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A third-party logistics provider (abbreviated 3PL, or sometimes TPL) is a firm that provides service to its customers of outsourced (or "third party") logistics services for part, or all of their supply chain management functions. Third party logistics providers typically specialize in integrated operation, warehousing and transportation services that can be scaled and customized to customers' needs based on market conditions and the demands and delivery service requirements for their products and materials. Often, these services go beyond logistics and included value-added services related to the production or procurement of goods, i.e., services that integrate parts of the supply chain. Then the provider is called third-party supply chain management provider (3PSCM) or supply chain management service provider (SCMSP). Third Party Logistics System is a process which targets a particular Function in the management. It may be like warehousing, transportation, raw material provider, etc.
According to the Council of Supply Chain Management Professionals, 3PL is defined as "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."
Types of 3PL providers
Hertz and Alfredsson (2003) describe four categories of 3PL providers:
- Standard 3PL Provider: this is the most basic form of a 3PL provider. They would 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: this type of 3PL provider will 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: this type of 3PL provider comes in at the request of the customer and essentially takes over complete control of the company's logistics activities. The 3PL provider improves the logistics dramatically, but do not develop a new service. The customer base for this type of 3PL provider is typically quite small.
- The Customer Developer: this is the highest level that a 3PL provider can attain with respect to its processes and activities. This occurs when the 3PL provider 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.
Non-asset based logistics providers
Advancements in technology and the associated increases in supply chain visibility and inter-company communications have given rise to a relatively new model for third-party logistics operations – the “non-asset based logistics provider.” With companies operating globally, the need to increase supply chain visibility and reduce risk, improve velocity and reduce costs – all at the same time – requires a common technological solution. Non-asset based providers perform functions such as consultation on packaging and transportation, freight quoting, financial settlement, auditing, tracking, customer service and issue resolution. However, they do not employ any truck drivers or warehouse personnel, and they don’t own any physical freight distribution assets of their own – no trucks, no storage trailers, no pallets, and no warehousing. A non-assets based provider consists of a team of domain experts with accumulated freight industry expertise and information technology assets. They fill a role similar to freight agents or brokers, but maintain a significantly greater degree of “hands on” involvement in the transportation of products.
To be useful, providers must show their customers a benefit in financial and operational terms by leveraging exceptional expertise and ability in the areas of operations, negotiations, and customer service in a way that complements its customers' preexisting physical assets.
|This section does not cite any references or sources. (May 2011)|
On-demand transportation is a relatively new term coined by 3PL providers to describe their brokerage, ad-hoc, and "flyer" service offerings. On-demand transportation has become a mandatory capability for today's successful 3PL providers in offering client specific solutions to supply chain needs.
These shipments do not usually move under the "lowest rate wins" scenario and can be very profitable to the 3PL that wins the business. The cost quoted to customers for on-demand services are based on specific circumstances and availability and can differ greatly from normal "published" rates.
On-demand transportation is a niche that continues to grow and evolve within the 3PL industry.
Specific modes of transport that may be subject to the on-demand model include (but are not limited to) the following:
- FTL, or Full Truck Load
- Hotshot (direct, exclusive courier)
- Next Flight Out, sometimes also referred to as Best Flight Out (commercial airline shipping)
- International Expedited
On-demand transportation is a term to reflect what have become known as "smile and dial" brokerages that essentially work as telemarketing call centers. Brokers have no obligation to successfully ship all loads (as opposed to contract logistics providers) and almost all sales representatives are heavily (and 100%) commissioned, and much of the workers' day is spent cold-calling sales leads. Smile-and-dial brokerages typically require a 15% gross profit margin (the difference between what the shipper pays the brokerage and what the brokerage pays the carrier), and the commission compensation scheme means that the turnover of personnel in the call centers approaches 100% per year.
For the occasional shipper, smile-and-dial brokerages can provide a convenient way to have goods shipped. But the lack of deep expertise due to constant turnover, combined with the 15% pricing margins, mean that a reasonably capable traffic professional can obtain transportation services much more economically and reliably.
In the "PL" terminology, it is important to differentiate the 3PL from the:
- 1PL, which are the shipper or the consignee.
- 2PL, which are actual carriers such as Korean Air, Air France KLM, Maersk, MSC, CMA CGM.
- 4PL, which are consulting firms such as CPCS, SCMO, BMT, Deloitte, arvato Bertelsmann and Accenture.
Companies such as Access America Transport, Landstar, Inc., Panalpina, Kuehne + Nagel, DB Schenker, YRC Worldwide, UPS, FedEx, DSV, DHL Express, Ceva Logistics, Expeditors International, Blue Water Trucking, SNCF Geodis, and Cimetra are 3PL.
3PL can also be 2PL at the same time in the following cases:
- when a shipping line owns a freight forwarder,
- when an airline owns a general sales agent (GSA),
- when a freight forwarder owns trucks or a warehouse,
- when a courier company owns planes.
- Hertz, Susanne; Monica Alfredsson (February 2003). "Strategic development of third party logistics providers". Industrial Marketing Management (Elsevier Science) 32 (2): pp. 139–149. doi:10.1016/S0019-8501(02)00228-6.
- Selecting a Third Party Logistics (3PL) Provider Martin Murray, about.com
- Supply Chain Visibility is ranked top priority. Again.