Third-Party Logistics Relationship, Essay Example

Introduction

By definition, third-party logistics is the use of an “outside company to perform all or part of a firm or company’s materials management and product distribution function,” and as a mutually beneficial relationship “between a shipper and a third party,” 3PL provides “more customized offerings and a broader number of service functions.” To be more precise, 3PL providers are independent companies that offer “single or multiple logistics services to a purchasing company,” and despite the fact that 3PL providers do not own the products that are distributed to consumers and retailers, they are “legally bound and responsible to perform the requested logistics activities of the purchasing company” (Papadopoulou, 4-5).

A prime example of a globally-based third-party logistics company is UPS Supply Chain Solutions, based in Atlanta, Georgia, which offers services related to “air and ocean freight forwarding, customs brokerage, transportation management, warehousing and distribution, supply-chain consulting,” and other vital services for its numerous clients. As a major 3PL entity, UPS (United Parcel Service, a main competitor with the United States Postal Service), focuses on the distribution of computers and electronics, telecommunications, healthcare, automotive, retail, and other consumer goods. Some of its key customers includes Cisco, Daimler/Chrysler, GM, Honeywell, Nike, and Siemens (Foster & Armstrong).

Establishing a 3PL Relationship

In order to create or establish a third-party logistics relationship, the customer or client must first take into account several basic factors that will help to establish a close and growing inter-relationship with a particular 3PL provider–1), the operational excellence of the chosen 3PL provider related to efficiency and effectiveness; 2), the geographical coverage of the chosen 3PL provider; 3), the provider’s use and efficiency related to information technology; 4), the provider’s flexibility and adaptability; 5), the provider’s network of business relationships; and 6), the ability of the chosen provider to help “differentiate the client’s business from its competition (Langley, 21).

Secondly, once the customer or client has selected a potential 3PL provider, a team must be created in order to determine if the chosen 3PL provider meets specific standards and qualifications. Once this has been established, a proposal must be sent to the provider which covers all of the needs of the client in relation to distribution, warehousing, transportation, and other needed services. Upon the acceptance of the proposal, the client should pay a visit to the provider’s facilities so as to determine if they are suitable for the client’s needs. Finally, the client must implement the relationship via a contractual agreement between the client and the 3PL provider (Papadopoulou, 23-25). In effect, this type of paradigm helps to guarantee that the relationship between the client and the 3PL provider is beneficial to both parties which in the long-term will help to sustain the relationship for many years.

Sustaining a 3PL Relationship

According to Langley, there are six critical success factors that are required in order to sustain a relationship with a 3PL provider. First of all, the client must fully understand the goals and objectives of the relationship via the “willingness by all parties to share their goals and ambitions” related to business success, and to “honestly discuss what it will take to achieve their individual objectives.” Thus, when all goals and objectives are clear to both parties, only then will the relationship survive and prosper. Second, the compatibility of both parties must be clearly outlined, especially concerning cultural relevancy via main factors like “corporate philosophy, management capabilities, and management style.” In addition, this compatibility depends to a great degree on what Langley calls “multi-level organizational alignment” or the roles that people play in the relationship at executive, managerial, and front-line levels (22).

Third, both parties must reach some sort of consensus in relation to understanding each other’s needs and requirements related to “matters of mutual importance.” One method to accomplish this daunting task is for “both parties to draw up a protocol for addressing and resolving problems that may arise during the relationship,” such as shipping products on time and in an efficient manner. In this way, both parties will share “trust and commitments, effective communications, and a willingness to share risks and rewards” (Langley, 22). Fourth, both parties must adopt effective measurement strategies in order to gauge the success of operating procedures, cost and service, and data measurements (Langley, 23).

Fifth, both parties must create a migration plan of action concerning the development and implementation of new products and services. This can be accomplished by focusing on such areas as transportation, warehousing, customs brokerage, and freight forwarding. This plan must also include “value-added services” like “inventory management, product returns and repair, order entry, and customer service.” In some cases, fourth-party logistics providers must also be considered (Langley, 23). Lastly, both parties must develop a strategic plan for mutual success, especially related to dispute resolution and a process for either dissolving or terminating the relationship (Langley, 23).

Conclusion

Overall, the establishment and sustainability of a 3PL relationship depends on global conditions regarding world economics and the political arena of a given nation that participates in the relationship as a provider of goods and services. Also, now more than ever before, a successful 3PL relationship must be able to adapt to new technologies, particularly those associated with the exchange of information via the World Wide Web.

Works Cited

Foster, Thomas A. and Richard Armstrong. “Top 25 Third Party Logistics Providers Extend Their Global Reach.” Web. 2012. <http://www.supplychainbrain.com/content/sponsored-channels/kenco-logistic-services-third-party-logistics/single-article-page/article/top-25-third-party-logistics-providers-extend-their-global-reach>.

Langley, C. John. “Developing and Improving Relationships with 3PL Providers.” Web. 2005 <http://www.scl.gatech.edu/research/supply-chain/LQ-Langley1.pdf>.

Papadopoulou, Chrisoula. “An Overview of Third Party Logistics Industry.” Web. 2013 <http://web.mit.edu/supplychain/www/sp-iscm/repository/papadop2_0202.pdf>.