Necessity of Third-Party Logistics in Global Market - Term Paper Example

Necessity of Third Party Logistics (3PLs) in a Global Market Professor: Institution: Course: Date: Table of Contents 2 Introduction 3 Changing Roles of 3PLs Providers 3 3PLs Providers and Information Technology 3 Customer Satisfaction 4 Supply Chain Integration 5 Third Part Logistics as Orchestrators 6 How to orchestrate 6 3PLs in Global Trade Management (GTM) 7 Role of 3PLs in Management of Global Trade Challenges 8 General benefits of 3PLs to Global Market Companies 8 Conclusion 9 References 9 Introduction The global market competitiveness relies on the market’s ability to deliver customers adapted products all over the world swiftly and in time. This competitive image creates a number of demands in the logistics system and the management attitude to how crucial logistics is in a competitive global market. Many companies have made several changes in their organizational structures and business processes in order to remain relevant in the global market. There is increasing interest in the growth of third party logistics providers all over the globe. Companies are increasingly focusing on one stop global logistics services (Leinbach & Capineri, 2007).Third party logistics (3PLs) improve the logistic process by allowing the companies to concentrate on their core competencies that eventually reduce costs and increase organizational effectiveness (Lieb & Lieb, 2010). This paper discusses the necessity of third party logistics in a global market. Changing Roles of 3PLs Providers Initially, third party logistics (3PLs) was mostly used in USA and Europe but currently, 3PL is a widely used business practice. Traditionally, 3PLs provided services such as warehousing operations, transportation, freight auditing and payments, carrier selection and rate negotiation. However, the rise in volume and scope of services demanded from third party logistics providers have triggered change in their roles.3PL have evolved in the 21st century from simply offering logistic services to becoming coordinators of supply chains thereby creating and maintaining competitive advantage in the global market (Langley, 2014). 3PLs Providers and Information Technology Information technology is important to facilitate logistics processes. Logistic users are able to rationalize their global logistics activities by using the information technology (IT) of third-party logistics firms, for example, inter-organizational information systems (IOS) that ease communication among business partners within a global supply chain. The routine functions of logistic users which comprise order processing, order enquiries and management of inventory and freight tracking can be automated using third party logistics firm’s IT. Therefore, by using the different components of a 3PL company IT infrastructure, cooperation between organizations and coordination among supply chain partners can also be achieved (Langley, 2014). Past literature proposes that the information technology of 3PLs companies is one of the main reasons for global logistics users to outsource logistic services. Studies in the United States indicate that logistic users are in a good position to frequently access 3PL providers latest technological knowhow and computerized systems prior to forming a strategic partnership. Modern technologies such as Enterprise Resource Planning (ERP) and Electronic Data Interchange (EDI) have significantly improved the efficiency of the modern global supply chain management. Further clarification on the importance of 3PLs in a global market from information technology perspective is addressed in the following subsections (Hall, 2003). Customer Satisfaction In the world business management today, customer satisfaction is accepted as the core element for survival of any enterprise. It is essential to understand the customers and provide outstanding value and satisfaction because survival is increasingly becoming a challenge across the global market. Customer’s satisfaction should lead to improved performance. It should show protection of the current customers from competitors and, reduced costs of attracting new customers, improved goodwill for the company and reduced failure costs (Sheikh & Rana, 2011). Customer satisfaction is achieved by understanding the customer expectation. The customer requirements should be met in all aspects and should be delivered to the customer’s premises in time. Third party logistic companies are efficient in information technology. For example, most of the 3PLs companies are using Enterprise resource planning (ERP) software to satisfy manufacturers and suppliers at both ends. These companies have efficient coordination to the extent that their IT systems are integrated with those of manufacturers and suppliers. For example, when an order request is entered in the suppliers database, the 3PLs company automatically knows that the manufacturer requires raw material from the supplier. By using information technology, tools, and 3PL company helps companies to improve their customer satisfaction by ensuring on-time delivery without documentation processes or procedural delays (Sheikh & Rana, 2011). Supply Chain Integration Supply chain integration refers to the degree to which a company can manage intra and inter-organizational processes and tactically work with its supply chain partners. The objective is to offer maximum value to the customers at high speed and reduced costs and to achieve flow of information, services and products in an effective and efficient manner. Supply chain integration specifically means that business processes should be linked both internally and externally (Leinbach & Capineri, 2007). The technologies employed in supply chain integration have effect on coordination of logistics processes and information sharing within the supply chain. Studies have found that third party logistics providers have achieved high levels of integration. In addition, they seek long-term relations and higher level of integration with global supply chain network partners by adapting advanced information technologies.3PLs companies help to integrate supply chain, from supply of raw materials to supply of finished product to the end consumer. They perform this task much better than any individual company own transport because their only objective is to supply raw material or finished products, and they have nothing to do with the company issues. Companies in the global market could, therefore, benefit from the 3PLs providers with a wealth of IT utilization experience to achieve optimal flow of information and efficient integration of supply chain (Leinbach & Capineri, 2007). Third Part Logistics as Orchestrators Related to 3PLs supply chain integration role is orchestration. The concept of orchestration suggests that successful supply networks or supply chains are governed by a total player, a firm, whose role is to offer the required services and assume control of the supply network. The current trend is that third party logistics companies have become brokers organizing the global market supply chain networks. How to orchestrate Since third party logistic companies work simultaneously with several global supply chain partners, they can standardize data and processes across companies and create supply chain visibility beyond the individual firm. Besides standardization, 3PLs providers can be neutral arbitrators between companies in the global supply chain since they are usually impartial. They can also act as change agents particularly in full outsourcing cases. Finally, since they can spot opportunities for improvement by standardization and visibility, and work to achieve the opportunities without being seen as pursuing their personal agenda, they can facilitate collaboration more effectively than a customer, supplier or a competing company within the supply chain network. Consequently, the orchestrating role of a 3PLs provider is defined by how well it can help a company with standardization, neutral arbitration, visibility and collaboration (Supply & Demand Chain Executive, 2014). 3PLs in Global Trade Management (GTM) Companies in the Global trade vary in their capabilities. In response to the challenges in the global market, some companies adopt a basic approach to managing their global trade. The basic approach entails optimizing the supply chain costs and risks as goods physically move from suppliers through production to the target international market. In this approach, activities focus on duties, freight charges, documentation and the requirement to support the physical movement of goods. These supply chains, usually, approach production and distribution as fixed variables and decisions are made from (usually lowest cost supplier) through the target market (Langley, 2014). Some companies in the international trade have an advanced approach for managing their global trade. These companies use a mature global trade management (GTM) methodology which can be evaluated by looking at their organizational structure, supply decision points and the completeness of the GTM tools. Mature Global Trade management involves an integrated cross-functional that is in charge of making sourcing decisions, and sharing of data, instead of a limited group in small functional area (Langley, 2014). These companies have good and developed relations with providers and third parties. Supply chain decisions are made early during the product design and development stage. The companies use a backward approach to maximize for risks and costs, from the target market back to suppliers, a capability that needs elaborate and accurate projecting capabilities. In addition, these firms use comprehensive and real-time technology solutions instead of spreadsheets. Calculations include tariff and duty updates, and the results are incorporated with forecasting in order to account for variations that may occur in tariffs and duties and also market demand. The companies have decision modeling competences including production locations and investment in assets throughout the supply chain network (Langley, 2014). Role of 3PLs in Management of Global Trade Challenges A third party logistics company is in a better position to manage the global market trade challenges and complexities on behalf of companies that are not able to leverage on global trade market (GTM) tools. A 3PLs company has the capability to manage flow of information across participants in the global supply chain, and in doing so might be able to create better strategic relationships with all the supply chain participants. Some 3PLs companies are adequately equipped to offer compliance management that supports accurate documentation management to a company facing this challenge (Langley, 2014). General benefits of 3PLs to Global Market Companies In addition, the importance of third party logistics in the global market discussed above, there are other common benefits that accrue to global market companies that outsource logistics. These benefits are cost saving based. Doug Wagoner, the CEO, Chicago-based Echo Global Logistics emphasizes that most companies prefer to outsource some part of their transport and logistics to third parties. In the United States, statistics show that outsourcing to 3PLs has grown at a rate three times higher than the rate of growth in GDP. One reason for this growth is consolidation. Companies, particularly consumer companies, compete on retailer’s shelf, but they prefer sharing warehousing and transportation equipment management. It takes someone to coordinate this sharing and definitely that’s 3PLs provider since that is their strong suit. In addition, companies may take a long time to develop expertise in developing global markets. The companies can work with a global third party logistics provider to facilitate the company’s entry to the market (Supply & Demand Chain Executive, 2014). Conclusion Third party logistics providers have an indispensable position in any global market. They are helpful in improving customer satisfaction and integration of various processes in the global supply chain using their advanced Information technology tools. They also help a company to manage challenges inherent in global trade. A company can choose to outsource its logistics function to a third party to reduce capital investments and to focus on other core issues. Organizations involved in the global market should consider exploiting the benefits accrued by out outsourcing their logistics functions. References Hall, R. (2003). Handbook of transportation science (1st ed.). Boston: Kluwer Academic Publishers. Langley, J. (2014). 2014 Third Party Logistics Study-The State of Logistics Outsource (1st ed.). International Warehouse Logistics Association. Leinbach, T., & Capineri, C. (2007). Globalized freight transport (1st ed.). Cheltenham, UK: Edward Elgar. Lieb, K., & Lieb, R. (2010). Environmental sustainability in the third-party logistics (3PL) industry. International Journal of Physical Distribution \& Logistics Management, 40(7), 524--533. Sheikh, Z., & Rana, S. (2011). Role of Third Party Logistics Providers with Advanced IT to Increase Customer Satisfaction in Supply Chain Integration. Supply & Demand Chain Executive, (2014). The Growing Role of 3PLs | Supply & Demand Chain Executive. Retrieved 15 October 2014, from http://www.sdcexec.com/article/10363909/the-growing-role-of-3pls Read More