Logistics Outsourcing and 3pl Challenges

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Logistics Outsourcing and 3PL Challenges
Michelle L.F. Cheong Singapore-MIT Alliance, N2-B2C-15, Nanyang Technological University, 50, Nanyang Ave, Singapore 639798

Abstract — Logistics has been an important part of every economy and every business entity. The worldwide trend in globalization has led to many companies outsourcing their logistics function to Third-Party Logistics (3PL) companies, so as to focus on their core competencies. This paper attempts to broadly identify and categorize the challenges faced by 3PL companies and discover potential gaps for future research. Some of the challenges will be related with the experience and information collected from interviews with two 3PL companies. Index Terms — Logistics, Outsourcing, Third-party Logistics, Challenges

provider sits in the middle between the manufacturers or suppliers (the buyers of the 3PL service, known as shippers) and the end customers (the consumers of the products). In this position, the 3PL provider will need to balance the dynamic pulls generated by the upstream and downstream entities, and thus faces challenges which are unique to its operations.

I. INTRODUCTION

L

OGISTICS has been an important part of every economy and every business entity. Logistics cost average about 12% of the World’s GDP [1]. In Singapore, logistics cost accounts for about 11% of its GDP [2]. The worldwide trend in globalization has led many companies to outsource their logistics function to Third Party Logistics (3PL) companies, so as to focus on their core competencies. In a recent study [3] conducted by Cap Gemini Ernst & Young US LLC, Georgia Tech and Fedex, involving 400 representatives from North America, Western Europe and Asia Pacific, it is concluded that logistics outsourcing remains a growing business globally. On a smaller scale, Bhatnagar, Sohal and Millen [4] reported that the need for logistics outsourcing is also increasing in Singapore. The overall trend in logistics outsourcing is moving in two directions: (1) increase in the number of buyers of logistics services, and (2) increase in the extent of usage of logistics services. The extent of usage includes number of activities or business process outsourced, geographical coverage, nature and length of contract, percentage of total logistics budget allocated to 3PL companies and level of commitment [4]. In a typical 3PL arrangement (see Fig. 1), the 3PL

Fig. 1. Typical 3PL arrangement With the positive outlook for the 3PL business and the immense competition which is likely to follow, it is critical that 3PL companies recognize that low price is not longer a sure-win strategy. In a study by Sink, Langley and Gibson [5], it was found that the most important selection criterion for 3PL provider was core competencies. Thus, the objective of this paper is to help 3PL companies identify and categorize the challenges in the business in a broad sense, and to discover potential gaps where research and development can help bridge the gap. The rest of this paper is organized as follows. In the next section, important segments of literature on logistics outsourcing are reviewed. Subsequently, the broad categorization of 3PL challenges is described, followed by detailed discussion and potential gaps identification. Some of the challenges will be related to the interviews conducted with two 3PL companies. Finally, the list of future research directions is given at the end. II. LITERATURE REVIEW There are many papers on logistics outsourcing and Razzaque and Chang [6] did a comprehensive review on

Manuscript received 3rd November 2003. M.L.F. Cheong is a PhD student with the Singapore-MIT Alliance (SMA) under the Innovations in Manufacturing Systems and Technology (IMST) program hosted at Nanyang Technological University, Singapore. (email:ps7034700h@ntu.edu.sg).

the outsourcing of the logistics function. In general, this literature can be generally categorized according to different focus area....
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