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 Logistics
 In 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
client’s customers.
 He does the above using his own assets
and resources on behalf of the client
company.
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.
 Non-leveraged 3PLs use assets belonging
solely to the parent firm.
 Examples: Ryder, Schneider Logistics,
FedEx Logistics, UPS Logistics
Types of 3PL Providers
 Warehouse/Distribution Based
 Many have former warehouse and/or
distribution experience.
 Examples: DSC Logistics, USCO, Exel,
Caterpillar Logistics, IBM
Types of 3PL Providers
 Forwarder Based
 Very 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
claims
 Examples: AEI, Kuehne & Nagle, Fritz, Circle, C. H.
Robinson, Hub Group
Types of 3PL Providers
 Financial Based
 Provide 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 Providers
 Information Based
 Significant growth and development in
this category of Internet-based,
business-to-business, electronic markets
for transportation and logistics services.
 Examples: Transplace, Nistevo
Third Party Logistics

Outsourced
Operation
Transportation
Shipper

Shipper Warehousing
3PL
Shipper IT support
In-house Operation SC
integration
Shipper
In-house Logistics Others
Department
Others
IT support

Transportation Warehousing
Characteristics of 3PL
 Perform outsourced logistics activities
 Process management / Multiple
activities
 More customized services
 Mutually beneficial and risk-sharing
relationship
 Long-term commitments (1~ 3 years)
Levels of Outsourcing
 Transactional 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 3PL
 Firms with wide and/or complex distribution
network. Example IBM
 Firms that do not focus on logistics as one
of their core competencies e.g Chevron
Corp or British Petroleum
 In Strategic decisions on Core competence
 In the case of the creation of a new product
group
 When a company is taking over the
activities of a M&A
Steps in 3PL Process
 Awareness: 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
concepts
 Make or Buy: Build own competence or
outsource
Steps in 3PL Process
 Business Plan: Costs, Benefits, Phasing,
Timing, Risks, Communication and
Motivation
 Selection: Selecting partner based on
market coverage, competency, integrity,
vision, etc.
 Agreement: Agreeing on a mutual
expectations using a set of performance
metrics
 Evaluation and Renewal: Sustain
partnership via mutual financial costs and
benefits, joined planning, multilevel contact
Benefits of 3PL
 Allows firms to focus on developing their
core competencies.
 Cost competitiveness and Risk Sharing
 Improved efficiency, service and flexibility
 Industry-specific application
 – “build-to-order” systems and e-

merchants
 Allows superior customer service levels
Some Disadvantages of 3PL
 Loss of Control over the logistics
function (especially for critical parts)
 Increased distance from clients. Loss of
direct contact.
 Discontinuity of services of 3PL provider
 Difference of opinion or perception of
service level of the 3rd party provider.
Current State-Market size
3PL market is growing

( $ Billions )

83.2
74.6
68.7
61.2

2005 2006 2007 2008

Current Use of 3PL by Industry

 Industry  Percentage of 3PL use in different industries

Computer 82.2

Consumer 75.9

Retail 71.1

Chemical 61.4

Medical 56.2

53.8
Auto
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 Providers
 Manage and direct the activities of multiple
3PLs, serving as an integrator
 Refinement on the idea of 3PLs
 4PLs are not asset based like 3PLs
 Assembles 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 4PL
 The 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 4PL
 4PL only work with intellectual capital
and computers
 Provide Bird‘s eye view of supply
chain
 To seek integration
 To minimize inventory costs
 To improve efficiency
 and to reduce lead times
4PL Supply Chain Value Proposition
4PL Supply Chain Value Proposition
 Revenue 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 required
 Fixed Capital Reduction: This will allow the
client to invest in its core competencies.
Advantages of 4PL
 Improved customer service
 Reduced capital requirements
 Economies of Scale
 Reduced Supply Chain costs
 Increased flexibility
 Combines the advantages of in- and
outsourcing
 Manufacturers can focus on core
competencies
Problems of the 4PL Concept
 Losing sight of original core-concept of SCM
due to loss of control
 Customer relationships should not be
dismissed on basis of efficiency
 Resistance to change – the biggest obstacle
to implementation of new approaches
 Strict functional organization structure
hinders integrated Supply Chains
Example: Transways Express 4PL
 One stop transport and logistics
supplier
 Work with suppliers and customers
It’s all about getting the right
things to the right place at the
right time at the right cost