Third Party Logistics (3PL)
An addition to the shipping community, categorized as organizations that consume transportation and distribution services, the logistics market place is dominated by transportation providers, storage providers and Third Party Logistics Providers.
A growing trend for organizations focused on managing their supply chains is to outsource part or all of the logistics functions to Third Party Logistics Providers – 3PLs. By definition, these are independent companies that design, implement and/or manage a client’s supply chain logistics needs. The key differentiating factor between a 3PL and a transportation provider is that a 3PL provider’s primary value-add is based on information and knowledge, versus providing an undifferentiated service at the lowest costs. Capitalizing on this strategy, it is appropriate for organizations to link marketing strategies, which, in common with the 3PL approach, focused on value-added services versus non-differentiated network and data translation services, which are price sensitive.
The 3PL logistics sectors estimated annual growth of 20% is primarily driven by the growing trend to outsource supply chain logistics functions.
VPI has developed global networks, by establishing our own operations in key geographies, and by forming alliance partnerships with complimentary service providers. VPI facilitates an extension of the enterprise, providing detailed knowledge of various logistics markets, including transportation, logistics and regulatory issues. Critical information related to storage and distribution, international customs documentation, multi-modal freight rates and preferential trade terms is compiled and processed.
In addition to providing expertise, a key to managing the complexities of a global supply chain with regulatory and other issues, we are able to leverage infrastructure and freight rate negotiations over a large base, providing cost advantages. Additionally, for customers experiencing seasonal demand for their product, outsourcing the logistics function transforms a fixed cost into a variable. This can have a significant benefit to the bottom line.
In a study performed by Ernst & Young and the University of Tennessee, organizations using 3PL companies reduced logistics costs by an average of 7.8%; achieved a reduction in logistics assets of 21.6% and a reduction in order cycle time from 6.3 to 3.5 days.
The growing emphasis on information technology, a key enabler in an information intensive global economy, has created challenges as well as opportunities in the area of supply chain logistics. The majority of large corporations have already invested in large enterprise systems (ERP) and are increasingly requiring their supply chain logistics partners to interface with them, facilitating an integrated information flow throughout the supply chain. 3PL providers have responded to this challenge, forming alliances with independent software companies or developing information technology internally. This has in turn created a market for software vendors, who have responded with suites of Supply Chain Execution (SCE) applications. This includes order management systems (OMS), warehouse management systems (WMS) and transportation management systems (TMS).
VPI is able to optimize storage, distribution and transportation networks, track shipments across multiple transportation modes and execute transactions electronically. The use of electronic data interchange (EDI) has been extensively applied, providing opportunities for value added solutions providers in this area. Traditionally this exchange of data has been based on traditional trade and transportation documentation, with standardized transaction sets being exchanged by business partners.
Costs associated with this exchange in many cases precluded the participation of smaller customers, necessitating the manual input of data into logistics systems. The utilization of the Internet, in universal fashion has changed everything. It is now possible to link all logistics partners, no matter how small, providing real time information flows on a global scale.
The transportation industry includes the following service providers:
- Motor Freight
- Water transportation
- Air transportation
- Contract Warehousing
These organizations provide storage facilities to a single client, normally under a long-term contract. Services provided could include additional value added services such as kitting, configuration etc. This is a growth area, due in large part to the requirements of web-based storefronts.
Public warehouses provide storage for a variety of clients, either on a short term, or seasonal basis, or on a longer term. In addition to storage and transportation management these facilities also provide value-added services as required.
Other Storage Providers
In addition to the traditional warehouse facilities, there are specialized facilities that offer national parts distribution, or storage and distribution for products with low velocity or those of a hazardous nature.
VPI has responded to market demand by providing value-added services, which include configuration, final assembly or other functions normally performed as part of ‘final finishing’ in the manufacturing area.
International Freight Forwarders/Customs Brokers
When moving freight across international borders it is necessary to complete necessary documentation to comply with customs and other regulatory bodies. Licensed customs brokers provide services in the area of import and export. Additionally, freight is consolidated and transported globally by multi-modal freight forwarders, who do not own or operate equipment, acting as agents and providing additional services.
Analysis of the Issues facing the constituents in Global Logistics
This question was addressed by evaluating issues from the perspective of the two primary constituents – trade (shipper) community and carrier/service provider community.
Shipper Community Issues - How To:
- Manage variability of Supply and Demand in a 24 x 7 digital economy
- Acquire the data needed to monitor the supply chain
- Gain total supply chain visibility
- Facilitate Velocity
- Reduce time to market
- Reduce cash to cash cycle time
- Reduce concept to cash cycle time
- Respond to changes in demand through postponement and mass customization
- Create a supply chain of chains with enough flexibility to enable an agile enterprise capable of responding to change in ‘virtual time’
Service Provider Community Issues:
- Requirement for global networks to meet demands of shippers
- Demand for ‘real-time’ accurate information, integrated into shipper systems
- It is no longer just an issue of price and good service – technology is an issue
- Requirement to manage more than transportation – mass customization has extended the manufacturing environment and requires additional services to meet customer needs
- Need to manage whole supply chain – at information level – versus node optimization
- Balance between managing client expectations, maximizing asset utilization and human resources
- Both constituencies are faced with issues related to speed, timing and information, aggravated by the need to manage an evolving community of logistics partners across a global supply chain.
These issues are compounded by the complexity of Globalization – the Internet has changed the marketplace forever. It is no longer possible to segregate markets and remain US-centric. The customers and competition are all playing a global game – new rules of play include:
- International Supply Chain (chains of chains – a key to achieving global reach is collaboration)
The scope and scale of these changes requires a knowledge of and ability to manage the complexity of related elements in this new business environment:
- Business collaboration
- Supply Chain globalization
- Time zones
- Local economy
- Available technology
- Stability of the local government
- Availability of talent (HR availability)
- Local customs and laws
- Globalization requires expertise, sharing of knowledge and information and integrated business processes, irrespective of geographic location or language issues.