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Third Party Logistics(3PL)

Advanced Options For The Sophisticated Distributor The Bookmaster Third-Party Logistics (3PL) module has been designed so that third-party book distributors can charge their clients a fee based on actual work performed. This will enable distributors to charge a more realistic figure based on real activities rather than, for example, just a straight percentage of sales. Charges can be based on a variety of activities performed 3PL charging criteria can be based on any number of activities such as: * number of picks (units) * number of orders * invoice carton quantity * average quantity/line items * weight of shipment * volume of shipment * weight of books stores * value of books stores, and so on. The 3PL module also allows third-party distributors to charge for a range of services including order-taking, providing customer service and/or collections service. Outstanding benefits of 3PL Utilizing 3PL will radically reduce manual processes when determining an accurate calculation of charges. Analyzing the true cost of third-party distribution will save you money Charging a percentage of sales does not always reflect the true cost of the service provided and can result in charging two clients a similar fee for providing a dramatically different degree of service. On the other hand, 3PL will help distributors uncover the hidden expenses involved in the logistics process. So if a customers requirements are more complicated and more costly for distributors to perform, there is the now the option to increase charges according to the real effort expended. In the same instance 3PL will show that some client-publishers will require a decrease in charges as the cost to service their distribution requirements is lower than others. Improve relationships with client-publishers The 3PL module is all about accurate charging of real services while requiring minimum effort on the distributors part in calculating these individual actions. Additionally this will improve relationships with client publishers who will also appreciate the breakdown as they will receive precise information and a full audit trail for every single service that their distributors perform.

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The concept of third-party logistics has generated considerable interest in American industry during the past several years. It involves outsourcing logistics activities that have traditionally been performed within an organization. The functions performed by the third-party can encompass the entire logistics process or, more commonly, selected activities within that process. Increasing corporate emphasis on such concepts as

reengineering and supply chain management has led many companies to consider the use of such thirdparty services.

The benefits and risks associated with the use of third-party logistics services have been widely discussed. However, there has been little systematic analysis of the experience of those companies that have used such services.

The research described in this paper was conducted in May-July 1995 and it repeated studies conducted in 1991 and 1994. A questionnaire was mailed to the chief logistics executive of the 500 largest American manufacturing companies. It was developed and administered to gather aggregate data about the use of third-party logistics in American industry in 1995, and to provide a basis for comparison with the results of the 1991 and 1994 studies. The research focused on the following areas:

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1. The extent to which those companies use the services of third-party logistics companies.

2. The specific third-party services that are used.

3. The user benefits that have emerged.

4. The obstacles encountered in implementing third-party relationships.

5. The impact of the use of third-party services on logistics costs, customer satisfaction, and employees.

6. The future plans of current users of third-party services.

METHODOLOGY

A survey consisting of a cover letter, questionnaire, and postage-paid return envelope was mailed to the chief logistics executive of each of the 500 largest manufacturers in the United States as identified by Fortune magazine. The executives were selected from the Official Directory of Industrial and Commercial Traffic Executives as published by the K-III Directory Corporation. In some instances, the data provided in the Directory were updated with information available in the Council of Logistics Management's membership

directory. Of the 500 questionnaires distributed, 92 completed questionnaires were returned by those surveyed and 18 were returned as undeliverable. The effective response rate was 22%.

RESULTS

Extent of Use

Fifty-five (60%) of the 92 respondents indicated that their companies use third-party logistics services, and in subsequent sections of this paper they are referred to as "users." This represents a major increase in the usage rates reported in 1991 and 1994, which were 37% and 38% respectively. Seventy percent of those using third-party services in 1995 use the services of more than one third-party service provider (78% in 1991, and 79% in 1994).

Among the respondents, 15% of non-users indicated that their companies were considering possible use of such services. The "interest rate" of non-users had been 11% in 1991 and 27% in 1994. Non-users were also asked to indicate why they did not use third-party logistics services. The most common responses were the desire to maintain control, a high perceived cost of such services, and satisfaction with internal expertise and systems.

As was the case in the earlier surveys, many of those using third-party logistics services are relatively inexperienced with the concept. As shown in Table 1, 45% of users indicated that they have been using the service for less than three years. This finding would appear to be consistent with the substantial increase in the usage rate which was reported in the 1995 survey. However, the fact that 55% of the users report more than three years of experience with the concept still provides an important opportunity to evaluate its longterm effects.

The Decision-Making Process

In each of the three studies, those surveyed have been asked to indicate the organizational level at which the strategic decision to use third-party logistics services originated within their company. The answer continues to vary considerably among users. In both the 1994 and 1995 surveys, 60% indicated it originated at the corporate level (49% in the 1991 study). Twenty-three percent of the 1995 respondents traced it to the divisional level, while 34% indicated it began at the local levels (the total exceeds 100% due

to multiple responses to the question, i.e., it began as a corporate-local joint effort). Clearly, third-party logistics continues to be viewed as an option by those at the top of America's largest manufacturing organizations.

Those using third-party logistics services become aware of the services of the company, or companies, they use in a variety of ways. As shown in Table 2, in all three surveys the most common ways were sales calls by third-party representatives and discussions with other logistics professionals. However, those two approaches have become relatively less important as advertising in professional publications and through direct mail, as well as contacts at professional meetings, have become more important. It should be noted that 20% of the 1995 respondents indicated that the awareness came about as a result of "other" approaches. These include RFQs initiated by the user, articles in professional publications, the use of consultants, and use of the third-party provider at a previous employer.