Exam 3: Chapter 9

US spending on 3PL services

$212.8 billion in 2019

Asset-based 3PL providers

- 3 Pls with tangible equipment and facilities - when a 3 PL owns many or all of the assets necessary to run its customer's transportation and logistics activities

Nonasset-based providers

- 3PLs that leverage the resources of other companies - when a 3PL contracts with other firms to provide transportation and logistics services rather than owning the required equipment and facilities

primary drivers

- asset/cost efficiency - customer service - marketing advantage - profit stability/growth

the main type of facilitators include

- corporate compatibility - management philosophy and techniques - mutuality of commitment to relationship formation - symmetry on key factors such as relative size, financial strenght

specialty services for 3PLs

- dedicated contract carriage - drayage - pool distribution - merge-in-transit - last mile delivery

reasons against using 3PL services

- logistics is a core competency of company - cost reductions would not be experienced - control over outsourced function would diminish - service level commitments would not be realized - company has more expertise than 3PL providers - logistics is too important to consider outsourcing - outsourcing is not a corporate philosophy - global capabilities of 3PL need improvement - inability of 3PLs to form meaningful relationships - issues related to security of shipments

reasons for using 3PL services

- opportunity for cost reductions - ability to focus on core competencies - opportunity to improve customer services - improve return on assets - increase in inventory turns - productivity improvement opportunities - generate logistics process flexibility - access to emerging technology - expansion to unfamiliar markets - ability to divert capital investments

strategic needs of 3PL users

- strategic innovation - technological stength - capacity access - talent availability - omni-channel agility - sustainability expertise

What are intermediary services for 3PL?

- surface freight forwarding - air freight forwarding - freight brokerage - intermodal marketing companies - shippers associations

Types of 3PLs

1. Asset-based 2. Nonasset-based 3. Transportation based 4. Distribution based 5. Forwarder based 6. Financial based 7. Information based

top 5 logistics activities outsourced and % of 3PL users

1. domestic transportation (86%) 2. warehousing (66%) 3. international transportation (60%) 4. freight forwarding (44%) 5. customs brokerage (42%)

3PL relationship development process

1. perform strategic assessment 2. decision to form relationship 3. evaluate alternatives (potential partner capabilities and/or company needs and priorities) 4. select partners 5. structure operating model 6. implementation and continuous improvement

dedicated contract carriage

3PLs offering this hybrid privat/for-hire arrangement serve as a customer's private fleet with a customized turnkey solution

what % of the fortune 500 companies outsource some or all of their logistics and supply chain functions with technology, automotive, and retailing industries as leading users.

90%

intermodal marketing companies

IMCs are intermediaries between shippers and railroads and are also known as consolidators or agents

pool distribution

a 3PL may move a large quantity of product in bulk to a specific market or regional terminal. from there, the pooled freight is offloaded, sorted by customer, and then reloaded onto local delivery trucks for distribution to final destinations

merge-in transit

a merge-in-transit system unites shipments from multiple suppliers at a specified merge point located close to the end customer.

capacity access

a solution to the capacity dilemma is to work with 3PL service providers such as freight forwarders and brokers that have ongoing relationships with multiple carriers.

Air Freight Forwarding

air freight forwarders consolidate small shipments for long haul movement and distribution

freight brokerage

brokers function as the middlemen between the shipper and carrier much the same as a real estate broker does in the sale of property. the broker normally represents the carrier and seeks the freight on their behalf to avoid moving empty equipment.

Why do customers choose to work with asset-based providers?

customers choose to work with these providers because they have readily available capacity, permanent employees, and direct control of the customers freight

technological strength

customers view technology as a critical capability of 3PL service providers to improve order management, cross-chain communication, enhance shipment visibility and event management, and manage day-to-day transportation operations.

why do customers choose nonasset-based providers

customers view these providers as more flexible than their asset-based competitors

facilitors

defined as 'supportive corporate environmental factors that enhance partnership growth and development.

implementation and continuous improvement

depending on the complexity of the new relationship, the overall implementation process may be relatively short or it may be extended over a longer period of time. if the situation involves significant restructuring of the company's transportation or logistics network, then full implementation may take longer to accomplish.

evaluate alternatives

drivers and facilitators can be used to identify the most appropriate type of 3PL relationship. it is important to conduct a thorough assessment of the company's needs and priorities in comparison with the capabilities of each potential partner. this task should include critical measurements of past performance, interviews of key personnel, and site visits.

drivers

drivers are defined as 'compelling reasons to partner'. drivers are strategic factors that may result in a competitive advantage and may help to determine the appropriate type of business relationship.

3PL core competency requirements

expertise, ability to invest, strategic fit

perform strategic assessment

first step focuses on the company becoming fully aware of its transportation and logistics needs and the overall strategies that will guide its operations

concerns about nonasset-based providers

first, these companies don't have significant internal capability to handle customers' requirement. next, there are more moving parts and relationships to manage, and lastly they need extensive IT capabilities

financial based

help customers with monetary issues and financial flows in the supply chain. traditional roles include freight rating, freight payment, freight bill auditing and accounting services. some have added information system tools to provide freight visibility and assist customer with electronic payment, carrier compliance reporting and freight claims management

Private carrier vs. 3PLs

in a sense, private carriage is on the opposit side of using 3PLs, because private carriage doesn't rely on anyone outside (3Pls or for-hire carriers) to meet transportation needs.

forwarder based

includes freight forwarders, brokers, and agents that primary facilitate the flow of goods on behalf of customers. though they dont own equipment, they arrange transportation services for LTL shipments, air cargo and ocean freight, as well as providing other transportation-related services

shippers association

nonprofit transportation membership cooperatives arrange for the domestic or international shipment of members' cargo with motor carriers, railroads, ocean carriers, air carriers, and others.

surface freight forwarding

surface freight forwarders pick up, assemble, and consolidate shipments and then hire carriers to transport and deliver the consolidated shipments to the final destination

strategic innovation

the 3PL community has long been lauded for their execution prowess and performance consistency. they are viewed as fast and reliable but not particularly innovative. 3PLS must be innovative and collaborative in solutions development. information sharing on changing requirements is essential for the 2 parties to understand the dynamics of the situation at hand

structure operating model

the companies must develop working agreements and contracts that clarify the activities, processes, and priorities that will drive day-to-day operations

omni-channel agility

the emergence of new distribution channels has created a much more complex working environment for transportation and logistics managers, particularly for retailers

sustainability expertise

the execution of supply chain processes has a significant impact on the environment - delivery processes require heavy use refined oil products, generate carbon emissions and contribute to congestion

last mile delivery

the final leg of the transportation journey can be very expensive, accounting for y=up to 28% of total delivery costs.

Concern of asset-based providers

the primary concern with asset-based providers is the potential for bias toward use of their internal resources

transportation based

these 3PLs trace their origins to freight movement via truck, rail, air, or other modes of transportation. as customer requirements expanded, these transportation companies developed 3PL subsidaries or major divisions to provide a broader set of capabilities to serve the marketplace

information based

these companies have digitized many activities that were previously performed manually or required the use of licensed software. today, these information-based 3PLs provide online freight brokerage services as well as cargo planning, routing, and scheduling.

drayage

these companies provide local transportation of containerized cargo. drayage companies specialize in short-haul movement of intermodal containers from origin to ocean ports and rail yards and from these facilities to their ultimate destination

distribution based

these suppliers originated from the public or contract warehousing business and have expanded into a broader range of logistics services. based on traditional orientation these organizations are heavily involved in logistics activities such as inventory management, warehousing, and order fulfillment

select partners

this stage is of critical concern to the customer, the selection of a transportation or logistics partner should be made only after very close consideration of the credentials of the top candidate 3 PLs

future requirements

to maintain pace with customers future requirements, 3PLs will need to effectively expand their capabilities through internal growth, mergers, and strategic acquisition of competitors.

talent availability

top 3PLs have the strategic foresight to invest in training, development, and retention programs that help maintain a strong pipeline of leaders who can diagnose customer needs, develop effective solutions, and manage the implementation process.

decision to form relationship

when contemplating a 3PL relationship, it is necessary to identify needed capabilities. a suggested approach is to make a careful assessment of the areas in which the company appears to have core competency.