How To Choose Between Asset and Non-Asset Based 3PLs

Oct. 4, 2007
The efficiency of your supply chain has a direct effect on the reputation and dependability of your business, and it should not be entrusted to just any provider with a low-ball price.

It is safe to assume that any service provider in the logistics industry will tell you that their process of managing a supply chain is the most efficient, and that they implement the most effective methods for getting your product form point A to point B. But for you, the logistics industry may seem pretty confusing, and sometimes overwhelming. Furthermore, if each consultant is saying that their systems are the best, how do you figure out which methods are right for your business?

The following will shed light on what it means to be a third-party logistics provider (3PL), what kinds of 3PLs are out there, and what the key differences are in the services they have to offer. With this information, you will be far better equipped to make an educated decision on which third-party logistics provider will give your business what it needs in terms of effective supply chain solutions.

What are 3PLs and What Should You Know About Them?

There is a wide range of definitions and concepts associated with third-party logistics providers. One definition is "an external supplier that performs all or part of a company's functions," going on to explain that, "a 'true' third-party logistics arrangement includes multiple logistics activities that are integrated or managed together, and provide solutions to logistics/supply chain problems." Other source emphasizes management as an essential element of third-party logistics in the following definition: "Activities carried out by a logistics service provider on behalf of a shipper must consist of the management and execution of transportation and/or warehousing."

But why outsource? If your personnel are managing your supply chain in a satisfactory manner, you may find it difficult to justify making the switch to a 3PL. Research shows, however, that outsourcing the logistics functions of your operation will improve your business in many ways, including (1) cost reduction recognized from expertise and economies of scale of 3PL providers; (2) service improvements resulting from 3PL provider focus and efficiency; and (3) buyer focus on core competencies. These are important things to look for when deciding to outsource, as well as when choosing the right 3PL for you.

In order to achieve the successes and improvements listed above, the 3PL you choose must act as a true partner. This means that the provider must work with your company to develop a logistics plan that is right for you. When looking for the right 3PL, keep your eyes open for one with demonstrated expertise, not just in delivering shipments, but also in delivering to their clients' bottom lines. After all, if a potential 3PL partner cannot prove their experience in organizing and implementing custom supply chain solutions that achieve excellent results, there is no telling whether or not they will help or hurt the workings of your current supply chain. It is imperative that a prospective logistics provider maintain the confidence of both you and your customers, as well as collaborate closely with you to find ways to improve the efficiency and reduce the cost of your logistics operations.

The Two Kinds of 3PLs

Like any industry, the logistics field is made up of a wide range of firms that execute logistics operations in a variety of ways. For the sake of brevity, most logistics firms can be divided into two broad categories: asset and non-asset based providers. In general, both providers work to manage their clients' supply chains in a manner that will (1) increase overall efficiency, (2) cut costs, (3) deliver with fewer errors, and (4) accomplish these on time. The differences between asset and non-asset based firms become apparent when analyzing their methods of achieving these goals. The following will provide a definition of each 3PL classification and how they utilize different methods to develop supply chain solutions.

Asset Based 3PLs

An asset-based 3PL is a logistics firm that owns many or all of the assets necessary to run a client's supply chain. These assets include trucks, warehouses and distribution centers, among others. When considering an asset-based 3PL, look for evidence that the firm has demonstrated the effective use of their assets to cut cost in previous client's logistics operations. A well-established asset based 3PL should be able to provide documentation that knowledge of their assets' strengths and vulnerabilities has allowed them to lower the expense of moving and storing goods for their clients.

Asset based 3PLs, however, can sometimes encounter a conflict of interest when developing supply chain solutions. Since this type of 3PL has made significant investments in their physical assets, they are tethered to those assets when devising ways to manage your logistics. Consequently, asset based 3Pls may route your supply chain through their own network in order to realize continued value from their assets, even if this may not be the most cost-effective or efficient way to manage your supply chain.

Non-Asset Based 3PLs

A non-asset based 3PL is a logistics provider that does not own the assets necessary to manage and implement a supply chain. Instead, a non-asset based 3PL offers its expertise in negotiating contracts with warehouses, trucking companies and distribution centers in order to manage your supply chain at the lowest possible cost to your business. A non-asset based 3PL realizes that every client has different priorities for their logistics operations, and since they do not need to utilize an inventory of assets to remain profitable, non-asset based 3PLs exhibit a flexibility in supply chain solutions that asset based 3PLs do not.

When considering a non-asset based 3PL, remember that you will be working closely with the 3PL to create a plan that will work best for you, but the execution will be up to them. Therefore, you will have time to focus on your core goals and the values that your business was built on, while they focus on running your supply chain. A transparent and efficient logistics system will relieve you of burdensome supply chain obligations, allowing you to do what you do best -- focus on your core competencies.

Flexibility is Key When Choosing a 3PL

It is important to remember that when considering a 3PL, you are ultimately evaluating the quality of the relationship that you will be acquiring with a true business partner. The efficiency of your supply chain has a direct effect on the reputation and dependability of your business, and it should not be entrusted to just any provider with a low-ball price. Remember to look for a 3PL that is eager and willing to do things on your terms, as well as keep your supply chain operations transparent and well-supervised. Also, look for a 3PL that won't force you into a system that does not work for you and your company's needs. Finally, look for a 3PL that has the flexibility to achieve the lowest costs with the highest-quality results for your supply chain. With that in mind, you would be well prepared to make an informed decision when choosing the best third-party logistics partner for all your logistics needs.

Ron Cain, is the President / CEO of TMSi Logistics. TMSi Logistics is a distribution, technology and integrated logistics provider. TMSi maintains industry focus in Manufacturing,Consumer Products, Retail, Healthcare, High Tech and Government. For more information, visit or call 603-422-0777. Ron can be reached at (603) 373-7233 or at [email protected].

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