Third Party Logistics is a concept of supply chain management and logistics in which a company makes use of third parties by outsourcing specific elements of fulfillment and distribution services. 3PL providers have a specialization in transportation, integrated operation, and warehousing services. These services are usually customized according to the specification of the customer and market conditions. As such, third-party logistics companies are a vital part of the supply chain and are beneficial to small and large businesses alike. 3PL companies have experienced growth as there is an increased need for business leanness and more focus on core processes of business.
Rise of 3PL Providers
The 80s marked the onset of 3PL as a concept. Businesses were looking for ways through which they could outsource functions such as logistics and concentrate on their core businesses. FedEx is a name most synonymous with third-party logistics and is mostly responsible for the 3PL revolution.
This company would do convenient overnight deliveries, changing the way through which business to customer and business to business transactions happened. The use of third-party logistics enabled companies to reduce overall costs while saving warehousing space as they now used just-in-time techniques.
After just-in-time techniques, there were efficient-consumer response techniques that enabled smaller shipment sizes. Companies then began to see the benefits of warehousing functions and outsourcing deliveries. The number of 3PL companies began to rise, and the number of services provided did as well. The rise in number of companies brought about competition among 3PL companies and savings for customers. Today, 3PL is no longer a local or regional business only but a global one as well. Since 1996, in the United States alone, the market has been growing at a compound rate of 14.2% annually.
How does a Shipper look for a 3PL Savannah firm?
The decision to use a 3PL company for some operations in a company will depend on its product lines, acquisitions, expansions and future objectives. There is asset-based, management based and integrated provider third party logistics companies. The asset-based companies use their warehouses and trucks while the management based provide mainly managerial and technological services to clients, using the assets of another company. Integrated providers, on the other hand, are either asset or management based companies that complement their services with those the clients need.
To choose a 3PL company suited for a company’s needs, they should have a detailed copy of their Request For Proposal. An RFP will contain information about the scope of a contract, information on delivery volumes and the sizes of warehouses, logistics tasks the company performs and the performance levels required. A company often receives several bids from different companies before reviewing the bids and choosing a suitable team for the company.
Criteria for choosing a Suitable 3PL company
- Are their service costs detailed enough for comparison with other companies?
- Is the company providing the services needed?
- Do they have the suitable technology for the tasks in hand?
- Does it have an appropriate dock capacity, warehouse space, and personnel?
- Is the company financially sound?
- Does it cover all the necessary geographic locations?
- Are they flexible?
- Is the company culturally fit and does it have compatible environmental policies?
- Are the references of customers acceptable?
After the evaluation of bids, each company is given a bidder score. This scores usually depend on which criterion carries more weight than the others during selection. Management often chooses to visit the top companies, do interviews and review financial records before choosing one and negotiating a contract.
Time and cost savings. A logistics company often has more expertise, knowledge, and global networks as compared to a producer or seller. They use IT systems and equipment that they constantly match and update according to clients’ needs and expectations. This saves time and costs for companies.
Capital commitment. The capital commitment is low in such a case because a company does not need transport and warehouse facilities. A company with high variations in capacity utilization will especially benefit from such an arrangement.
Flexibility and Focus. 3PL providers can do a more comprehensive coverage geographically. They may also offer more services than what clients could do for themselves. This flexibility allows companies to predict their resource management including the size of their workforce. A company is also able to focus on their core-business when a 3PL company deals with logistic elements.
Loss of Control. Once a company hires a 3PL company, the 3PL company assumes the client’s interactions and communications with suppliers and customers. The client, therefore, loses control. Some 3PL companies sort this by merging the logos of their clients on their assets and dressing their employees as their client would.
IT. For the logistics functions to run smoothly, the IT systems of the client and provider are made interoperable through the use of Electronic Data Interchange or Dispatch Management Software. This involves cost but is equally beneficial as it can help avoid issues such as delay and financial loss in the future.