Third Party Logistics: Benefits and Issues

Topics: Logistics, Supply chain management, Third-party logistics Pages: 14 (4552 words) Published: July 4, 2012

Third Party Logistics (3PL): Benefits and Issues


Third-Party Logistics have continued to play a strategic role in the management of supply chains most especially in the developed world over the past years and has seen a consistent increase in its usage in the world. In Malawi the concept is still new and has also been adopted by the public sector. There are clearly benefits associated with the use of the approach which enables companies to concentrate on their core competencies. However, there are critical issues to be addressed in order to experience the benefits. This paper attempts to broadly identify the benefits offered by 3PL arrangements and also presents the critical issues and requirements necessary to be considered for users/firms to successfully benefit from the relationship. Some of the benefits and issues have been related to the experience of a 3PL user and a 3PL provider which were collected through interviews with the two entities.

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2. Introduction
A third-party logistics (3PL) is a provider of outsourced logistics services. Logistics services encompass anything that involves management of the way resources are moved to the areas where they are required. In business, 3PL has a broad meaning that can be applied to any service contract that involves storing or shipping of things. A 3PL service may be a single service such as transportation or warehouse storage or it can be a system-wide bundle of services capable of managing the entire supply chain (Anon., 2010). The growth of 3PL companies has been driven by the need for businesses to become leaner, reducing assets and allowing focus on core business processes (Murray, 2010). In a recent study conducted in Europe, North America, Latin America, Asia Pacific and other regions involving 1, 597 industry executives and managers representing users and non-users of 3PL services as well as 697 3PL executives and managers, confirms that 3PLs continue to provide strategic and operational value, provide new and innovative ways to improve logistics effectiveness and are key contributors to shippers overall business success (Langley, Jr., 2011).

According to the Knowledge Base report of July 2008 on the growth and structure of the 3PL industry, challenging economic times do not affect the industry to achieve meaningful growth. It notes that 3PL industry grew by 17.8% from $65.3 billion in 2001 to $76.9 billion in 2003 in the developed world. This is to suggest that the value proposition and cost savings offered by 3PL providers tend to be sought by customers both during periods of economic growth and contraction (Anon., 2008) . The growth trend is also supported by Table 1 below which shows the global revenue trends over a two year period.

Table 1: Global 3PL Revenues
Global 3PLRevenues| |
Region| US $ billions|
| 2009| 2010|
North America| 128.1| 149.1|
Europe| 162.3| 165.1|
Asia-Pacific| 136.7| 157.6|
Latin America| 27.6| 27.5|
Other Regions| 52.4| 42.3|
Total| 507.1| 541.6|
Source: 15th and 16th Annual 3PL Study
The above table shows that almost in all the regions, 3PL revenues grew over the period with the exception of Latin America where it remained almost static and other regions where the revenue significantly decreased by 19.3%. There are some reported changes in the use of the 3PL according to the 2012 16th Annual third party logistics study where 37% of the 3PL providers observed that some of their customers are bringing logistics activities back in-house while 72% feel that customers in general are reducing or consolidating the...
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