3PL (Third Party Logistics)  
from Sangam VK - Massey University  
 
3PL Defined and Discussed  
More and more organizations worldwide 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 logistics or supply chain outsourcing and contract logistics.  
 
Levels of Outsourcing  
 
• Transactional Outsourcing: Based on transactions, with no long term contracts and no bonding between the 3PL and the outsourcing company.  
 
• Tactical Outsourcing: Outsourcing on a long term basis with negotiated contacts and integrated IT systems to facilitate free information flow and create supply chain visibility.  
 
• Strategic Outsourcing: Based on long-term relationships with successful outcomes, 3PL companies become partners in supply chain management and establish transactional transparency.  
Why Use 3PL?  
 
• To 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, simply because its relative position in the supply chain, supply chain expertise and economies of scale.  
 
• To Share Responsiblity: 3PL companies can share responsiblity for managing global supply chains, keeping customers and stores properly stocked, and delivering the perfect order every time.  
 
• To Re-Engineer Distribution Networks: Logistics outsourcing can be a quick way to re-engineer distribution networks to meet global market demands and gain a competitive edge.  
 
3PL is Growing  
According to a 2003 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 relations. 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. They do it by constantly innovating and maintaining operational integrity. Some use an open-book costing method to demonstrate their system’s transparency.