Definition Of Third Party Logistics Management Essay
Third parties logistics (3PL) becomes an important role in several business fields. Although, the drawbacks of outsourcing 3PL provider has been appeared, majority companies still have been interested in it as a key to reduce cost of investment. In addition, FedEx Corporation and Network Global Logistics (NGL) will be discussed as a sample of 3PL providers. FedEx which is a larger company provide faster delivery and wider range of locations. However, NGL might place important on minor client more than FedEx does. The most suitable 3PL firm can be selected via consideration of indicators such as general company considerations, capabilities, quality, and technology of information systems. Moreover, establishing valuable relationship with 3PL provider is a crucial factor which companies should not ignore.
In recent years, public organisations and Businesses have become more competitive due to the growth of global logistics. Numerous companies have provided competitive advantage and logistics strategies to achieve their logistics objectives. Outsourcing is one of the crucial components to implement business functions. In addition, most of organisations can take advantage of the outsourced third parties providers. The role of Third parties companies is the distribution centres that transform commodities from warehouses to customers or retailers with high quality and cost-effective. Therefore, this report will briefly outline the third party logistics role including its definition, advantages and disadvantages, and sample of 3PL companies. It will then present the key requirements to select 3PL provider as well as factors to provide successful relationship between 3PL company and its customers.
Definition of Third Party logistics
Characteristically, the companies, where deliver services or products to the marketplace, is considered as the first party; while the customers are regarded as the second party. A third-party, therefore, is a firm that can do which those first or second parties aim to do. In logistics business environment, Coyle, Bardi, and Langley (2003) mentioned that the term ‘the third party logistics services’ has been defined in very similar way as an external supplier, which the company outsources to perform some portions or all of logistic activities. In addition, 3PL providers can be classified into five main categories, which are transportation based, warehouse/distribution based, forwarder based, financial based, and information based firms.
Advantages and disadvantages of outsourcing 3PL provider
The aim of hiring 3PL providers is to reduce the financial risks that are associated with huge investment in case of logistic functions. Hiring 3PL provider helps company increase values by reducing cost of logistic activities such as distribution centres or networks, transporting vehicles and equipment, and technical staffs (Gonzalez, 2010). Furthermore, the benefits of knowledge especially, warehouse and distribution strategies can be gain from 3PL providers (Chen, Hum, & Sun, 2001).
While outsourcing 3PL firm has numerous benefits, its drawbacks have been appeared. Firstly, the most limit of using 3PL firm is the loss of control especially in outbound state (Simchi-Levi, Kaminsky, & Simchi-Levi, 2008). Additionally, Vasiliauskas and Jakubauskas (2007) mentioned that choosing the right 3PL provider is also important. Selecting the wrong partner lead the company to lose its reputation as well as huge amount of money.
Sample of Third Party logistics Company
Due to the growth of industry, numerous companies provide resources to managing logistics more effectively. This affects to the increasing of 3PL providers to achieve high delivery standards following the customer’s expectation such as FedEx Corporation and Network Global Logistics.
FedEx Corporation is a large company that has service areas more than 220 countries worldwide with 275,000 employees. It was found in 1971 with headquarters in Memphis, Tenn. In addition, FedEx Corporation gains $ 32.3 billion annual revenue. The merit of FedEx Corporation is door-to-door service and day-definite delivery commitment that FedEx Corporation can deliver commodities to customers by own transportations. It is not only quality service, but also reliability delivery that FedEx Corporation supports a money-back guarantee to the customers. Moreover, FedEx Corporation offers automatically update that customers can check shipment status in 16 different languages (FedEx, 2010).
Network Global Logistics (NGL)
Network Global Logistics was headquartered in Broomfield; CO in 1971. It has 13 regional distribution centres with 450 employees. Network Global Logistics also gains $ 106 million annual revenue. Network Global Logistics benefits 24 hours service and customers can access in website to check shipping process, flight options, track shipments and so on. Moreover, Network Global Logistics can takes proactive supply chain solution for flexible the customer’s expectations for example, Network Global Logistics can contract storage space in new location If its own warehouse is not convenient to the customer’s market (NGL, 2010).
Comparison between FedEx and NGL
Annual revenue ($)
From the details on the table above, FedEX is far larger when compare with NGL. Due to the huge number of storage locations, facility usage and countries of service, FedEx can provide better service in majority roles such as faster delivery, wide range of receivers’ locations and also huge space of storing. On the other hand, FedEx, a large company that has numerous clients might not give priority to minor customers. NGL, a smaller might place more importance on this point than FedEx. Selecting the most suitable 3PL firms, the company should consider on the size of company, needed services and locations.
Key requirements to select 3PL providers
While the huge number of 3PL companies has been appeared, selecting the most suitable provider is the opportunity to gain the most benefits of logistic functions. When right firm is chosen, third-party logistics firms can really help a company with saving money and by delivering valuable products to their clients. Therefore, the key requirements to judge the abilities of 3PL providers can be grouped into four main issues which are general company considerations, capabilities, quality, and technology of information systems.
Firstly, general company considerations that is 3PL’s overview and statistics including its knowledge and experience, location of distributions centres, insurance conditions and financial stability as well as its price and countries of services (Bajac, 2006).
Secondly, capabilities of 3PL that is including responsiveness to manage incident, flexibility to fulfilling customer’s requirements, and facility for instance vehicles and warehouses (Bajac, 2006; Tanyas & Serdar, 2003).
The other category is quality including on time delivery performance without damage and loss, lead time of delivery, inventory turnover and excess stock frequency, and effective work (Aguezzoul, 2008; Tanyas & Serdar, 2003).
Finally, technology of information systems includes accurate information, efficient of documentation system, invoice accuracy, and e-communication facilities. (Tanyas & Serdar, 2003)
Relationship between 3PL provider and its customer
Establishing good business relationships is always complicated and difficult in any situation including in logistic roles. While successful relationship is built, both firm and 3PL providers will gain benefits. Therefore, there are critical factors to establish the successful relationships which are (6.1) Understanding of goal and objective of relationship, (6.2) Corporate compatibility, (6.3) Ability to reach agreement, (6.4) Measurement strategies and its effectiveness, (6.5) Plan toward advanced service offering and (6.6) Plan for successful relationships.
Understanding of goal and objective of relationship.
It is the most important factor which firms should concern. 3PL provider and its client should share their individual ambitions objective and goals as well as the associated risks that may occur via honestly discussion. It will help both firms achieve their goals and also improve their relationship (Langley, 2005).
It is a factor to align both firms to achieve effective relationship. This factor includes management style, management capability and corporate philosophy. In addition, the information system also should be concerned due to the problems of communication are associated with disconnects between companies (Langley, 2005).
Ability to reach agreement
The agreement should be sign in a formal contract to use as a management tool for managing and solving problems that may occur. Each party should understand the other’s need, which helps them to reach the agreement while the matters are occurred. Moreover, trusty information, commitment and effective connections are needed to build up the valuable agreement (Langley, 2005; Tanyas & Serdar, 2003).
Measurement strategies and its effectiveness
The strategies including standard operating procedures, cost and range of services and data measurement should be accepted by both 3PL provider and its client. Their strategies should determine on each other (Aguezzoul, 2008; Langley, 2005).
Plan toward advanced service offering
This factor focus on the improvement of better service in role of functional services, which are warehousing, transportation and distribution as well as value added services role, which are technology of information system, order entry and inventory management (Langley, 2005).
Plan for successful relationships
Numerous companies choose their 3PL provider by concern about its relationship with clients. Due to the price and range of service are documented on the contract and fixed over the age of agreement, the possible to revise the contract, when it is need is the important factor to maintain the relationship of firms (Bajac, 2006; Langley, 2005).
Therefore, it can be concluded that 3PL provider is an external supplier that company hires to do the logistics activities with the aiming of reducing cost and financial risk, and gaining the benefits of knowledge in logistics management. Nevertheless, the limits of outsourcing 3PL provider are also appeared. They include uncontrollable and risk of choosing the incorrect provider. Additionally, selecting the wrong partner is worth a huge amount of money. To select the most suitable 3PL firm, companies should concern both selection criteria as well as its successful relationship.
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