terminology, it is important to differentiate the 3PL from the: 1PL, which are the actual shipper or the consignee, 2PL, which are actual carriers such as YRC Worldwide, UPS, FedEx, 4PL, which are consulting firms such as CPCS, SCMO, BMT, Deloitte, and Accenture.
  3. 3. Categories of 3PL ProvidersHertz and Alfredsson (2003) describe four categories of 3PL providers: Standard 3PL provider - Perform activities such as, pick and pack, warehousing, and distribution (business) – the most basic functions of logistics. For a majority of these firms, the 3PL function is not their main activity. Service developer - offer their customers advanced value-added services such as: tracking and tracing, cross-docking, specific packaging, or providing a unique security system. A solid IT foundation and a focus on economies of scale and scope will enable this type of 3PL provider to perform these types of tasks. The Customer Adapter - Comes in at the request of the customer and essentially takes over complete control of the companys logistics activities. The 3PL provider improves the logistics dramatically, but do not develop a new service. The Customer Developer - The highest level of a 3PL provider with respect to its processes and activities. Integrates itself with the customer and takes over their entire logistics function. These providers will have few customers, but will perform extensive and detailed tasks for them.
  4. 4. Third Party Logistics
  5. 5. Industry Evolution  Supply Chain Co-ordination Fourth Generation ( 2010 and beyond)  Process Re-design  Consultant Mode  Online freight marketplaces Third Generation ( 2000 and beyond)  Web-based 3PLs  Increased supply chain integration  Asset-based companies Second Generation (1980s - 1990s)  Increased Service Offerings  Transportation / warehousing First Generation  Freight forwarders / brokers (1970s - 1980s)  Shipper’s agents Broader more integrated services
  6. 6. Global 3PL Market (from 2010 and2012 3PL Study)
  7. 7. Use of 3PL by industry – 2000 Data Industry  Percentage of 3PL use in different industries Computer 82.2 Consumer 75.9 Retail 71.1 Chemical 61.4 Medical 56.2 Auto 53.8 Source "Whats ahead for 3PLs“ Modern Materials Handling, April, 2000
  8. 8. 3PL Survey 2008 - Analysis Agenda  Current State of the Market:  Summarize the current use of 3PL services  Examine why customers do/don’t outsource — to 3PL providers  Identify customer needs  How well 3PL providers are responding to those needs  How customers select and manage 3PL providers  Special Topics - Look into key issues relating to 3PL use –  Provision of Integrated service offerings  Green supply chain  Supply chain Security
  9. 9. The 3PL Survey 2008 – 13th Edition
  10. 10. 3PL – Services Used
  11. 11. Why 3PL - Benefits Save Time  Don’t need to invest in:  Trucks,  Training,  Development Help expand to  New markets  International Narrow your focus  Allows you to focus on your strengths  Don’t get spread too thin Reach more customers more effectively  Can ensure delivery times  Can help a company run leaner
  12. 12. Why not 3PL – Risks and Concerns High Co-ordination costs Loss of internal logistics management capabilities Biased choice of service providers Leakage of sensitive data and information - Security Service degradation  Less reliable? Longer order cycle time?  Emergency response? Loss of control and representation Collaboration with Competitors – Knowledge Sharing Reduced contact with final customer  3PL for outbound logistics interact with your customers, you become less visible to your customers
  13. 13. Service Offerings Basic Service Providers  Warehouse management  Order processing , Order fulfilment  Transportation carrier selection Value-added Service Providers:  Shipment/Order consolidation  Import/export Customs  Logistics information systems (EDI, reporting)  Fleet management/operations (e.g. cross-docking)  Product assembly/installation Logistics Integrators:  Full responsibility for key supply chain operations  replenishment/order-filling policies  product returns  customer spare parts inventory replenishment  Rate negotiation
  14. 14. 2008 - Customer Experience with 3PL
  15. 15. Trend 1 - Integrated Logistics –The Good and The Bad
  16. 16. Trend 1 - Integrated Logistics with IT
  17. 17. Integrated Logistics – State as of 2008
  18. 18. Trend 2 - Green Supply Chain Uncertainty about “Green” –  What is it and How to attain it  Will it result in cost savings or cost escalation Green Action Plan –  Getting Educated (what, how etc)  Measure the environmental impact of current SCM  Identify Change Levers  Embark on Business Case supported initiatives
  19. 19. Green SCM – Solutions Suggested SUGGESTIONS  Improve Transportation Efficiency  Improve Equipment  Change Packaging  Shift Modes  Optimize Networks  Retrain Drivers  Move towards Greener Buildings
  20. 20. Trend 3 - Security –Collaboration and Importance
  21. 21. Security – Concerns and Way Ahead
  22. 22. Security - Suggestions
  23. 23. 3PL Study 2012 – Key Trends Now 3PLs Value Creation Increase but so does InSourcing - 64% report increase in 3PL Usage, 24% are returning to InSourcing. Consolidation of 3PL Providers – 58% users are consolidating 3PL partners (based on value-add) Logistics Spending is Consistent – 12% of Revenue and 48% on Outsourcing. Transportation Spend Dominates - 56% on transportation and 39% on warehouse The Success Rating Perception Gap Remains – 88% users and 94% 3PL providers are happy with performance. But 33% users feel there is scope of more innovation. The IT Gap Remains - 54% of shippers are satisfied with 3PL IT capabilities. 93% indicate that ITcapabilities are a necessary element of 3PL expertise. New 3PL Selection Criteria - Fuel efficiency and carbon emissions are becoming more important.
  24. 24. Thank You
  25. 25. Contract Warehousing Incoming Bulk Distribution Customers Products Warehouse Center Retailers Outsourced In-house Activities: Benefits: Labor & supervision Lower capital investment Receiving, storage, shipping Lower fixed/variable cost ratio Value Added Services Focus to the core Traffic/transportation Professional service
  26. 26. Supplier Hub / Regional FulfillmentCenter / Regional Distribution Center Incoming Materials Bonded Mfg site/ Or Warehouse Point of Use Products Outsourced Activities: Benefits: Same as contract warehouse Lower capital investment Customs clearance Focus to the core Freight consolidation Delayed payment of duties and taxes Shipment visibility Pay (for material) on production Inventory ownership Visibility of pipeline inventory Order fulfillment Value Added Services
  27. 27. Shipment Consolidation andTransportation Customs Incoming Point of Sale/ Materials Consol. De-con Point of Use/ Or Center Center Customers Products Outsourced Activities: Benefits: Transport arrangement Shorter cycle time Customs clearance Lower freight costs Freight consolidation Visibility of pipeline inventory Shipment visibility Inventory consolidation Carrier mgmt / rate mgmt Merge in transit
  28. 28. Product Returns / Technical Services Repair centers Customers Product Return Center OEM Warranty Fulfillment Outsourced Activities: Benefits: Testing / screening Centralization of inventory Warranty program mgmt Lower capital investment Inventory ownership Focus to the core Warehousing and inv mgmt Reduced reverse logistics costs Fulfillment Speedy response to customers Depot repair mgmt
  29. 29. Critical Parts / Service Parts Logistics Repair centers Customers Tier 1 Tier 2 Tier 2 Tier 2 Tier 3 OEM Warranty Fulfillment Outsourced Activities: Benefits: Failed parts replacement Centralization of inventory Warranty program mgmt Lower transportation cost Inventory ownership Improved visibility of inventory Warehousing Lower capital investment Depot repair mgmt Better after-sales service support Visibility and Track&Trace
  30. 30. Logistics Financial Services Customers / Supplier Manufacturers Distributors Retailers Activities: Benefits: Inventory finance (factoring, Reduced cost of capital LOC) Improved cash flow Distribution finance (asset based Reduced capital investment lending, receivable finance) Payment solutions (COD) Leasing
  31. 31. Total Logistics Management Incoming Bulk Distribution Customers Products Warehouse Center Retailers Outsourced Activities: Benefits: Logistics planning Reduced total logistics costs Network optimization Global visibility 3rd vendor mgmt Single logistics solution and contact Information technology Focus to the core Supply chain visibility Reduced investment in logistics