Third-party logistics provider
Encyclopedia
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 customer
s' needs based on market conditions and the demands and delivery service requirements for their products and materials.
, 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."
s, courier
companies, as well as other companies integrating & offering subcontracted logistics
and transportation services
Hertz and Alfredsson (2003) describe four categories of 3PL providers:
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.
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:
Logistics
Logistics is the management of the flow of goods between the point of origin and the point of destination in order to meet the requirements of customers or corporations. Logistics involves the integration of information, transportation, inventory, warehousing, material handling, and packaging, and...
services for part, or all of their supply chain management
Supply chain management
Supply chain management is the management of a network of interconnected businesses involved in the ultimate provision of product and service packages required by end customers...
functions.
Third party logistics providers typically specialize in integrated operation, warehousing and transportation services that can be scaled and customized to customer
Customer
A customer is usually used to refer to a current or potential buyer or user of the products of an individual or organization, called the supplier, seller, or vendor. This is typically through purchasing or renting goods or services...
s' needs based on market conditions and the demands and delivery service requirements for their products and materials.
Definition
According to the Council of Supply Chain Management ProfessionalsCouncil of Supply Chain Management Professionals
The Council of Supply Chain Management Professionals is the leading worldwide association of professionals in supply chain management. The CSCMP is a non-profit association that provides leadership in the development, design and improvement in occupations that deal with logistics and management of...
, 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
Third-party logistics providers include freight forwarderFreight forwarder
A freight forwarder, forwarder, or forwarding agent is a person or company that organizes shipments for individuals or other companies and may also act as a carrier...
s, courier
Courier
A courier is a person or a company who delivers messages, packages, and mail. Couriers are distinguished from ordinary mail services by features such as speed, security, tracking, signature, specialization and individualization of express services, and swift delivery times, which are optional for...
companies, as well as other companies integrating & offering subcontracted logistics
Logistics
Logistics is the management of the flow of goods between the point of origin and the point of destination in order to meet the requirements of customers or corporations. Logistics involves the integration of information, transportation, inventory, warehousing, material handling, and packaging, and...
and transportation services
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 packPick and PackPick and pack is a part of a complete supply chain management process that is commonly used in, but not limited to, the retail distribution of goods. It entails processing small to large quantities of product, often truck or train loads and disassembling them, picking the relevant product for each...
, warehousing, and distribution (business)Distribution (business)Product distribution is one of the four elements of the marketing mix. An organization or set of organizations involved in the process of making a product or service available for use or consumption by a consumer or business user.The other three parts of the marketing mix are product, pricing,...
– 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-dockingCross-dockingCross-docking is a practice in logistics of unloading materials from an incoming semi-trailer truck or railroad car and loading these materials directly into outbound trucks, trailers, or rail cars, with little or no storage in between...
, specific packaging, or providing a unique security system. A solid IT foundation and a focus on economies of scaleEconomies of scaleEconomies of scale, in microeconomics, refers to the cost advantages that an enterprise obtains due to expansion. There are factors that cause a producer’s average cost per unit to fall as the scale of output is increased. "Economies of scale" is a long run concept and refers to reductions in unit...
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.” 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. Examples of third party logistics companies as defined above would be C.H. Robinson Worldwide, Dupré Logistics LLC, J.B. Hunt Transport Services, FedEx SupplyChain, http://www.getfreight.in, http://www.ShipTime.com, or http://www.shipping-rates.comTo 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.
On-Demand Transportation
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
Terminology
In the "PL" terminology, it is important to differentiate the 3PL from the:- 1PL, which are the shipper or the consigneeConsigneeIn a contract of carriage, the consignee is the person to whom the shipment is to be delivered to whether by land, sea or air.-A brief statement of law:...
, - 2PLSecond-party logisticsA Second-party logistics provider is an asset-based carrier, which actually owns the means of transportation.- Type of 2PL :Second-party logistics providers are:* shipping lines, which own, lease, or charter their ships,...
, which are actual carriersCommon carrierA common carrier in common-law countries is a person or company that transports goods or people for any person or company and that is responsible for any possible loss of the goods during transport...
such as YRC WorldwideYRC WorldwideYRC Worldwide Inc. is the holding company for a portfolio of brands including YRC, YRC Reimer, New Penn, USF Holland and USF Reddaway. YRC Worldwide has a comprehensive network in North America with local, regional, national and international capabilities...
, UPSUnited Parcel ServiceUnited Parcel Service, Inc. , typically referred to by the acronym UPS, is a package delivery company. Headquartered in Sandy Springs, Georgia, United States, UPS delivers more than 15 million packages a day to 6.1 million customers in more than 220 countries and territories around the...
, FedExFedExFedEx Corporation , originally known as FDX Corporation, is a logistics services company, based in the United States with headquarters in Memphis, Tennessee...
, - 4PL, which are consultingManagement consultingManagement consulting indicates both the industry and practice of helping organizations improve their performance primarily through the analysis of existing organizational problems and development of plans for improvement....
firms such as CPCS, SCMO, BMTBMT LimitedEstablished in 1985, BMT Group Ltd is an international multi-disciplinary engineering, science and technology consultancy offering a broad range of services, particularly in the defence, energy, environment, maritime transport, marine risk and insurance, shipping and general transportation sectors...
, Deloitte, and AccentureAccentureAccenture plc is a global management consulting, technology services and outsourcing company headquartered in Dublin, Republic of Ireland. It is the largest consulting firm in the world and is a Fortune Global 500 company. As of September 2011, the company had more than 236,000 employees across...
.
Overlapping
3PL can also be 2PL at the same time in the following cases:- when a shipping lineShipping line-History of shipping lines:Large-scale shipping lines became widespread in the nineteenth century, after the development of the steamship in 1783. At first, Great Britain was the centr of development; in 1819, the first steamship crossing of the Atlantic Ocean took place and by 1833, shipping lines...
owns a freight forwarder, - when an airlineAirlineAn airline provides air transport services for traveling passengers and freight. Airlines lease or own their aircraft with which to supply these services and may form partnerships or alliances with other airlines for mutual benefit...
owns a general sales agentGeneral Sales AgentA general sales agent is a sales representative for an airline in a specific country or region. Typically, the GSA is responsible for selling all products of the airline in its region which includes flight tickets and cargo space...
(GSA), - when a freight forwarder owns truckTruckA truck or lorry is a motor vehicle designed to transport cargo. Trucks vary greatly in size, power, and configuration, with the smallest being mechanically similar to an automobile...
s or a warehouseWarehouseA warehouse is a commercial building for storage of goods. Warehouses are used by manufacturers, importers, exporters, wholesalers, transport businesses, customs, etc. They are usually large plain buildings in industrial areas of cities and towns. They usually have loading docks to load and unload...
, - when a courier company owns planesFixed-wing aircraftA fixed-wing aircraft is an aircraft capable of flight using wings that generate lift due to the vehicle's forward airspeed. Fixed-wing aircraft are distinct from rotary-wing aircraft in which wings rotate about a fixed mast and ornithopters in which lift is generated by flapping wings.A powered...
.
See also
- Three-letter acronymThree-letter acronymA three-letter acronym, three-letter abbreviation, or TLA is an abbreviation, specifically an acronym, alphabetism, or initialism, consisting of three letters...
(TLA) - First-party logistics (1PL)First-party logisticsA First-party logistics provider is a firm or an individual that needs to have cargo, freight, goods, produce or merchandise transported from a point A to a point B...
- Second-party logistics (2PL)Second-party logisticsA Second-party logistics provider is an asset-based carrier, which actually owns the means of transportation.- Type of 2PL :Second-party logistics providers are:* shipping lines, which own, lease, or charter their ships,...
- Fourth-party logistics (4PL)Fourth-party logisticsA Fourth-party logistics provider , lead logistics provider , or 4th Party Logistics provider, is a consulting firm specialized in logistics, transportation, and supply chain management...
- Fourth-party services
- Freight
- ShippingShippingShipping has multiple meanings. It can be a physical process of transporting commodities and merchandise goods and cargo, by land, air, and sea. It also can describe the movement of objects by ship.Land or "ground" shipping can be by train or by truck...