What is a 3PL?
3PL is an abbreviated term for third party logistics. The shape of a 3PL today is not how your grandfather may have known a 3PL. Third party logistics used to mean transportation and warehousing, but nowadays it encompasses a comprehensive range of outsourced services for pretty much all aspects of supply chain. Third partly logistics companies have expanded along with the increasing scope of the discipline from physical distribution (‘60s and ‘70s) to logistics (‘80s and ‘90s) to full supply chain (‘00s).
Examples of a modern 3PL functions include:
– Transportation outsourced to asset based carriers – Transportation outsourced to non-asset based brokers – Private fleet management – Consolidation – Transportation cost and service improvement – Freight bill payment and auditing – Freight claims and cargo insurance – Small package services and big box services – Reverse logistics, green logistics and sustainability services
– Basic warehouse functions: receiving, storage, pick, pack, ship – Cross docking – Order fulfilment – Shared multi-client DCs – Labour recruitment and management – Returns processing, sustainability services – Light manufacturing, customization, postponement and kitting.
– Customs and freight forwarding – Multi-shipper container consolidation – Global air freight – Logistics operations globally
– E-commerce: EDI, web portals, and cloud-based systems – Control towers and visibility tools – Customer relationship management (CRM): real time visibility to customer data, shipments, and invoices – Transportation management system (TMS) to ensure loads and routes are optimised – Warehouse management system (WMS) including all of the latest WMS functionality to ensure optimal DC productivity – Connectivity with a wide range of applications inside the firm
3PLs Continue to Grow
The 3PL phenomenon took root over half a century ago, and since the mid-nineties the sector has expanded dramatically. In fact, 72% of shippers expected to increase their use of outsourced logistics services last year. In 2014, 94% of 3PLs increased sales revenues by at least 5%. There is a trend toward large 3PLs and mega-3PLs, with significant consolidation occurring in the industry. Today, nearly 25 3PLs have revenue exceeding one billion dollars. Since the start of 2014, there have been ten major acquisitions by 3PLs totaling 18 billion dollars due to the need to expand the array of services offered, expand the geographic footprint, and drive scale. The motivation seems to be to achieve scale economies and create a one-stop shop for all 3PL needs. The smaller 3PLs that can offer more customized services are seeing strong expansion as well. A capacity shortage exists in the transportation arena and that limits growth somewhat. These capacity challenges are exacerbated by the driver shortage, and that will not abate anytime soon. However, some in the field feel that the carrier capacity shortage is beginning to turn in the shipper’s favour. Overall the industry is huge. The United States 3PL gross revenue exceeds $150 billion and is continuing to grow at a rate of 5-8 percent annually. While this far slower than the rate 3PLs experienced from 2000-2008, when revenues more than doubled from $56.6 billion to $127 billion, it is still a very healthy industry?
Why Do Companies Use a 3PL?
Most companies selling or producing goods use a 3PL for at least some domestic functions and nearly all global operations. That’s because third party logistic providers generate a range of benefits for companies who engage them.
Companies say they use 3PLs in order to:
– Reduce current cost: Cost management is still the number one priority for shippers, and 3PLs often have scale advantage across their total operations. In 2015, shippers who used 3PLs reported a 9 percent average cost reduction, with 5 percent reduction in inventory cost and 15 percent reduction in fixed logistics cost, and an improvement in order fill rates.
– Reduce future cost by leveraging the 3PL’s expertise and technology.
– Improve customer satisfaction, with accurate order fulfilment and on-time delivery. The best 3PLs have real-time tracking and event management systems to provide real-time alerts when delays occur and are able to respond to change more rapidly and efficiently.
– Provide global expertise. This includes documentation, customs, freight forwarding services, duty optimization, global airfreight, etc.
– Reduce risk. This includes a range of risks like people risk (e.g. EEOC, workman’s comp, union issues, high headcount), environmental risk, and supply chain performance risk
– Enable start-up. Logistics and the associated systems, along with labour acquisition, can involve significant capital requirements for a start-up operation. Even in an existing company, sufficient internal management resources may not be available to deploy this task. The 3PL can provide this support for a start-up operation.
Companies expect their 3PL to take direction, respond rapidly, and generate ideas for improvement. They further expect the 3PL to become a strategic partner in efficiently growing the business.
For more information:
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