Third Party Logistics

Topics: Logistics, Third-party logistics, Supply chain management Pages: 16 (4775 words) Published: September 24, 2008
Third party logistics is an important and growing development within the transport industry. It can be viewed from two perspectives viz. operational point and strategic point.

From an operational view, third-party logistics may include all logistics activities that are outsourced to a logistics service provider.

Third party logistics is defined as the use of external companies to perform logistics functions, which have traditionally been performed within an organisation. The functions performed by the third-party firm can encompass the entire logistics process or selective activities within that process.

However, third-party logistics has a strategic dimension, which gains increased importance. The scope of third party logistics is enlarging both in activities and mutual responsibilities.

The third-party logistics as a strategic concept can be defined as a long-term relationship between two parties, which see each other as partners and where logistics solution is worked out in co-operation specifically for each shipper. Generally the goal of the relationship should be to develop into strategic alliances with win-win for both parties.

The main characteristics of third party logistics are as follows: •A durable relationship
A partnership between shipper and service provide.
A customised solution worked out in co-operation and an equitable sharing of benefits and burdens.

Third party logistics relationships are described in various terms like logistics alliances, contract logistics, logistics partnerships, dedicated contract distribution, etc. The dedicated contract distribution has two major variants; namely dedicated capacity and dedicated assets. In dedicated capacity situations, the service provider is obliged to fulfil certain service levels and volume but can use the assets to serve other customers. In contract with dedicated assets, specific resources such as vehicles, terminals and personnel are allotted to one particular client.

Third-party logistics relations can result in a wide range of relations, which include long-term contracts, short-term contracts, joint ventures between service providers and shippers. The relation ship can be limited to a specific product focus, like distribution of spare parts to automobile dealers, a specific set of logistics activities like in bound and outbound transportation, warehousing, final assembly, packaging, price marking and administration. Beyond conventional logistics, the computer industry has used third party services to include installation, configuration and testing of products on the customer’s premises.

Third-party companies can be divided into three major categories. •Asset-based providers.
Management-based providers.
Integrate service providers.
Asset based providers are operators of owned or leased assets that provide logistics services, such as trucks, warehouses and containers and they offer third-party logistics services as a natural extension of their core businesses. For e.g., a transport and forwarding company may provide dedicated trucks, transport management and information services to shipper or a warehousing operator may offer inventory management, final in addition to basic warehousing.

Management-based providers do not normally own or lease physical assets, providing instead human resources, information systems and management skills to the shipper. Personnel from the management-based providers are often located physically at the shipper’s premises such as in the warehouse, the export/import departments or the distribution department and work side by side with the shipper’s employees. They are, however, on a third-party payroll.

Integrated service providers are normally subsidiaries of asset-based companies, specialising in co-ordination of management logistics services with physical services offered by the parent company and/or by outside...
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