The international arena is just one area in which 3PLs can help your business

The term 3PL (third-party logistics services provider) is a common buzzword in the industry today. But what has fueled the growing popularity of 3PLs, and what types of organizations are taking advantage of their services? PARCEL Editor Dan ORourke sat down with Mike Noone, Vice President of Logistics for APL Logistics, to discuss this growing trend.

>> PARCEL: Theres no doubt that the use of 3PL service providers is on the rise and that this reflects a major paradigm shift. Whats your theory about the reasons behind the shift?

>> Noone: Part of the change has to do with the fact that logistics outsourcing has become a respected and time-tested practice. Now that a majority of companies are using 3PLs and more companies are using 3PLs for strategic reasons companies that have been cautious about outsourcing have been able to see that not only can outsourcing work, it does work. Utilization of 3PL services has provided shippers with greater flexibility and afforded top-line growth without the complementary investment typically needed in fixed assets. However, I think the lions share of the credit has to do with the recent globalization of business and the way this has compounded logistics professionals supply chain challenges.

>> PARCEL: What kinds of challenging conditions?

>> Noone: Companies have more complex supply chains now chains that include longer distances, multiple modes, more hand-offs and greater delivery volatility. These challenges would be formidable enough if companies were dealing with them on a domestic level where they already know the territory and players. But its a different and tougher ballgame in international markets where they dont have previous experience.

>> PARCEL: So would it be accurate to say that a lot of 3PL growth is in the international arena?

>> Noone: Absolutely. Most manufacturers dont have to be sold on partnering with 3PLs in overseas markets that are new to them because they know its to their advantage to work with companies who already know the ropes and have already developed relationships and processes there. Several of the industrys leading 3PLs have already spent years working in the global supply chain management arena. And many were operating in popular manufacturing venues, such as China and India, long before those countries became the worlds factory floors.

>> PARCEL: Its widely understood that companies can use 3PLs for individual services, such as warehousing, consolidation or freight management, and work with them on either a domestic or international level. But can you share some examples of the kinds of things companies may not know 3PLs can do or for which they dont use them often enough?

>> Noone: One immediate thing that comes to mind is supply chain design and engineering. For example, lets say a company is thinking about opening a new facility in California and chooses a 3PL that can provide the required services there exactly as requested. Thats great. But is it as great as it can be?

If that same company approached a 3PL with some detailed parameters its needs, opportunities and business rules and encouraged the 3PL to come back with some suggestions about where to locate that facility, it might wind up with a solution that could work even better. Or it might discover theres a more efficient way to organize inventory or processes within that facility.

3PL providers supply chain engineers can use their expertise to provide optimizations or simulations for a wide variety of situations process development, carrier and mode selection and international supply chain simulation, just to name a few.

Other 3PL services that offer significant value are vendor education and vendor compliance programs, where 3PLs act as an extension of the shippers organization at the overseas sourcing location, monitoring and gaining adherence to routing and shipping guide policies.

>> PARCEL: Getting beyond site selection and process design, what are some other ways companies can work with 3PLs to improve their supply chain efficiency?

>> Noone: Distribution center (DC) bypass is a huge unsung 3PL service. With this service, companies can use a 3PLs deconsolidation center to receive and transload freight and ship it directly to sales outlets instead of transporting that shipment to one of their distribution centers, where it will be unloaded, put away, picked, reloaded and then shipped out to end customers. Among other things, this can cut down on fuel consumption and shave several days off product transit time. Those are big advantages given the current cost of fuel and the length of todays supply chains.

Another good place to involve a 3PL is in the area of RFID. Figuring out how to take this technology beyond the simple compliance stage and into applications that will help deliver greater value and return on investment is an industry-wide challenge. And some of the industrys larger 3PLs are actively working on solutions. We have an RFID test lab in Singapore through our parent company and also operate one here in the United States that we make available to our clients. And we have a sparrow testing program that allows companies to test possible RFID processes on a small scale.

Certainly, an in-house logistics department can help with RFID initiatives, too. However, the difference between an in-house logistics department and a 3PLs is that we can borrow from the perspective and processes developed through serving hundreds of clients.

>> PARCEL: Based on your experience, do you believe there are some kinds of companies that are more likely to benefit from 3PL relationships than others?

>> Noone: Generally speaking, the more a company is willing to treat its 3PLs like partners or collaborators rather than vendors, the greater value it will realize from outsourcing. Other than that, the value a 3PL relationship brings to the table varies by industry, company size, product line and business structure.

>> PARCEL: The theme of this article can be summed up as, What can your 3PL do for you? However, its probably best to acknowledge that even the best 3PL cant do everything. In that spirit, give us your thoughts on what a 3PL cant do for a company.

>> Noone: Outsourcing logistics is not a panacea. Although 3PLs can and should help improve the way logistics supports a business, there are some problems they cannot and should not be expected to solve. These include resolving internal conflict, fixing strained customer relationships that have been eroded by years of neglect, solving enterprise-wide systems issues and redeeming an uncompetitive product or marketing plan.

>> PARCEL: Any final things youd like to add?

>> Noone: Like most industries, the 3PL industry is one thats undergoing

constant change. Mergers, acquisitions and the addition of new services are changing the face of third-party logistics, making for a smaller universe of suppliers but a better selection of multi-faceted companies who can provide a wide range of solutions. And as challenges emerge, 3PLs are working on new sets of solutions that will help companies adapt. The outsourced logistics industry will always best be described by the words to be continued.