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An Explosion of 3PL Services: How Are These Expanding to Meet Customer Needs?

A host of new services are turning 3PLs into company "partners" in the logistics process.

Logistics Distribution Warehousing 2007
For years, companies have arranged for warehouses, carriers, logistics service providers, and other "disinterested third parties" to handle services related to the storage and delivery of product to customers. In fact, logistics service providers became known as 3PLs (third-party logistics providers). These days, though, 3PLs are working so closely with their customers in terms of offering value-added services that they almost operate in partnership mode - as "second-party providers."

Gone are the days when companies simply asked their 3PLs to do the "pallet in-pallet out" drill. More and more, companies expect 3PLs to perform a host of sometimes complex, intricate, and even strategic tasks that were once performed by the companies themselves, with never a thought that such activities, being so critical to the company's success, could ever be outsourced. Interestingly, the arrangements are working out so well that not only are companies asking their 3PLs to handle more and more of these value-added tasks, but the 3PLs themselves are coming up with innovative value-added ideas that allow companies (their customers) to focus more on their core competencies.

The increasing popularity in value-added services from 3PLs seems to be growing as a result of synergy between customers and 3PLs. Customers are telling 3PLs that they don't want to handle certain tasks anymore, and the 3PLs are happy to take these responsibilities on because they make money on labor. Then, as they get more involved, they start to see additional opportunities, which, in turn, they suggest to their customers.

Popular Value-Added Services
These days, the core services being offered by 3PLs are a basic requirement, according to Carl Melville, vice president of marketing for Total Logistic Control, Holland, Mich., a 3PL provider. "You have to be able to offer certain basic things just to be considered by a customer," explains Melville. "The core services don't get you the business anymore."

He has found that 3PLs need to be able to offer "outside-the-box" services and expertise. One of these is a solid information technology system that will integrate with the customer's system and provide visibility and control to the customer. "In other words, customers want to know just as much about what is going on as the 3PL does," he explains.

Another area where 3PLs are attempting to differentiate themselves relates to integrated services. "The 3PLs can still offer more individual value-added services but, more importantly, they can integrate several services into a single offering," says Melville. For example, a 3PL may operate a distribution center for a customer in a certain region. In addition, it may also handle the customer's inbound and outbound transportation, handle its EDI (electronic data interchange) transactions, and integrate order flow with its production facility, with all of these services being offered as a total package to the customer.

Postponement is another value-added service that has experienced significant popularity and continues to remain strong. "One of the most useful value-added services is being able to provide postponed configuration or customization of the product near to or at the time of fulfillment," says Doug Christensen, managing director of Chapman Associates, Schaumburg, Ill. This can include packaging, mini-assembly, and testing. Postponement allows companies to lower their inventory levels because they don't have to finalize particular SKUs (stock keeping units).

Customers are also seeking technological innovations from 3PLs, according to Chuck Franzetta, CEO of Franzetta & Associates, Boalsburg, Pa., a supply chain and logistics consulting firm. "In large markets and mid-markets, the trend is toward a focus on more offerings related to technology and technology interface, such as supply-chain technologies that can improve efficiencies for the customer."

Who Initiates?
In some cases, 3PLs come up with new services and then market them to customers. In other cases, customers may approach 3PLs and ask them to begin offering specialized services. How it works depends on the companies involved.

"Large companies tend to work with a number of 3PLs, each of which has a specific type of expertise," says Franzetta. Sometimes 3PLs will promote their service to clients, he adds. For example, they may purchase a new type of technology, and then begin to market it to clients. "Interestingly, though, some 3PLs have technology available that they really aren't offering," he notes. In these cases, the implementation of this technology for clients is the result of client inquiries, asking in general what the 3PL might have available, or asking specifically if they can provide a certain service.

In still other cases, 3PLs attend customer executive meetings, where they sit down with people from operations, finance, sourcing, logistics, marketing, and sales and get involved with strategic planning. During these meetings, according to Franzetta, the customer and the 3PL begin to realize that a certain technology or service that the 3PL offers would be useful. "Some clients are simply looking for cost savings," he says. "Others are looking for ways to improve profitability, which come from cost savings, enhanced customer interface, and so on."

According to Christensen of Chapman Associates, the offering of new services in the past tended to be tactical in nature. "The 3PLs would create services based on hearing about customer needs because they were very customer-focused," he explains. These days, though, he has found, new services tend to be strategic in nature. "A lot of the large 3PLs that have been formed as a result of mergers and acquisitions create and offer services based on what they already know that the marketplace needs," he explains.

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