Thursday, January 11, 2007

Back to Basics in 2007 - 3PL Defined

Organizations want to develop products for global markets. At the same time, they need to source material globally to be competitive. One of today's trends to solve this problem is outsourcing logistics or using third-party logistics (3PL) to manage complex distribution requirements.

Organizations have developed strategic alliances with 3PL companies all over the world to manage their logistics operations network. These alliances are also known as supply chain partnerships or contract logistics (that is Exel’s preferred category).

Levels of Outsourcing

• Transactional: Based on transactions, with no long term contracts and no bonding between the 3PL and the outsourcing company. Carrier affiliated organizations are common in this sector.

• Tactical: Outsourcing on a long term basis with negotiated contacts and integrated IT systems to facilitate free information flow and create supply chain visibility (The goal should be fiscal visibility, within the supply chain).

• Strategic: Based on long-term relationships with successful outcomes, 3PL companies become partners in supply chain management and establish transactional transparency in all facets of the international supply chain.

Why Choose to Partner with a 3PL?

Save Time: Outsourcing the Logistics function can free up resources to focus on core competencies.

Because Someone Else Can do it Better: Even if you have resources available, another organization within the supply chain may be able to do it better, because of its relative position in the supply chain, or they have a certain supply chain expertise, and the 3PL may have economies of scale.

Share Responsibility and Risk: 3PL’s can share responsibility (and risk) for managing global supply chains, keeping customers and stores properly stocked, and delivering the perfect order every time.

Re-Configure Your Distribution Network: 3PL outsourcing can be a quick way to re-configure distribution networks to meet global market demands and gain a competitive edge.

3PL Partnerships Are Growing

According to a 2005 Cap Gemini study, North American organizations planned to outsource 56% of their logistics expenditure by 2006 – 2008, with Western Europe planning 81% and Asia-Pacific 60%. The same report revealed that 78% of the respondents are outsourcing logistics activities in North America; 79% in Western Europe and 58% in Asia Pacific.

These organizations are outsourcing logistics activities and upgrading relationships with 3PL companies from transactional, to tactical and strategic relationships.

According to a 2005 survey, CEOs of 3PL companies operating in Asia-Pacific expected 17% average business growth over the upcoming three years.

Achieving Strategic Outsourcing

Unfortunately, only a few 3PL companies achieve strategic status with their customers. Exel is one of them. It is done by constantly innovating and maintaining operational integrity. Some use an open-book costing method to demonstrate their system's transparency, which is being embraced by many Fortune 500 companies.

If you are planning on implementing a 3PL partnership, read my tips about how to implement a 3PL game plan successfully…there are plenty within my blog from 2006 and 2005.

More later this January! Good luck in all of your 2007 endeavors!

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