3PL's, Public and Contract Warehouses

3PL is also known as third-party logistics provider. It is said that the demand for outsourced services from logistics provider is likely to grow further in the following two years. There are several reasons for this. With globalization and intensifying competition in the industry, companies prefer to seek the opinion of professional logistics service providers and concentrate on their core business areas. In the past, companies thought they could handle all their logistics needs single-handedly, but realized this has a high impact on their concentration in their core businesses. However, now companies in the industries of electronics, automobiles and spare parts are quickly signing up with UPS for logistics services to handle their logistics needs. Just for your information, UPS stands for 'United Parcel Service' and is one of the world's largest package delivery companies. For more information, please visit: http://en.wikipedia.org/wiki/United_Parcel_Service

In short, 3PL's ( third party logistics ) execute logistics activities in an external organisation. The major advantages of outsourcing to a third party logistics provider is that a company can focus on it's core business areas, while allowing their non-core logistics needs to a 3PL company, such as UPS or DHL.

Other advantages/usefulness include:

• Reduces the conventional logistics costs.


• Handle some specialized services, especially for warehouses that requires handling of specialized services, such as delivery of temperature-sensitive products.


• Provides warehousing and transportation services customized to customer's needs and market conditions.


• Increases the speed of services.


• Globalizes your supply chain, especially if you engage a variety of third-party logistics service providers across the world.


• Allows you to concentrate on your core logistics businesses.


• Enhance supply chain efficiency.


• Improves customer service with on-time transportation deliveries.
  

However, constraints are evident in that 3PL logistics sector is in growth gradually and logistics service charges may be on the rise in coming years. For instance, Ceva logistics, of the leading supply chain and forwarding companies is investing huge amounts of money to tap on the increasing demand for third-party logistics services.

Public Warehouses

There is increasing demand for using public and contract warehouses. To avoid confusion, public warehouse is not a 3PL although they provide services for the warehousing company. Public warehouses typically are rented facilities of the warehousing company and is often used when the company cannot justify the costs of having their own warehouse facilities and don't want to commit to owning their own facilities.

Having a public warehouse has its unique usefulness. Many companies and manufacturers are turning to public warehouses for unique advantages it brings to companies.

They are namely:

• Flexibility


• Transportation Consolidation


• Capital Preservation


• Specialised Services


• Seasonal Demand Products


• Postponement


• Market Knowledge


• Focus

Flexibility

Flexibility of space, labor and equipment has been the primary advantages of public warehousing. The current trend now is to reduce inventory levels, hence during peak seasonal demand, public warehouses offer constant space, labor and equipment to execute logistics activities and handle stored products. With sufficient lead-time, manufacturers have the luxury of having good flexibility to increase or to reduce their allocation of warehouse space and equipment.

Transportation Consolidation

To remain in this highly competitive industry, manufacturers need to achieve significant cost savings through consolidation of their inbound materials. What is this exactly? Manufacturers are aiming to receive their inbound material and goods on a JIT(Just-In-Time) basis, and turning to public warehouses to consolidate inbound goods in a single shipment. This way, manufacturers can satisfy their different points of production at the same time, with a single consolidated shipment.

To enhance the efficiency of this trend, manufacturers are developing programs to bring public warehouses close to the point of manufacturers. Warehouses will receive larger shipments consolidated out of smaller shipments on JIT basis. With these implementations, the new trend is that public warehouses conduct quality checks on the components before delivery shipments.

Capital Preservation

By using a public warehouse, the company does not require capital investment. This capital can be freed up and redirected to areas that contributes to profit, such as research & development.(R&D)

Specialized Services

Also, there are some public warehouses that provide specialized services such as handling cold chain products, and temperature-sensitive products. For example, medical and pharmeuceutical supplies. They may have warehouse facilities to handle such unique products and this can be a trend that will develop in the future, with greater capital investment in this sector.

Seasonal Demand Products

Public warehouses provide a good space for seasonal demand products. This is useful in adapting to changing market and customer demands.

Postponement

The demand for value added services has been increasing through the years. Hence public warehouses offer final assembly, labeling, testing. Break bulking and assembly functions are some additional commonly performed services. Hence manufacturers are allowed to have a buffer/cushioning against customer demand changes, even at the very last minute. This allows companies to maintain the product in it's generic form until the exact quantity and product specifications required by the customer is known.

Market Knowledge

Public warehouse operators are known to have rich experience in this industry and have been in this business for decades. Hence, manufacturing companies are getting more confident in these operators/entrepreneurs and their public warehouse operation effectiveness levels. With this, public warehouses are known to create value and contribution significantly to company's entire supply chain strategy. They know how things work, and how to move about their duties.

Focus

Public warehouses provide logistics services, and they are very familiar with the "basics of operation". By improving processes continuously, training staff, investments in equipment, and develop a competitive leading edge in software/hardware systems. Integrated data-processing equipment allows communication with public warehouses. With this focus coming from public warehouses, the manufacturers can be at east and concentrate on their core business competency such as marketing campaigns and R&D, knowing at the back of their minds that the Public Warehouses will be there to perform their assigned tasks to their fullest ability and help support and grow their business.

Public Warehouse is a cost effective solution for:

Warehousing of inventory with fluctuating space requirements.

Seasonal distribution programs.

Product overflow in existing distribution centres.

First-time marketplace entry for a new product or region.

Supply chains that require multiple distribution points.

Contract Warehouse

Another growing public warehousing trend is the use of contract warehousing. This is a customized version of public warehousing. Contract warehousing specializes in providing efficient, economical and accurate distribution services. To avoid confusion, contract warehousing is the same as a 3PL company. To substantiate our points on 3PL's as mentioned above, contract warehousing provides "above-average" quality and service. They have higher standards and specialized handling needs for pharmaceutical, electronic and high-value manufactured products. On the other hand, companies wanting average quality and service should adopt public warehousing.

Essentially, contract warehousing is a partnership between the manufacturer and the warehousing company. Also, can be considered a "One-Stop-Shop" Logistics Centre. As mentioned, there are unique usefulness that contract warehouses have:

• Seasonality in products


• Increase Geographical coverage


• Gain flexibility in testing new markets.


• Gain management expertise and dedicated resources.


• Reduce transportation costs. ( Full Truckloads )
  

Despite advantages, there are also companies that prefer to engage private warehouses and own the facilities on their own. For several usefulness:

• Manufacturing companies prefer to have a high degree of control over warehousing operations, hence having efficient warehousing and services.


• Also, they have the flexibility of changing the purpose of space into any that they might desire.


• Private warehousing is less costly than renting and manufacturing companies have more confidence in their own abilities to handle their logistics needs.


• Especially so, for retail companies handling large volumes of merchandise on a regular basis.

However, there are also constraints as to private warehouses.

• Lack of flexibility in the long term when the increased size of company will restrict growth.


• Financially, start-up costs are high and hiring labor to manage the warehouse adds to the costs too.


• To make use of mechanised handling and storage systems such as the Automated Storage & Retrieval Systems(ASRS) requires technical knowledge and is capital intensive.