Third - party Logistics

A third-party logistics service is something more than subcontracting or outsourcing. Typically, subcontracting or outsourcing covers one product (or a family of products) or one function that is produced or provided by an outside vendor. Examples include automobile companies subcontracting the manufacture of tires, or construction companies subcontracting roofing, or retail companies outsourcing the trans­portation function. Third - party logistics providers cut across multiple logistics functions and primarily coordinate all the logistics functions and sometimes act as a provider of one or more functions. The primary objectives of third - party logistics providers are to lower the total cost of logistics for the supplier and improve the service level to the customer. They act as a bridge or facilitator between the first party (supplier or producer) and the second party (buyer or customer).

There are several reasons for the growth of third - party logistics over the past decade. The trans­portation and distribution departments of some of the major corporations have been downsizing in order to reduce operating costs. The most logical area to reduce costs is advisory functions such as operations research, followed by support functions such as transportation or warehousing. The area where companies want to strengthen by investing more is their core competency. Though it may sound like a fad it has been a reality at some of the major corporations. The other reason is from the customer side. Customers demand an exceptional service but are not willing to pay extraordinary price for it. This requires the use of faster and frequent transportation services and flexibility in inventory levels. A third - party logistics provider will be in a position to consolidate business from several companies and offer frequent pick - ups and deliveries, whereas in - house transportation cannot. Other reasons are as follows:

• the company's core business or competency may not be in logistics;
• sufficient resources, both capital and manpower, may not be available for the company to becomea world -class logistics operator;
• there is an urgency to implement a "world - class" logistics operation or there is insufficient timeto develop the required capabilities in - house;
• the company is venturing into a new business with totally different logistics requirements;
• merger or acquisition may make outsourcing logistics operations more attractive than to integratelogistics operations.

Benchmarking

It is critical for a company to know the strengths and weaknesses of its business and those of its competitors in order to continue to maintain and gain market share and profits. Companies are generally aware of this during their early years but over time get more internally focused and lose sight of the environment around them. This type of insulated environment benefits the competitors since they have a better understanding of the needs of the customers. Benchmarking refers to the act of comparing a company with world - class performers and competitors involved in similar functions and operations. It is important to do benchmarking every few years since world - class performance and competitors change. A conceptual framework for benchmarking is presented in figure 1. The concept as illustrated in figure 1 demonstrates that benchmarking identifies the gap in performance between a company and the best performer and seeks to identify ways and means to close or narrow the gap as much as possible.