How Can 3pls Achieve Economies Of Scale?

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Over the past few years the functions of 3pls have changed a lot. In addition to providing warehousing and transportation services, today's 3PLs are assuming a lot more responsibility in tactical planning and operations to guide the overall supply chain efficiencies. Due to globalization they're also moving quickly up their customers' value chains with services like security consulting and purchase order management.

To achieve these premium levels of services they are investing in advanced technologies and methodologies to better understand their customers' supply chain needs.

Ways to achieve Economies of Scales:

Third party logistics can achieve economies of scale by investing into efficient and integrated supply networks for their clients. As it is one of the biggest challenges being faced by individual customers to manage their complex supply chain networks in emerging markets. The individual customer can't do it because it saves them almost 15 to 30 percent cost and this outsourcing frees them to focus more intensely on their core business. Moreover these 3PLs better understand the increasingly complex logistics environment. This is also helpful for the companies to expand their global market coverage. For example, it is much harder for the companies distributing their products across Europe to incur cost, bear delays and risk associated with setting up their own systems.

Source: john Paul Quinn,“3PLs Hit Their Strides”, Logistics Management/supply Chain Management Review, July 2006, pp. 3T-8T.

Another challenge has been created by the export boom of chain. This has led to handsome congestion on global transportation infrastructure, impacting all modes of transport that carry the goods. So customers are requiring the 3pls to develop flexible and efficient supply chains to better respond to transportation bottlenecks and changing market conditions.

The 3pls can also develop horizontal, cross company supply chains. This innovative concept is based on clustering specific logistics activities and consolidating supply chains, significant economies of scale can be achieved in terms of efficiency (logistics cost), effectiveness (customer service) and environmental sustainability (carbon footprint)."

Source: 2009 Third-Party Logistics Study

SCM has emphasis on speed to improve inventory velocity, turns and cycle time reductions. Firms can be reluctant to add staff, add overhead. Yet the logistics function must be executed and executed well for corporate success. 3PLs can provide the logistics resources and skills needed without adding salary, benefits and other costs associated with hiring direct employees.

The next evolution for 3PLs is the involvement in the planning process beyond execution and fulfillment. The industry is continuing to advance in capabilities and service offerings much more upstream in the supply chain. The opportunity will be to integrate all the pieces involved in the supply chain as 3PLs advance their services to provide end-to-end supply chain solutions.

Sourc:Excel inc

The 3pls can make sufficient investments in advance IT technologies to achieve economies of scale. As shipper respondents are looking to outsource not only logistics activities that are more transactional, operational and repetitive, but also those that are more strategic, customer-facing and IT intensive. The economic downturn is serving as impetus for shippers to reconsider the roles their 3PLs play in helping them make decisions about their supply chain networks.

Integrated software application systems like NextLinx in conjunction with other application have enabled the big 3PLs to integrate their core services with other service providers to offer fully integrated logistics system to customers. Trucks, ships trains and planes cannot be made to travel much faster than they presently do: thus any additional speed has to come from better logistics management. An automated supply chain system can cut time needed for deliveries from the Far East to warehouse in the United Kingdom from months to just 25 days.

Source:NextLinx-Trade collaboration: software for import and export

3PLs can save their customer's risk, costs and time associated with go-live ERP through investing in ERP systems to gain economies of scale. According to the study, the state of logistics outsourcing 2007. 62 percent of companies surveyed in U.S. felt “3PLs provide new and innovative ways to improve logistics effectiveness.” While reporting an average cost savings of 13 percent after outsourcing. Among the criteria the respondents felt very important the IT capabilities of 3PLs ranked in top three issues with integration into customer ERP being viewed as" progressive "trait.

Streamline Through supply chain outsourcing: 2008 Ryders systems Inc.

RFID technology

Almost all 3PLs are becoming involved with RFID at some level, to minimize the cost. However, to be truthful this implementation is pretty tentative. While there seems to be universal agreement that the technology is inevitable. Some logistics companies, such as C.H. Robinson, which plans to implement RFID throughout their own supply chain, have moved aggressively into the RFID arena and believe that it will have huge benefits for the supply chain. More cautious types fear that issues, such as cost , Return on investment and standardization, will delay implementation and that the benefits are still years away.


3PLs have to invest in high tech metics in supply chain recognizing its strategic importance. They are now being tied with financial metrics and being used in budgeting and projections.

Third-party logistics providers are finding that their customers are asking them to provide more granularity and real-time access, enabling them to make fast, well-informed business decisions. Open access to the right information has never been more important-nor more challenging to provide.

Customer relationship management

Today's logistics customers are extremely sophisticated, and are demanding a higher level of customized performance from their service providers. As the supply chain has increased in complexity, there has been a corresponding expectation of additional 3PL expertise. That is why customer and involving the 3PLs in their strategic and logistics process decision making and expecting broader range of capabilities. Hence the 3PLs can make investments in CRM technologies to reap the future benefits of strong long term relationship with their customers.


3PLs can minimize their per unit handling cost by aggregation of the entire task in one department. This decision presupposes the extensive analysis of important contingency factors, like product line, environmental relations, technology and organizational size. However, such contingency factors have a limited influence, and are modified by the strategy of the organization.

Moreover shipment aggregation strategy could also be employed by the 3PLs to minimize their operational and overhead cost and reap the benefits of cost effective LTL(less than truckload shipping) rates. This strategy is creating a single shipment of multiple orders, originating from the same shipper to the same destination on the same day that would have otherwise have been released as separate shipments.

Source: Transportation Management Whitepaper:

Demand Supply Planning:

Demand supply planning is yet another function that 3PLS are handling for several of its retail clients who had traditionally operated this in-house to optimize their operations and minimize the per unit cost they are helping these clients understand how much inventory they are carrying across their network based on ultimate demand. Then they advise clients on how much inventory they need to carry in particular locations within their network based on point-of-sale consumption, which drives the planning process. This is one of many examples of how the company is advancing upstream in clients' supply chains to provide higher levels of service and efficiencies.

Source: Delivering Supply Chain Excellence

Network Optimization:

To expand the current business and avail the new opportunities, the third party logistics can also move to network optimization for their clients for achieving efficiencies. They can conducts a network-wide analysis on where a client's DCs and stores are located, and then recommend where they could replace their current DCs with other locations for greater efficiencies. It has been done by an engineering group at APL logistics.

Organization for logistics: the contingency approach

Unprecedented and rapid changes in prices of oil and other fuels presents challenges for the active players in the global supply chain and makes it much difficult to reap the benefits of economies of scale and efficiencies. Moreover .environmental sustainability and energy efficiency present a fascinating landscape that will unfold in a variety of complex interactions between various types of global supply chain players adjusting to the emerging realities of consumer sentiment, public policy and energy supply. It is a domain ripe for innovation and wealth creation by companies with foresight and fortitude.

Source: Sustainability's Staying Power by Bil l Schneiderman October 5, 2009 :

Rail service could be an efficient means of transport for 3PLs because of low cost freight rates and fuel efficiencies. Rail is much lower in both fuel and carbon cost per ton-mile of cargo than truck and air. The more energy efficient modes of transportation are now getting closer to taking market share. However the current problems being faced are dramatically slower speed of delivery along with more unpredictability in delivery date and capacity that are not meeting their transportation needs. Insufficient capacity and slow delivery problems could be resolved by the public /private partnership. Moreover, to narrow the gap between themselves and the faster transportation modes. 3PLs can also put distance between themselves and commodity operators within their own modal space.

Large geographical network coverage presents lots of challenges to 3PLs when they are Determining the optimal number of warehouses, the location of each warehouse, the size of each warehouse, allocating space for products in each warehouse, which products need to be transported, and in what quantities, and the best routes for a vehicle in a transportation network . However the 3PLs can remove these challenges such as Choosing sites, targeting market segments, planning distribution networks, responding to emergencies are all problems that involve questions of geography, if they use GIS (geographic information systems ) applications to cut across industry domains. The use of GIS towards superior management of business logistics is a relatively new phenomenon but it has become a strategic and operational tool to achieve the efficiencies in logistics management.

Source: GIS Applications in Logistics: A Literature Review; Avijit Sarkar, School of Business, University of Redlands 1200 East Colton Avenue, Redlands, CA 92373, USA; 2007

3Pls are making efficient use of their labor supply as they are providing staffing services to their customers to achieve the economies of scale. One benefit of this outsourcing model is staffing efficiency. Time-intensive jobs, such as product distribution, customer service, inventory management and order fulfillment are good examples of value-added services 3PLs can offer. Instead of having to hire, train and maintain a staff for those important functions, companies are turning to 3PLs.


In short, the 3PLs have to be more innovative than ever before to be more efficient and effective as a recent report by research and consulting firm Armstrong & Associates indicates that 77% of domestic Fortune 500 companies use 3PLs. moreover many small companies are also looking to outsource their logistics and non-core operation to them.