Introduction
According to the Council of Supply Chain Management Professionals, a third party logistics provider denoted as 3PL/TPL is a firm whose main objective is to provide services to their clients (third party) who outsource their services, as well as their supply chain management functions. The TPL entails all aspects that involve the management of the manner in which resources were transported from where they are produced to the end destinations where they were required Bhatnagar & Viswanathan, 2000. That implies that the third party logistics major in incorporating operations, warehousing, shipping, and other services that might as well be sorted out by clients. In some cases, the amenities that they offer might go beyond logistics to include value-added services that are associated to the production or procurement of goods.
The services traced their origin from the 1970s when several companies opted to outsource services related to the transportation and storage. It is a service that has transformed over the years and, has enabled it to expand to cover more geographic locations, more goods and commodities something that enabled them to come up with better modes of transportation that were not only faster, but safer as well Coyle, Bardi & Langley, 2006. Worth noting also is the fact that they did not start with the warehouse facilities, but they incorporated the service in later years as they progressed. The introduction and adaptation of information technology is aspects that were mentioned in the evolution process. Through the emergence of technology, the tracking of goods on transit as well as at the warehouse enabled the industry to expand because the advantages of tracking are well known to everyone Fliedner, 2003. That explains why it has turned to be the most looked for service by many companies. It is from that justification that this paper will undertake to expound on the various aspects of third party logistics. Among them are the roles of the third party logistics in the supply chain, the different types of third party logistics, the advantages and disadvantages of third party logistics among other aspects. Role of third party logistics in supply chain
It is without a doubt that the role of logistical third party service providers were getting important in the supply chain management something that was attributed to the increasing numbers of firms that require outsourcing activities. The fact they have the capability of reducing the time needed as well as the costs from supply chains results to increasing profits and competitiveness Bhatnagar & Viswanathan, 2000. Such savings were as a result of possible through the conceptual advances and increasing the applications of powerful technological advancements in the industry. Additional role for the third party logistics includes the probability of offering an alternative opportunity for medium, as well as small companies venturing into the new markets around the world. Over time, they have expanded their responsibilities to offering other value added aspects that are important for business especially in the modern times. For instance, various promotional materials are included in the products that the outsourced by a company Coyle, Bardi & Langley, 2006. As a result, the company will have gained from the advertising bearing in mind its products will have been introduced to the end users. Importantly, the consolidation efficiency that was gained by companies that outsource services from the logistical company would be termed as one of the roles that are undertaken by a third party. According to the Council of Supply Chain Management Professionals (CSMP), the third party logistics are entitled with the responsibilities of providing various logistical services for the various companies sorting for their services Fliedner, 2003. An additional illustration for roles undertaken by a third party logistics are the provision of transportation, warehousing, cross-docking, and freight forwarding services all meant to ensure companies have a wide range of services from which to select from while they opt to outsource.
A role worth mentioning is that of the reverse logistics that tends to be cumbersome and expensive to various organizations. It is the process of accepting returned products that were initially delivered, as a result, of various reasons such as for recapturing, for rebranding and repackaging, as well as relabeling Hewitt, 2001. Bearing in mind that they have that capability, such products are not returned to the original producer. Rather, the third party logistics handles the needed changes. That, therefore, saves various companies precious time that they would use to produce more products Coyle, Bardi & Langley, 2006. Moreover, by so doing, the third party logistics would have saved the mother company from losing profits since they will have avoided bad reputation from clients the same way they will have avoided fines and penalties. That is bearing in mind that there are various regulatory agencies that protect not only the end users, but also the manner in which fair business are done between different competing companies Bhatnagar & Viswanathan, 2000. Reverse logistics is adopted by the third party because it allows them to drive top line sales as well as bottom line profits. By so doing, the returns would always be a part of their business something that they act as their hidden source of revenue or profits. The traditional supply chain
Worth noting is the fact that the traditional supply chain models based on a push based approach. It was whereby the producers manufactured their products while at the same time, pushing them into the supply chain without receiving a response or any useful info pertaining to the stipulations and necessities about their products. That explains why there were wide fissures between the supply and the demand something that resulted to either shortages or wastages of the products produced Fliedner, 2003. With a doubt, the supply chain history was one that was faced with various risks and volatility aspects that were initially thought to be management discretion separated by various periods of down time (low peak) and recovery (high peak) seasons. The down-time periods were seasons such as natural disasters periods, economic collapse, war periods, fuel crisis, and global recession among other aspects that bears a negative impact on business. As a result of such aspects, the traditional supply chain models were disconnected, or in other words, they were bent, as a result, of the unknown and the unanticipated aspects mentioned above Schotzko & Hinson, 2000. From such aspects, there are main features attributed to the traditional supply chain would include but not limited to inappropriate scheduling and lack of synchronization between the supply and demand. They lacked vision and mission statements which were important tools that would have enabled them to avoid losing track of their aims and objectives.
That implied that they as well in shortage of long term projections bearing in mind that without such projections, growth and focus would not exist in organizations. An additional characteristic attributed to the traditional supply chain was the emphasis or concentration on individual performance. Without due consideration of other important intermediaries in addition to the fact that they were supported by old legacy systems that had low incorporations, they had various parts important for a business survival Bhatnagar & Viswanathan, 2000. Evidently, those features contradict the new or modern supply chain model that was founded on the pull distribution. As a result, they are able to offer precise customer demands and feedbacks something that reduced the chances of wastages to the producers. Those attributes necessitated organizations to push for a supply chain that would offer greater variability while at the same time, adapting to the new inventory strategies that the world of business was undergoing through. In addition, the traditional supply chain was transformed for better partnership oriented as well as long term aspects included in the businesses Schotzko & Hinson, 2000. That explains why growth and development was recorded in business transactions as well as incorporation of technological aspects in the supply chain business. Over the years, it has however changed to the point that organizations are increasingly finding it necessary and convenient to outsource the services for various reasons expounded herein. The use third party logistics instead of wasting capital
There are various ways that using third party logistics would be equated to saving capital rather than wasting it. In addition to the various benefits attributed to third party logistics expounded herein, outsourcing logistical services from third party allows for greater flexibility on capital expenditure of an organization. In other words, the company will have saved the large amounts of capital that are attributed to investments in warehousing spaces as well as other features that are offered by a third party. Equally, the process of establishing the transportation services as well as maintaining them would be somehow higher as compared to outsourcing the services from a third party logistic. Hence, the capital that would be used in production process as well as concentrate on their main products resulting to better products increasing a company’s competitiveness. Bearing in mind that there are instances that would result client’s products being damages while on transit or during storage, a company will have avoided the likelihood of such expenses allowing the company to build a global logistical network with lower capital; risk as well as higher returns. For instance, research indicates that over 80% of companies in the United States opt for third party logistical services. It terms of capital, such companies are on record to save over 40% of what they would have used if they would not have outsourced the logistical services. By illustration, it was deduced that logistical cost an average company in the United States 12% the amount it would otherwise use. At the same time, the logistical assets that a company might use would amount to over 25%. That is, transport vehicles and personnel, fuel charges, vehicle’s insurance, and other compliance procedures Schotzko & Hinson, 2000. The order length would be half of the above percent not forgetting to mention the 8% value that would procedure in inventory. As a result, capital expenditure elucidated herein prerequisites are condensed or eliminated. From that illustration, one would not dispute the fact that companies that opt for third party services would save all the mentioned amounts. Hence, the notion that companies that do not outsource logistical services are wasting capital is true based from the above stated facts.
The difference of third party logistics
There are various third party logistics that companies would outsource from bearing in mind that they offer divergent and fully incorporated logistical solutions. However, for the services to be of help for company, it has to decide and understand the type of needs they want solved. That would be attributed to the fact that various logistical provider have divergent strengths and weaknesses, and it would be important for a company to understand them so that they would take full advantage of them Bermudez, 2002. The first example of the third party logistic is the transportation based third party logistical services. Under this type of service, their services encompass transportation to offer an all-inclusive set of logistical offerings. At the same time, the influence third party logistic use emphasizes to other firms. Examples of such logistical firms include but not limited to Schneider Logistics, Ryder Logistics Firm, FedEx Logistics, as well as UPS Logistics Firm Schotzko & Hinson, 2000. The second type of third party logistics was the Forwarder Based Third Party Logistical Services. It encompasses the non-asset owners who offer a divergent range of logistical amenities to their clients, and they are independent middlemen how were entitled with forwarder roles and responsibilities. AEI, Kuehne & Nagle, Fritz, Circle, and Hub Group are some examples logistical firms in this group category.
The third type of a logistical firm is the warehouse/Distribution Based Third Party Logistics Services. They have warehouse and distribution expertise and DSC Logistics, USCO, Exel, and Caterpillar Logistics are some of the examples of firms under this type of logistical firms. The Shipper/Management Based Third Party Logistics Services is an additional type of logistical third party Schotzko & Hinson, 2000. Under this type of a logistical firm, the service provider’s focus on the management of the shipping processes from the time client’s contacts them for their services to the time that they meet the sorted out services. They were mandated with the responsibilities of providing technological services. For example, they offer transportation management system that would encompass integrated management services. In the process, the firm will have done away with tough and cumbersome features such as accounting and handling client’s claims. Examples of firms under this type of third party logistics are the AFs Logistics, GlobalTranz Firm, and Worldwide Express Schotzko & Hinson, 2000. The other types of third party logistical firms are the financial Based Third Party Logistics Services. The examples were Cass Information Systems and FleetBoston Information-Based Firms Third party Logistics Services was another one. The examples are Transplace, uShip, and Nistevo among others Bermudez, 2002. The requirements to go to third party logistics
The fact that third party logistical services are sort out for by various companies in modern times; they are various requirements that they ought to consider as well in the process. To start with, the choice or decision to use a third party logistics would be a decision on various factors that differ from business to business. For instance, companies ought to consider issues such as future objectives, product lines, expansion ambitions, as well as acquisitions and mergers all of which the company were considered. The first requirement in the process of going to third party logistics, the first consideration would be the cultural alignment. It would be the toughest challenge that firms opting for third party logistics would be controlling international supply such as lead times, total landed costs, as well as carrying costs and customer services Bermudez, 2002. Hence, in the process of selecting the needed third party, firms ought to consider cultural aspects apart from their distribution needs. Company infrastructure is the other aspect that ought to be taken into consideration in the process of sorting out for third party logistics. It is imperative for the firm to have the required physical resources that would enable it to deliver the client’s products. Information Technology as well ought to be considered in the process. Modern time business requires the third party firms to have advanced technological capabilities bearing in mind that is if the clients were not be in constant communication with the company, they will opt to service providers that have such capabilities Bermudez, 2002. Moreover, the IT capacities ensure that the company and client trace their products while in voyage. That assures the client that the company has taken care of all safety measures that will ensure that their products are delivered in a timely manner as well as in good conditions. Other factors that are important and ought to consider and include the ease with which the third party does their business, metrics of the service provider firm, and the partnership intangibles offered to client Harris et al, 2002. That is important bearing in mind that the intangibles are the value- added customer services the third party logistical firms offer to their clients. Hence, clients must consider such aspects while sorting out for a firm to outsource their services. The advantages of third party logistics
There are various reasons that would be attributed to why companies might opt to outsource the services or logistics of a third party. One of the major reasons would be to take advantage of the competitive or lower transportation rates offered by the logistics companies. Because of their large volume of freight that they deal with on a daily basis, they are able to offer affordable transportation cost that no companies can fail to take advantage Metz, 2008. Equally, companies that outsource have the opportunity to concentrate on the core activities that are more important than the logistical ones since they have to concentrate on adding tasks to improve their competitiveness as well as increasing their revenue range Barratt, 2004. That implies that there was a perfection of quality of services that the companies would offer to their client’s. The other advantage of turning to the third party logistics would be the fact that a company that opts to use them will have a large warehouse space to utilize for other things. Similarly, the resources for labor force that the company would have needed to carry out the outsourced service would have been saved for other developmental aspects.
Bearing in mind that most businesses have high peak and low peak months on their businesses, outsources enables them to maintain the production cost since they will not be forced to increase their production cost to maintain the high peak periods. At the same time, they will have eliminated the chances of firing their redundant staff during the low peak. The fact that the third party logistics have various distribution networks around the world is another advantage that companies may opt to take advantage Metz, 2008. Bearing in mind that they have a warehouse in various locations, they will in a position to distribute goods at few risks as well as with less capital investments. Rather than a company building such a network from the ground, taking advantage of the already existing one would be beneficial to them. An additional advantage would be the fact that third party enables companies to reduce not only the carrying costs, but also the sources of many customers’ complaints. For instance, clients may complain to the company, as a result, of damaged products Bermudez, 2002. Third party logistics are liable for such damages meaning that the company will be in a position to maintain a good relationship with their clients something that increases customer’s loyalty.
The disadvantages of third party logistics
The decision to outsource the services of a third party logistic is not without disadvantages. Lack of undeviating oversight and control is one of the main disadvantages that would be attributed to the service Barratt, 2004. The fact that they depend on a third party logistic company implies that they will have no direct control of the delivery processes of their services. That places them at the mercy of the hired company, and they will be forced to undergo any logistical challenges that the hired company might encounter Metz, 2008. Another disadvantage that is common with such an arrangement would be the damages that might occur. Although the hired company will be liable for the damages, the clients would not take that lightly something that will damage the reputation of the hiring company. Closely related to that disadvantage would be a failure to deliver the products on time Ross, 2009. Since they handle many goods in one voyage, failure to deliver on time would be a common problem that they might encounter. The fact that outsourcing the services of a third party means that the companies would forgo the possibilities of having their in-house logistic department something would be costly in the long run although it might appear cheap at the initial stages Ross, 2009. Hence, it is not a cost effective way of doing business especially for the well-established businesses and organizations. Dependency is yet an additional disadvantage worth mentioning. Since business requires a reliable structure to function, there will be logistical interruptions that would result to large amounts of mislaid productivity as well as revenue. How technology changed third party logistics business
The topic on how technology impacted the third party logistics business is a subject that is inadequately researched to date something that implies further research on it has to be carried out. However, the services of third party have become important in the supply chain industry since many firms are turning to its services as revealed herein Harris et al, 2002. Although inadequate research, no one would dispute the fact that the advancements in information technology have had a positive impact of the logistics. That would be attributed to various factors with the advanced competitiveness being one of the impacts. Moreover, the introduction of technology in their logistics enabled the customers as well as the management was involved in the shipment of their goods Bermudez, 2002. For instance, GPS tractors would be placed on goods something that would enable the customers as well as the management to know the progress while they are on a voyage to their destination. As such, the third party logistics were able to offer customized services something that without a doubt fostered and enhanced their advantages in the market Barratt, 2004. Equally important is the fact that the introduced technology significantly impacted on their business in areas such as offering customized services as mentioned above in addition to providing innovative and improved service quality to their customers.
Coupled with that, the third party logistical users would be able to rationalize and modernize their logistical procedures thanks to the development of technology. By illustration, the third party logistic adaptation of inter-organizational information systems (IOS) enabled them to communicate with their business partners (suppliers, customers, and shippers) within the supply chain. Initially, it could cost the third party more to maintain such communication, but thanks to technological advancements, the cost of such an undertaking is minimal. Similarly, technology was able to not only reduce the workload of the logistics users such as order processing, order inquiries, and inventory management, but it was able to reduce human mistakes as well. The introduction technology in the business meant that people were relieved from the tedious work of order processing and shipment tracking something attained through the adaptation of information technology infrastructure that would accomplish all that. That meant that the company would use less workforce conduct their businesses. Fewer errors were likely to happen as well something that implied that their customer’s needs were meet ensuring that many businesses would trust their services to hire them again Harris et al, 2002. The fact that technologies were used as a marketing tool meant that the third party logistics had the opportunity to expand their business international. Hence, it would not be erroneous for one to conclude that the third party logistics were able to develop and grow international. The technology also fostered business progress because it minimized the risks involved in the trade initially as well as the ability to standardize processes something that enabled them to reduce the uncertainties in the business Bermudez, 2002. The technology also enabled them to handle more requests since they had the capability to handle them unlike the initial periods where they would be overwhelmed by the large requests. That was so since human beings were prone to fatigue something that got eliminated by the adaptation of technology in their business.
In closing, it is without doubt that a third party logistics transformed how business conducted. In addition, the fact that the modern day businesses are becoming competitive from day to day, so does the need for them to outsource the services that they can. As a result, they would be assured of quality and competitive services as they concentrate on their primary customer needs. Evidently, it had a humble beginning but, over the years, it managed to transform to be the most important outsourced service for many organizations. Most of all, as the third party logistics continues to evolve and mature their roles and responsibilities as an important service provider to the supply chain will certainly expand Barratt, 2004. That would be attributed to the various benefits that companies that outsource stand to benefit from. They would include but not limited to greater flexibility that they will have, improved operational effectiveness and efficiency. Moreover, they enhanced client service capabilities, and the reduction of capital expenditures. That is bearing in mind that they will force to have destination centers with personnel not forgetting to mention the equipment that they will need.
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