TPL [Third Party Logistics]

The 21st century has witnessed the spread of globalization, the rapid growth of information-oriented society, and mature markets, all of which have led to immense changes at all levels of society. It is crucial for a company to build an efficient and economical logistics system to secure its competitive edge in global competition. Organizational strategy has shifted its focus from self-manufacturing and hierarchical integration to outsourcing and strategic alliance; competition has grown into the supply-chain level, beyond the intercompany boundaries. Such changes emphasize the importance of inter-entity alliance within a supply chain, also known as strategic alliance.In general, TPL consists of three processes: 1PL is a first party (company) logistics; 2PL refers to a logistics subsidiary; and 3PL is a third party logistics process. In terms of service depth, third-party logistics develops in the process of ‘operation/ implementation management/control planning/strategy,’ while in terms of service width, ‘functional service interfunctionally connected/integrated service intercompany-connected/integrated service.’

  • Differences between Outsourcing and Third
Third Party Logistics Outsourcing Logistics
Goals Reduce costs, secure competitive advantage Reduce costs
Operating Period Medium or long term Short term
Relations Improvement Closely cooperative Loose, temporary
Provision of New Services Active, proactive (suggestion-oriented) Passive (order-oriented)
Intervention Scope Operation, management, strategy Mainly operation
Contract Type Competitive contract Private contract
Decision Maker Top management Middle level management
Characteristics of Assets Non-asset possible Possession of assets necessary
Management Form Integrated management Distributed management
Relationship with Transporter Cooperative Hierarchical contract-based
Service Scope Aiming at comprehensive logistics Function-based service
(transportation, warehousing)
  • Necessity of Promoting Third-Party Logistics
Changes in the business environment Changes in logistics activity
Diversified, sensitive, personalized customer needs Low-volume high-frequency shipping
High-volume low-frequency shipping
Mass production ▶ High-mix, low volume manufacturing
  • Strengthen Capabilities of Manufacturers by Providing High-Quality Logistics Services
  • The fast development and provision of logistics services not only supports the customer-satisfying management system of manufacturers but also encourages them to concentrate all their resources on their core businesses to reinforce their capabilities. Manufacturers can take advantage of highly reliable logistics services, fast warehouse incoming/outgoing management, and freight location provided by logistics experts in securing their competitive advantages in time-based competition, as well as productivity competition. It is a win-win game for both logistics experts and manufacturers since the former will be able to achieve higher return by developing and supplying high-quality services, and to extend its investment to revolutionize their services. However, Korea’s poor logistics environment hampers most companies from getting a better understanding of the concept of outsourcing, although many of them are contracting work out to outsiders. Transportation contracts, for instance, are made to seek short-term cost reduction only, rather than based on long-term strategies after a company has a full grasp of its own strengths and weaknesses. It is deemed to have resulted from the fact that the lack of trust between companies has led to the absence of intercompany alliance or partnership. Since a company alone cannot simply do everything, companies should look to outsiders to deliver the desired resources and activities to survive in competition. After all, a shift towards third-party logistics implies that the traditional transaction-based relationship between transporters and logistics service providers is changed to strategic partnership.
Advantages of Third-Party Logistics
For Suppliers Increase efficiency using economy of scale
Ease demands and variations between products with a product portfolio
Improve quality of customer service and flexibility
For Manufacturers Reduce the capital goods needed for the material flow
More flexible choices of storage locations
Invest surplus resources in high value-added projects
Easier allocation of logistics costs
Set new strategies as logistics management costs are made clear
For Distributors Appoint employees in charge of distribution and reduce costs
Not subject to any restrictions in relation to transportation licenses or driving hours
Can focus better on their own business areas