Chapter 6: Outsourcing and Global Supply Chain Management: Third-Party Logistics - Supply Chain Vector [Electronic resources] : Methods for Linking the Execution of Global Business Models With Financial Performance نسخه متنی

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Supply Chain Vector [Electronic resources] : Methods for Linking the Execution of Global Business Models With Financial Performance - نسخه متنی

Daniel L. Gardner

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Chapter 6: Outsourcing and Global Supply Chain Management: Third-Party Logistics



Overview




Another supply chain entity that exemplifies the virtues of the outsourcing philosophy is third-party logistics (3PL). Originally designed to provide transportation and related services to regional importers and exporters, 3PL has evolved into a worldwide industry that complements customer initiatives through a host of primary and value-added services. Whether operating a vendor-managed inventory facility, aiding in product postponement projects or executing a precision merge in transit services, the modern 3PL firm operates in a truly global environment, with major players tallying sales north of $7 billion per year.


Interestingly enough, the same financial appeal that has spurred the growth of the contract manufacturing business is also innate to the 3PL business model. There are considerable gains to be achieved from both an income and asset utilization perspective when properly utilizing the services of a world-class 3PL firm, many of which actually complement the contract manufacturing model. Not unlike its kindred spirit in the contract manufacturing arena, use of a 3PL provider offers several opportunities and challenges, all of which are a function, once again, of process design, accountability and tactical execution. Whereas the logistics business was put in its proper historical frame in Chapter 2, the focus of the remainder of this chapter is the operational and financial implications of working with 3PL firms as part of an outsourcing initiative.


As the 3PL business became more global in scope, the attraction for organizations to engage such services grew in kind. Growth in the 3PL business implies having operations in major commercial areas around the world, a setup that can be very beneficial to importers and exporters. Depending on their own scope of operations, these organizations see considerable value in working with a company with a global network that features local expertise, key government or business contacts, knowledge of customs procedures, logistics infrastructure and a slew of other capabilities.


Also, 3PL activities transcend industries, creating a base of knowledge that will not be found in any other business. It is not unusual for 3PL employees to be working with Asian footwear imports one minute, medical equipment exports to Europe in another instant and Brazilian warehousing operations the next. The value of this accumulated expertise and access to non-proprietary best practices cannot be measured, and the application of lessons learned to other models has advanced the general state of the supply chain management (SCM) discipline. Perhaps it is for this reason that more and more supply chain players continue to recruit talent away from the 3PL industry to work for them.


In addition to the high-level appeal of having "another set of eyes" around the world, 3PL providers offer several benefits at an operating level. First and foremost, transportation costs can be reduced by contracting with a 3PL firm. Because a mainstay of the 3PL model is the consolidation of cargo between shipping points around the world, contracting with such an entity can reduce transportation costs. As a non-asset-based operator, the 3PL firm contracts for space allotments with steamship lines, airlines and trucking firms and gets a volume discount in exchange for its guarantee to pay for any unused space. The 3PL firm in turn sells the allocations to individual importers and exporters at a price lower than what most companies could negotiate independently. This creates a win/win situation whereby market prices are maintained at a competitive level, a valuable service is provided and the 3PL firm is compensated for its efforts. As mentioned previously, the 3PL community has built several value-added activities into its service portfolio, but freight consolidation and distribution still remain at its core.


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