3PL

Business Logistics – LOGT 3232

Dr. Stephen M. Rutner 1

Chapter 11Logistics Relationships &

Third Party Logistics (3PL)• Types of Relationships

– Make/Buy

• Core Competencies• 3PL

– Definition– Activities– Benefits/Weaknesses

• 4PL

Effectiveness of Supply Chain Relationships

7% 8%

22% 21%

48%42%

20%23%

2% 4%

0%

10%

20%

30%

40%

50%

Poor Fair Average Good Exceptional

Suppliers Customers

Per

cen

tage



Relationship Perspectives

“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



What is Third Party Contract Logistics?• Use of outside distribution companies (carriers,

warehouses, or third-party freight managers) to perform all or part of a company’s material or product distribution functions

– Transportation– Storage– Inventory control– Customer service– Logistics information networks

• Terms contract logistics and outsourcing are sometimes used in place of 3PL.

Outsourcing Alternatives

NoOutsourcing

IndividualLogisticsActivities

MultipleActivities

MultipleActivities

AllActivities

Single Source3rd Party

Contract Log.(Integrated)(Non-Integrated)



Outsourcing AlternativesCore Capabilities

• Transportation– LTL and TL– Dedicated– Intermodal– Global sourcing / distribution

• Warehousing• Inventory Management

and Control • Consulting Assistance

• Information Systems– Order Processing &

Logistics systems

• Consolidation and Distribution

• Freight Management Services– Carrier selection and rate

negotiation– Freight bill auditing and

control

What Does It Take to Have an Area of Core Competency?

StrategicFit

Expertise



Outsourcing AlternativesValue-Added Capabilities

• Pick and Pack

• Marking, Tagging, and Labeling

• Product Returns and Reverse Distribution

• Packaging and Repackaging

• Salvage and Scrap Disposal

• Telemarketing

3PL Buying Process Model for Forming Logistics Relationships

& Involved FunctionsFunction % Finance 48% Manufacturing 42% Marketing 29% Information Systems 52% HRM 19%



Types of Third Party Contract Logistics Suppliers

Transportation(Non-leveraged)

Transportation(Leveraged)

Shipper(Management)

Based

Financial/Information

Based

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.



Third-Party Logistics (3PL): 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.

Third Party Use by Key Market Type

Auto Chemical Computer Consumer Medical

54.5

78.686.8

7564.4

0

20

40

60

80

100

Auto Chemical Computer Consumer Medical

Percent Using orConsideringThird Party

Source: 1996 University of Tennessee Study



Strengths and Weaknesses ofThird Party Logistics

• Advantages– Buyer can concentrate on its core business– Cost reduction– Flexibility - seasonality, geography, test new markets– Gain management expertise and dedicated resources– Permit off-balance-sheet financing

• Disadvantages– Loss of internal control– Lack of acceptance - mgt and labor– Possible increase in costs

Benefits Resulting from Outsourcing Efforts

0% 10% 20% 30% 40% 50% 60% 70%

Operating costreduced

Service levelimproved

Focus on corecompetencies

Employee basedreduced

Capital costsreduced

Benefits Percent of Study Respondents

Source: University of Tennessee Study



Example Third Party Relationships

Customer SupplierApple Computer Skyway Freight System

Libby-Owens-Ford Roadway LogisticsHershey Exel Logistics

Target Stores C.H. RobinsonCoca-Cola Foods Cass Logistics, Inc.

Saturn Corporation Ryder/Averitt ExpressSears Leaseway

Nat’l Semiconductor Federal ExpressEtonic Caterpillar Logistics

2004 Top 25 3PLs

(all Revenue US$ Millions)2,625Expeditors Intl13

350Maersk Log252,892Menlo12

465SebCorp Log243,000NYK Logistics11

606FedEx SC Services233,614CH Robinson10

805Wilson Log224,000Nippon Express9

975APL Log214,153UPS8

1,170UTI Worldwide204,268Panaplina7

1,800Caterpillar Log194,700TPG/TNT6

1,872Schneider Log184,800P&O Nedllyod5

1,877Ryder175,700DHL4

2,171BAX Global166,400Schenker3

2,171Eagle Global Log156,900Kuehne & Nagel2

2,499Penske148,120Exel1

2003 Rev.3PL2003 Rev.3PL

Source: Armstrong & Assoc., Traffic World Sept 27, 2004, p.25



Shippers Using

Multiple 3PLs

25

19

15 IBM, Wal-Mart

14 HP, P&G, Sears Logistics

11 DuPont

10 Chrysler

8 AlliedSignal, Coke, Compaq, GE, Kimberly-Clark, Motorola, Philips, Pillsbury, Toyota, Xerox

7 3M, Anheuser Busch, Goodyear, Honda, Kmart, Kraft Foods, Nabisco, Nestle, Sun Microsystems

6 Colgate-Palmolive, Georgia Pacific, Monsanto, Nissan, Quaker Oats, Reynolds Metals, Sam’s Club

5 Abbott Labs, Digital Equipment, Frigidaire, Frito Lay, Glaxo Wellcome, John Deere, Kellogg’s Kroger, Lever Brothers, Lucent Technologies, Nortel, Westvaco, Whirlpool

7

Source: Armstrong & Associates, Inc., American Shipper, Nov. 99, p. 40

Contract Logistics Success Stories• 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

• Land Rover (North American operation)– Caterpillar Logistics Service: world wide parts warehousing

and distribution services to dealers, including guaranteed 48-hour expedited deliveries

• Motorola (emergency parts)– Skyway Systems, Inc.: critical parts logistics center in L.A. to

ship parts air freight to technicians nationwide



Did You Get What You Paid For?(Answer = Yes)

Asset ReductionReduction in EmployeesExpand Geographic CoverageRisk ReductionCost ReductionSpecialized Services

96.0%89.887.884.483.683.3

Percent Experiencing Business Objective Improvement

Did You Get What You Paid For?(Answer = Not as Much)

Improved Information Systems

Move from “Push” to “Pull”

Faster Implementation

45.3%

51.4

58.5

Percent Experiencing Business Objective Improvement



Customer Evaluation of Outsourcing

Neither/ or somewhat

unsuccessful10%

Extremely succesful

38%

Somewhat successful

52%

21%

37%

35%

2%

5%

0% 5% 10% 15% 20% 25% 30% 35% 40%

FALLS FAR BELOWexpectations

FALLS BELOWexpectations

MEETS expectations

EXCEEDS expectations

GREATLY EXCEEDSexpectations

Satisfaction with 3PLs3PLs in 2003 Warehourse Benchmarking Survey

Almacenar Operador Logistico, Anthar Logistics, APL Logistics, Atlanta Bonded Warehourse, BLJC, Camion Transport AG, DANZAS, DIAKINISIS SA, Excel, F&M Logistics, Genco Distribution Systems,

General Warehouse, Green Field Agencies, Inprax, J.D. Smith and Sons Ltd., Kenco Logistics, Linfox Pty Ltd, Menlo Logistics, Peoples

Services, Power Logistics, REWICO, Shenzhen ST-Anda Logistics Co. LTD, Sunland, Tibbett and Britten, TNT Logistics Malaysia, USCO

Logistics, Zust Ambrosetti Group

Source: Edward H. Frazelle Ph.D.- 2003 TLI/ WERC Warehouse Benchmarking Survey



3PL Customer Evaluation of Outsourcing (Yearly Comparisons)

90%83% 86% 88%

82%

54%

0%

20%

40%

60%

80%

100%

1996 1997 1998 1999 2000 2001

Perc

ent S

ucce

ssfu

l

Source: CBL, Figure 11-12

Third-Party Revenues (in Billions)

$ 3 0 . 8$ 3 4 . 2

$ 3 9 . 6$ 4 5 . 3

$ 5 6 . 6$ 6 0 . 8 $ 6 5 . 0

$ 0

$ 1 0

$ 2 0

$ 3 0

$ 4 0

$ 5 0

$ 6 0

$ 7 0

1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 0 0 0 2 0 0 1 2 0 0 2Source: Bob DeLaney State of Logistics, 2003



Top Six Outsourcing LogisticsServices: 2001

TABLE 11-3 Outsourced Logistics Services: 2001

Percent OutsourceWarehousing 73.7%Outbound transportation 68.4Freight bill auditing/Payment 61.4Inbound transportation 56.1Freight consolidation/Distribution 40.4Cross-docking 38.6Product marketing/Labeling/Packaging 33.3Selected manufacturing activities 29.8

TABLE 11-3 Outsourced Logistics Services: 2001 Cont.

Percent OutsourceProduct returns and repair 22.8Inventory management 21.0Traffic management/Fleet operations 19.3Information technology 17.5Product assembly/Installation 17.5Order fulfillment 15.8Order entry/Order processing 5.3Customer service 3.5

Note: Figures refer to percentages of users indicating use of specific 3PL services.

Source: C. John Langley Jr., Gary R. Allen, and Gene R. Tyndall, Third-Party-Logistics Services: Views from the Customers (Atlanta, GA: Georgia Institute of Technology, Gap Gemini Ernst & Young and Ryder System, Inc., 2001).



3PL Measurement:Implementation and Continuous Improvement

Relationship StrategiesHigh Involvement

Low Involvement

Third party / contract logistics

Preferred partner

Preferred supplier

Limited partner

Neutral

Arms length

Adversarial



Fourth-Party Logistics (4PL): The Next Evolution?

• Thought of as supply chainintegrator, a firm that“assembles and manages the resources, capabilities, and technology of its own organization with those of complementary service providers to deliver a comprehensive supply chain solution.”12

• 4PLs manage and direct the activities of multiple 3PLs, serving as an integrator.

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

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