First Supply Chain (SC) should be known because it is within this chain that the third party logistic i.e. 3PL will be discussed. Supply Chain is the network of all individuals, organisations, resources, activities and technology that are involved to produce goods starting from the storage of raw materials from the supplier to its point of consumption. However, ‘Supply chain management (SCM) is the management of a network of interconnected businesses involved in the ultimate provision of product and service packages required by end customers (Harland, 1996)’. It is also the supervision of materials, information and finances as they move in a process from supplier to manufacturer to wholesaler to retailer to consumer. There are three main flows of the supply chain namely the product flow, the information flow and the finances flow. The Supply Chain Management is involved in coordinating and integrating these flows both within and among companies.
As such, Logistics Management is that part of the process that plans, implements and controls the efficient, effective forward and reverse flow and storage of goods, services and related information between the point of origin and the point of consumption in order to meet customers’ requirements. There are some companies that manage their own logistics e.g. the coca cola and beer beverages, they have their own warehouses and trucks to distribute their products to the different retailers around the island to reach the customers. In the supply chain management, there are companies that have to import raw materials or export their goods to other countries therefore for these businesses they have to outsource a 3PL that will help in running of the day-to-day business so that the final goods product reach at the right place and just in time.
Below is an example of the supply chain process in a textile industry.
It is a whole process that e.g. a textile industry has to undergo. It has to import its raw materials from other countries and stock them in a warehouse. In some cases, there are industries that already have a warehouse in-built in their company zone to stock its raw materials or finish goods so that later it could be sent to the seaport for despatching by ships to the required countries. Or there are companies that need to outsource for a third party logistic 3PL. In fact, a third party logistics provide a variety of services like public warehousing, contract warehousing, transportation management, distribution management and freight consolidation. During the supply chain using the 3PLs resource network in an efficient way it becomes cost effective and gives the company the ability to benefit from many resources over supply chains that are available in-house. Through their combined resources and knowledge, they help to maximise profitability and reliability.
3PLs always stay with all the latest advances in technology; they are knowledgeable of the best practices in the industry. 3PL software is able of inventory management, advanced reporting and it provides the ability to monitor the complete process. Experts in the 3PLs field employ practices to make sure the right amount of inventory is shipped where and when are required. They also make sure that all the needs are met by using the most cost effective, efficient and fastest methods available. Advanced management software is able to streamline the supply chain, as well as monitor and analyse inefficiencies, which help to improve customer service, reduce wait times and maximise profits. While outsourcing means handing over the control over operations to a third party but the ownership rests with the outsourcing companies and they cannot disown the responsibility. Outsourcing of logistics allows the business to focus on all of its core competencies, leaving the experts to handle various elements of key business and deal with the rest. A 3PL will give piece of mind and confidence because all the needs are being taken care of by professionals that are reliable. This helps to reduce risk, as well as allow for flexibility where quick changes along the supply chain are needed. The 3PL provider helps the company to grow in new locations with no barriers. They have warehouses and distribution centres located in strategic places that allow for fast shipping of products to any location in the world. Decentralised distribution provides faster delivery times at lower costs. 3PL providers have the ability to support and facilitate growth in new markets. Many companies provide affordable warehousing services. An example of a third party logistic is the DHL which provides such services i.e. international express deliveries; global freight forwarding by air, sea, road and rail; warehousing solutions from packaging, to repairs, to storage; mail deliveries worldwide ‘ with everything DHL does, they help connect people and improve their lives.
The key advantage of using a 3PL is because of their ability to scale transportations, labour and space according to the needs of the inventory. Specialised 3PLs tend to offer the latest, the most advanced and modern technologies as this is their business and it does not require any large, fairly-unrelated business expense to acquire these resources. Therefore, using a 3PL allows for risk reduction because it is the 3PL that is responsible for some of the risks inherent in any business operation. In addition, it reduces cost because it is the responsibility of the 3PL to purchase new vehicles because they have the rates and terms for purchasing new vehicles. The company using a 3PL is also saving on paying salaries to drivers and for taxes, as well as management resources e.g. dealing with spare parts of vehicles or any mechanics or servicing needed. The company need not have the burden of the additional insurance and parking area that used to be because all these are well managed by the 3PLs. The aims of 3PLs are that they have to remain in business because of fierce competition in the industry therefore they have to perform well by giving best services to their customers while remaining on the cutting edge all the time.
The disadvantages that the outsourcing company will have using 3PLs are that if there is a strike the 3PLs employees cannot be controlled, there will be no control over the day-to-day issues of the 3PL. Even with the company’s customer, there will be less contact because it is the 3PL that deals with them when the product is delivered. There is also the risk of becoming dependent on that provider. By contracting out logistics activities to the same 3PL provider over a long period of time, the firm may find itself in an increasingly vulnerable position and may even lose control of part of its logistics activities. There are also relationship failures between the outsourcing companies and the 3PL where mistrust and lack of effective communication which will lead to problems of quality and to delays. Among them, there are three main reasons that could lead to supply chain risks in an outsourced environment it would be lack of project management skills, unsatisfactory transition and lack of knowledge-based skills.
Moreover, when outsourcing decisions occur, there will be reaction from staff that will reduce their morale because they want to know whether they will become jobless. Another disadvantage of using a 3PL is that sometimes this 3PL hired companies or individuals that do not conform to the environmental and social policy. Nevertheless, the customer does not attack the contractor or the sub contractor he will attack directly the supplier because indirectly these people are working for his company. In addition, this could lead to a major public relations disaster. There are other several risks in the managing supply chains these are caused by shrinkage, quality, IP thefts, and vandalism. According to a survey carried out by CAPGEMINI 2010 (Capgemini is one of the world’s foremost providers of consulting, technology and outsourcing services.) it is found that, terrorism and natural disasters are considered to be the two top risks in North America. Whereas Latin America faces serious supply chain risks from smuggling of other material with the shipments, Vandalism and Spoilage of food products leading to health risks.
In order to reduce all these risks along the supply chain new strategies need to be looked into, e.g. while issuing contract between the outsourcing companies and the 3PL