Starting A Third Party Logistics Company

By Alexander Gordon
Third Party Logistics Companies or 3PL Companies provide services by setting up and running
logistics operations for other operating companies. These services can be as simple as brokering and
managing freight flows for the customer or as complex as setting up operation of company's major
warehouse or distribution center operations.

Setting Up a 3PL Company:

It is very important to determine the type of services you intend to provide and industry you want to
specialize in. Survey and study the market for your services and key operational areas you are
considering for business. Consider the investment, cost of initial set-up, finances and funds available,
complexity of operating the business, running major distribution centers for retail clients, transport
systems, trained manpower and other key areas of focus. Keep in mind different options and details
before venturing into 3PL business.

Major companies are happy and satisfied with 3PL providers. Despite this, third party logistic
relationships and outsourcing alliances fail quite frequently or suffer from cancellation of contract.
To overcome this problem, keep a few aspects in mind to achieve success in implementing a 3PL
project.

Successful Implementation of a Third Party Logistic Project:

Strategy:

Have an outsourcing strategy. Have a well thought of action plan about outsourcing and outcomes
against in house capabilities and availabilities. A SWOT analysis will help tremendously to
understand the strengths, weaknesses, opportunities and threats of outsourcing logistics versus in-
house solutions.

Comprehensive Study:

This helps you in clearly documenting the advantages, challenges and cost benefits of outsourcing.

Documentation:

Develop standard operating procedures for all processes to be outsourced, so that there are no
procedural gaps in understanding and client expectations. Document points of agreement or
disagreement clearly.

Scientific Selection:

Shortlist eligible service providers and other 3PL companies need to understand their working vis-à-
vis your business. Document clearly show their expectations and terms inclusive of current costs to
avoid later confusions for smooth functioning of your company.

Targets:

Define clear performance standards. This will assist you to measure performance and identify area
for corrective actions.
Use a Request for Information (RFI):

This tool will not only help gather information but also show up the strengths and weaknesses of
other parties. Beware of over commitments of service providers. Have realistic expectations.

Do Your Spadework:

Visit site, interview the existing customers of a particular service provider. Evaluate the factors
required for your company like its experience, quality, responsiveness, ability to meet expectations,
flexibility, management team etc.

Measuring Costs:

An effective costing system will help in understanding the costs of outsourcing. Any activity
undertaken can be measured against the pay-offs it generates. Activity based costing will bring out
the variance between projected and actual costs.

Third Party Logistics companies can offer various types of services for other operating companies.
They must have a robust business model so that a viable business can be set up. Customers also
must have a viable plan to implement third party logistics project successfully.