Management guidelines for third-party logistics

INTRODUCTION Third-party logistics (3PL) has become an effective tool for supply chain management. Synonymous with logistics outsourcing, 3PL involves external providers supplying multiple logistics functions to a user (Capgemini, Langley, and FedEx Supply Chain Services, 2003). Since its emergence in the 1980's, the concept has continued to grow as companies constantly seek to drive greater value from logistics in the form of lower costs and improved service levels (Lynch, 2004). Capgemini et al. (2004) indicate significant benefits from logistics outsourcing, including average reductions of 15 percent in costs, 16 percent in fixed assets, 7 percent in inventory, 5.4 days (from 12.2) in order cycle times, and 2.4 days (from 22.2) in cash cycles. The 3PL industry is still rapidly expanding and maturing. Recent estimates put the North American 3PL market at around $65-$70 billion annually ("The North American 3PL Market," 2004). Multiple surveys indicate that approximately 80 percent of companies outsource at least some logistics functions, averaging 40 percent of their logistics expenditures (Capgemini et al., 2004; Lieb and Bentz, 2004a). It is clear that 3PL has established a strong foothold in industry. Academic research in 3PL has also expanded over the last few decades, providing contributions across key topics of logistics outsourcing including drivers, services, success factors, and performance measurement. Despite this wealth of 3PL research, it is not easy to navigate, accumulate, and summarize the findings. 3PL relationships are too multi-faceted and complex to completely survey in a single study, so research projects tend to examine individual pieces of the 3PL puzzle. Some papers address reasons to outsource (Rao and Young, 1994; Bienstock and Mentzer, 1999), while others will investigate success factors or performance measures (Tate, 1996; Knemeyer and Murphy, 2004). Some examine service provider (i.e., seller) perspectives (Leahy, Murphy, and Poist, 1995; van Hoek, 2000), while others concentrate on user (i.e., buyer) views (Daugherty, Stank, and Rogers, 1996; Boyson, Corsi, Dresner, and Rabinovich, 1999). Even works that align in research focus do not always address the same variables due to the extent of potential considerations. OBJECTIVES AND METHODOLOGY Given the breadth and fragmentation of the 3PL literature, it is difficult to gain comprehensive insight into 3PL without a rigorous literature review. This potentially compromises the impact and usability of the 3PL research and may not effectively serve the needs of industry practitioners who look to the literature for assistance with exploring, building, or improving 3PL opportunities. To address this problem, this article reviews and organizes more than 75 3PL published articles. It provides a structured summary of this previous research, organizing it by focus and findings to provide logistics managers with a centralized guide for exploratory consideration of key outsourcing topics. The author has reviewed supply chain, logistics, and operations academic journals for 3PL related literature dating back to the origins of 3PL research in the early 1990's. The results are summarized relative to key 3PL topics (Table 1) including reasons to outsource (why and why not), services to outsource, 3PL provider evaluation, implementation success factors (including contracts), 3PL relationship success factors, and performance and satisfaction assessment. For each topic, findings from the literature are presented comprehensively in a table with the most frequently cited items highlighted in bold to help readers focus attention within the extensive lists. While the volume of information precludes a complete discussion of each table, selected key items from each table are assessed and, subsequently, emerging trends are pre-sented. Each section (and each table) is designed to stand alone if necessary to support each reader's individual interests. …