The rapid changes in the business environment have prompted complexities and unpredictability in doing business. Many companies, therefore, change their business processes and structures to accommodate the changes in the business environment and sustain competition. There has been a notable growth of interest in third-party logistics (3PL) for many companies across the world. Many of these companies focus on one-stop global logistics providers. According to Selviaridis et al., 3PL has transformed businesses from a collection of functions to a collection of processes (2008, p. 5). Selviaridis et al., notes that 3PL is associated with doing various bundles of services rather than just warehousing or transportation functions as known earlier (2008, p. 5).
The concept has an important function in reducing the production cost and increasing the customer satisfaction. It is simply the intervener between the customer and the manufacturer. The concept of 3PL consolidates aspects of transportation, warehousing, distribution management and freight consolidation to company managers who wish to reduce their production costs (Sheikh and Rana, 2011, p. 1). Third-party logistics improve logistics processes and allows the client to emphasize on core capabilities which eventually reduces production costs while it improves customer satisfaction. This essay focuses on consolidating evidence from three industries to evaluate the benefits attained from 3PL.
There is no one definition of the 3PL concept since various authors have different descriptions of the concept depending on the business orientation. Leuschner et al., argues that 3PL concept is the outsourcing of part or all of the company’s product distribution and materials management and that the providers of 3PL are independent companies and they lack tenure of the service or product under distribution (2014, p. 42). However, they are legally responsible and bound to undertake the requested logistics services of a company. Skjott-Larsen et al., explains that the collaboration between the 3PLsuppiers and the client seeking the service may be long-term, mutually binding and influences changes in the two companies and their information systems (2000, p. 112). The European market is consistently witnessing growth in the use of 3PL with about 42 percent outsourcing their logistics operations (Vasiliauskas and Jakubauskas, 2007, p. 71). The figure below indicates the level of logistics functions in Europe.
Figure 1. The level of 3PL functions (Vasiliauskas and Jakubauskas, 2007, p. 71)
This essay focuses on 3PL benefits to manufacturing, retail and healthcare industries.
Benefits of Third Party Logistics
The most common benefit that many companies attain from engaging the 3PL concept is cost savings (Vasiliauskas and Jakubauskas, 2007, p. 68). The companies offering the service have more leverage with the ones engaging in trucking than individual importers, for example. The 3PL companies work with drivers on behalf of the many clients hence they can gain incentives when pricing due to the volumes and the order of frequency they receive. Since they have majored in offering logistics services, the 3PLcompanies are capable of improving efficiency and value addition to the operations. It is beneficial to engage experts in taking care of your operations in terms of monitoring, analysis and optimization (Selviaridis et al., 2008, p. 380).
Also, the companies offer network capacity owing to their long-established carrier network. Every company wishes to engage the right personnel with the right qualifications in a particular undertaking (Zacharia, 2011, p. 40). Due to their qualified carrier network, 3PL companies enables other companies to secure more capacity. Their network means that they have numerous connections to solutions and options that their clients may require. Therefore, instead of dealing with multiple carriers directly, a company benefits from engaging a 3PL company.
The companies also help clients in service improvement through ensuring orders are picked on a timely basis and delivered by qualified personnel. When services are improved, customers get satisfied thus helps the company to reduce costly scheduled disruptions and chargebacks. These logistics companies ensure the customers experience the best results without your direct involvement (Rafiq and Jaafar, 2007, p. 159). For example, they closely monitor transportation thus saving clients escape the problems associated with transportation such as customs clearance, traveling and hotel bills, congestion since it is their priority (Garnwa et al., 2009, p. 44). The logistics company is hardly pulled towards several directions such as marketing and branding hence improves the particular service they are assigned to do.
Third-party logistics is also beneficial to a company as it takes the responsibility of the technology access required to undertake logistics service (Jayaram and Tan, 2010, p. 262). Some logistics services require heavy investment in terms of technology investment. These companies are capable of handling the technological investments concerns upfront and maintenance hence passing the profits to you. Some of the technology investments that companies can escape when engaging 3PL concept include data reporting and analysis tools, consolidation optimization tools transport management systems and real-time tracking.
Third-party logistics enables a company to evade certain risks involved while undertaking logistics services brought by capital investment (Inbaraj and Christopher, 2016, p. 70). For example, delay of orders is a possibility that can be caused by inconveniences. Despite these challenges, 3PL can handle the risks either through rebooking and communication of updates to the receiver client. In transportation, there could be issues such as breakdowns, accidents, unplanned checkpoints and weather interruptions which the 3PL partner takes care of on your behalf.
Manufacturing Industry
The success of the manufacturing industry is majorly based on the agency theory. The agency theory applies widely to circumstances which require the principal actor to delegate responsibilities for execution of certain valued tasks to the agent. The principal actor requires that the tasks assigned are undertaken in the best interest of his or her company as opposed to the agent’s (Hazen et al., 2016, p. 43). Manufacturing plants compete over functional performance, logistics and warehousing processes (Rosenfeld, 2017, p. 16). Regarding 3PL in the manufacturing industry, the agency theory applies when the logistics partner executes operations on behalf of the main company.
Companies dealing in manufacturing spend the time to find the best ways to outclass their competitors through new and innovative ways either through improved supply chain management, quality products or manufacturing processes. Due to the need to keep manufacturing cost low and ensure client satisfaction, the industry’s supply chain management is likely to be difficult. Third-party logistics offers an array of services to help the manufacturing companies succeed in their supply chain management.
Typically, manufacturers are not experts when it comes to strategies and operations for logistics. Such companies may not have competencies in managing relationships (Sink and Langley, 1997, p. 163). Therefore, outsourcing logistics operations enables the manufacturer to be free, eliminate certain costs such as taxes, payroll, and insurance for logistics workers. Manufacturers need to take their products to clients on a timely basis with right prices hence the need to outsource logistics services (Christopher 2016, p. 11). Therefore, customer satisfaction is the greatest competitive strategy that requires 3PL concept for a manufacturing company.
Retail Industry
The retail industry entails all businesses that sell goods and services to clients. The retailing business has experienced sweeping changes globally that has transformed the industry. Across the world, the retail industry was dominated by small family based stores. However, there is increased overtake by bigger multimillion-dollar global and regional conglomerates such as Sears, Amazon, and Wal-Mart. These large retailers have established bigger supply management and marketing strategies that have completely changed the industry (Verhoef et al., 2015, p. 174).
According to Hotherm, a survey by Deloitte revealed that consumers indicated shipping, at 72 percent, as the most important thing to them (2015, p. 1). Top retailers for example in grocery and fashion respond to their consumers by offering short time delivery in major capitals and towns (Fernie et al., 2000, p. 89). To meet the consumers’ delivery demands, retailers who cannot specialize in the supply chain have turned to outsource logistics companies to manage their supply chain which has become a strong competitive advantage in the retail industry (Fernie et al., 2010, p. 894).
For retailers to remain competitive and continue making profits, they encounter various pressures which require them to minimize their costs of the supply chain. Modern retailers compete on various distribution goals including maintenance of high service level. According to Ayes and Odegaard, these distribution goals can be best achieved through a strong vendor relationship and proper chain controls (2017, p. 1). According to a study by Amin and Broadbent, United Kingdom retailers are likely to be motivated to adopt 3PL concept through customer exceptions, economic incentives or measurable improvements (2015, p. 15).
Third-party logistics have a variety of benefits to the retail industry. Wilding and Juriado explains that shippers apply mixed methods concerning logistics and recollect the necessary logistics operations such as order management (2004, p. 628). These operations are key for retail industries.
Healthcare Industry
The health industry is accountable for diagnosing, treating and saving the lives of patients (Ramanathan 2014, p. 230). In that regard, the industry heavily relies on drugs and medical equipment such as x-ray machines, needles, and anything relevant for their goal. Third-party logistics in the healthcare industry can help various healthcare companies to become flexible in developing new products and widening their markets. The healthcare industry can benefit from outsourced logistics in various areas such as warehousing and distribution thus enabling the industry to achieve its competitive goals (Ageron et al., 2018, p. 7). Despite the increasing trends in the supply chain for healthcare such as customer-focused thinking, the bottom line is the need to ensure more efficiency with low costs and better services. Logistics in healthcare could be best achieved when the services are taken away from the medical professionals who are already stretched with their operations (Haszlinna and Porter, 2009, p. 234).
Healthcare industry can manage to have a global reach of the market with the assistance of 3PL. It is challenging to supply health products and equipment especially in a new county with different regulations and laws, currencies and unpredictable challenges. Therefore, companies dealing in medicine can attain the benefits of having an outsourced logistics to absorb the challenges on their behalf.
Agency Theory and 3PL Concept
The assessment of the three industries has shown the importance and application of certain supply chain management concepts like the agency theory, social exchange theory, and game theory. The manufacturing industry majorly concentrates on the production of quality goods and ensuring the goods get to their clients on a timely basis and offered at the best price. The retail industry competes on the basis of effective logistics while the healthcare seeks customer-based thinking when undertaking their operations. The agency theory provides answers to concepts relating to supply chain management which has proved key in the success of all the three industries. The theory applies to various activities of the supply chain such as outsourcing (Logan et al., 2000), a collaboration of supply chain (Kwon and Suh, 2004), and sourcing (Shook et al., 2009),
The principle of their party logistics heavily depends on agency theory as the analysis of retail, manufacturing and health industry have shown. The theory enables positive relationships, internalization and enhances collaboration in outsourcing of logistics.
Comparison of Industry Findings and Literature
Buyers of 3PL insist that it is vital to maintaining control of certain core logistics operations while logistics companies also argue they can offer the best when it comes to core logistics operations such as order management and ensure successful responsibility (Selviaridis et al., 2008, p. 380). The manufacturing industry is in constant competition to ensure they reduce their costs of production while also improving the quality of supply. On the other hand, retailers seek constant supply and wider reach to their clients. Third-party logistics is important in enabling these industries in achieving their competitive goals. The evidence from the two industries indicates that outsourcing logistics fills in a bigger gap in operations that they would not have managed on their own.
From the analysis of the competitiveness of the retail and manufacturing industries, 3PL companies have a bigger benefit to the management of supplies. The two industries are more focused on customer satisfaction and reduction in costs which the 3PL principle helps them in achieving. With expertise and broadened value addition services, the outsourced logistics enhance customer services as their core business. The evidence form retail and manufacturing industry indicate that 3PL partners and clients relationships reduce logistics costs for the main company.
For the healthcare industry, the outsourcing of logistics is also beneficial but requires certain undertakings due to the sensitiveness of the industry. While the healthcare industry wishes to have a global reach of their products, they have to exercise caution and chose the right logistics.
However, all the three industries’ assessment shows that 3PL concept offers the much-coveted flexibility within the business. When they outsource certain operations, they have a chance to respond to other dynamic demands of their clients. Also, for small companies who are incapable of establishing the logistics infrastructure to enable a wider reach, the application of third-party logistics is the best strategy for success.
Some of the benefits of using 3PL promised by various literature are indeed visible in the manufacturing, retail, and healthcare industries. For example, cost reduction obviously becoming the biggest benefit these three industries attain form outsourcing logistics. Enhancing network capacities apply a benefit for the retail industry since the evidence from the industry indicates the need for expertise in logistics as a competitive advantage. Due to the nature of health industry, the 3PL concept proves to be beneficial in allowing the logistics experts to carry out the operations while the medical professionals concentrate in offering the best quality healthcare services and products.
Future research needs
The essay has evaluated some of the benefits attained from the application of the 3PL concept. For example, all the industries reviewed show customer satisfaction and reduces costs of production to be some of the benefits of outsourced logistics. However, successful engagement of a 3PL partner still depends on various factors. Such factors include commitment, performance measurements, adaptation to new market trends, and understanding of the clients’ needs (Selviaridis et al. 2008). Due to the proven benefits of 3PL companies in the management of supplies, it is necessary that future studies focus on how the 3PL companies can adapt to new market trends in various industries such as new technologies and new consumer demands.
Conclusion
The essay concludes that the concept of 3PL in supply chain management is very important for any industry. It provides the much-needed client satisfaction while integrating operations of supply chain using advanced investments in both technology and expertise. Outsourcing logistics enables the client to reduce capital investments hence reducing production costs while at the same time concentrating on the other vital issues within the company. The analysis in this essay can help companies and their 3PL clients to improve client satisfaction to remain relevant in the competitive markets.
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