Logistics service providers and

fulfilment partners Dr Minchul Sohn

09.11.24
Learning objectives
▪ By the end of the session you should be able to:
▪ Define the concept of outsourcing
▪ Explain the role of logistics service providers (LSPs) and order
fulfilment partners
▪ Identify the benefits and risks associated with logistics
outsourcing
▪ Describe the evolving context of logistics service providers
What is outsourcing?

A series of
connected
Management and business
delivery of a process processes
Transferring Another company

Deliberate movement A third party

Previously performed by
the company itself
Which manages
them on behalf of the
company
By ourselves? By others?
▪ One of the most fundamental strategic questions any
organisation needs to address is to determine whether an
activity should be:
Completed by an in-house team or Procured from an outside party

▪ What about for the provision of logistics?

Logistics outsourcing
▪ Outsourcing of logistics activities is not new (Skjoett-Larsen, 2000)

▪ Logistics has been one of the most popular activities in

recent decades to outsource and “Buy in”
▪ When we buy logistics service, the relationship can be
varied
▪ from arm’s length relationship towards collaborative
partnership
Logistics outsourcing activities

▪ Popular logistics outsourcing activities:

▪ Transport
▪ Warehousing
▪ Inventory control
▪ Freight forwarding
▪ Customs brokerage
▪ Product labelling, packaging, kitting
▪ Order management and fulfilment
▪ Customer service
Third-party logistics service providers
(3PLs)
▪ External suppliers that perform all or part of a company’s
logistics function
▪ Provide and/or manage logistics services on behalf of the
company (customer/client)
▪ 3PLs are expected to add more value to a customer’s
business than the customer would be able to achieve
alone
Role of 3PLs
A shipper (seller) delivers products directly to a store (destination) using their
own transportation method – without using any outside shipping providers

A shipper uses a courier to deliver their products to stores (destination)

A seller hires a shipping and fulfilment providers that handles order fulfilment,
inventory management, shipping (global scale), and other logistics operations
Carriers, 3PLs, or beyond?
Typical process of 3PLs

software integration

• More and more last-mile solutions are demanded

• Challenges 3PLs because the traditional role of 3PLs
disregards consumers and smaller packages
3PLs and 4PLs
▪ Often used interchangeably
▪ 4PL → Lead logistics service providers
▪ Engages and manages a set of potential 3PLs
▪ Outsources its logistics tasks to 3PLs
▪ “an integrator that combines the resources, technology,
and capability of its own organization with other
organizations to design, build, and run comprehensive
supply chain solutions” (Huang et al., 2016)

▪ Why there is such a need for 4PLs?

Logistics service procurement market
▪ In consideration to 4PLs
▪ Three main actors ?

Clients 3PLs

clients who need to utilize 3PLs who have required assets

logistics services 4PL to provide logistics services

A 4PL who collects clients demands

and outsources their logistics requests
The role of a 4PL

Demand Bid
Client 1 3PL 1
Client 2 3PL 2
4PL

…
…

Client 𝑖 3PL 𝑖

…
…

Client 𝑚 3PL 𝑚
Collects Selects/assigns
Sri Lanka e-commerce
▪ Share your insights on this with me!
▪E-commerce platform
▪ Amazon is in fact the
largest 3PL company
▪E-commerce fulfilment
Amazon multi-channel fulfilment
Amazon multi-channel fulfilment
According to Amazon MCF…
▪ Fulfilment by Amazon (FBA), Merchant Fulfilled Network (MFN)
▪ Fulfilment by Amazon (FBA) allows you to fulfil orders placed on Amazon
while Multi-Channel Fulfilment (MCF) fulfils orders on any of your channels
including your own website.
▪ MCF is available in Australia, Canada, France, Germany, Italy, Japan, Mexico,
Spain and the United Kingdom
▪ Sellers can select Standard (3-5 business days), Expedited (2 business days)
and Priority (1 business day) shipping speeds. These are the same shipping
speeds offered by FBA for Amazon customers
▪ Most MCF orders ship in Amazon-branded packaging. We are actively
working on enabling unbranded packaging for all MCF orders.
https://supplychain.amazon.com/support
Huboo

“We help online businesses grow by

taking care of all their eCommerce
order fulfilment needs”

• Founded in 2017
• To help start up and SME
businesses realise their full
potential
• Aim for a quality, trusted
multichannel fulfilment provider
• Bristol
• Eindhoven (NL)

https://www.huboo.com
https://www.huboo.com
https://www.huboo.com
https://www.huboo.com
https://www.huboo.com
https://www.huboo.com
https://www.huboo.com
https://www.huboo.com
Differentiation strategy
https://www.huboo.com
https://www.huboo.com
https://www.huboo.com
https://www.huboo.com
What is outsourcing?

A series of
connected
Management and business
delivery of a process processes
Transferring Another company

Deliberate movement A third party

Previously performed by
the company itself
Which manages
them on behalf of the
company
Buyer advantages
▪ Focus on the core business
▪ Outsourcing allows a company to reassess and
redirect resources
▪ Typically to company core functions
▪ Reduction in invested capital
▪ LSPs offer shippers the opportunity to turn fixed
costs into variable costs
▪ Shippers do not need to lock capital
unnecessarily into costly logistics-related assets,
facilities or equipment
▪ Frees capital for investment elsewhere
▪ Transfer financial risk
Buyer advantages
▪ Lower costs / increase quality
▪ LSPs can achieve economies of scale
▪ Shippers can identify the true cost of the function often
hidden in-house
▪ Sharing development costs, e.g. large information systems
▪ Strategic flexibility increases
▪ Shippers do not own assets through vertical integration
▪ LSPs facilitate the process of redesigning the logistics
network
▪ For example, moving warehouse locations and thereby
offering access to international distribution networks
▪ Shippers can more flexibly respond to market and sourcing
conditions
Shipper advantages
▪ Acquisition of external competences,
capabilities and expertise
▪ LPSs develop greater knowledge to compete
each other
▪ Invest more in software and training systems
▪ Have wider range of customer interaction →
increased their exposure to organisational
learning and innovative skills
▪ Shipper can enjoy higher
performance/cost ratio
▪ Improvement in service level, e.g. reduced
customer lead-time, high quality service
Expertise in LSPs

McKinsey Supply Chain 4.0 Innovation Survey

LSPs benefits
▪ Greater utilisation of assets
▪ By concentrating on several on-going customers
▪ Partnership stance can lead to:
▪ Reduced operating procedure costs
▪ Provide some extra certainty because they can see expected
base level of transactions
▪ Permits more confident and better planning in asset
investment and other resources
LPSs benefits
▪ Focus on fewer deeper relationships allows:
▪ Better relationship management
▪ Better customisation
▪ More integrated operating systems and information exchange
▪ Longer planning horizon
▪ More commitment to joint improvement due to shared destiny
Potential risks (buyer)
▪ Economic
▪ Switching Costs
▪ Need to anticipate a dissolution of partnership
▪ Managerial
▪ Concern about outsourced performance
▪ Danger of LSP Opportunism
▪ Strategic
▪ Limited flexibility
▪ Service concerns
Potential risks (LSPs)
▪ Economic
▪ Risks of asset ownership
▪ Investment in specifically tailored equipment / information
systems
▪ Managerial
▪ Narrowing of the pool of shipper customers (important to
maintain a wide and flexible portfolio)
▪ Shipper opportunism
▪ Strategic
▪ Return to in-house provision by the shipper
Strategic development of LSPs:
where to go?
▪ Dilemma between

▪ Taking on more customers to achieve economies of scale in a

larger market
▪ Vs.
▪ Struggling to adapt sufficiently to individual customers' needs

▪ Stuck in the middle?

Borgström, B., Hertz, S., Jensen, L.-M., 2021. Strategic development of third-party logistics providers (TPLs):
“Going under the floor” or “raising the roof”? Industrial Marketing Management 97, 183–192.
Need to consider the evolving context
▪ Strategic development of LSPs in the context of increased

▪ Digitalisation
▪ E-commerce
▪ Servitisation Digitalisation LSPs Servitisation

E-commerce
Digitalisation
▪ In the logistics context, this is exemplified by new value-
added services and new ways of working with customers
and customers' customers through IT system applications
▪ LSPs' coordination of different actors and systems can be
replaced with advanced IT systems
▪ For example, the Internet of Things, to coordinate both
automated means of transportation and robotized
handling equipment in terminals and warehouses.
E-commerce
▪ Relates to both customer expectations and technological
possibilities
▪ Omnichannel: Customers expect to offer goods in a store, online, via
an app or on social media and to deliver goods at no or little
additional cost
▪ Necessitate new ways of working between and within warehouses
and all other supply chain partners
▪ Traditional logistics systems of LSPs are not designed for deliveries
to consumers but rather for those to other organizations.
▪ This means that LSPs need to change their existing systems when
serving e-commerce firms, directing themselves to final consumers.
Servitisation
▪ Involves providing solutions and performance rather than
products to customers
▪ Servitisation → a service supplier frees a customer from
existing activities and create additional customer value by
adding their service
▪ LSPs are able to focus on advanced logistics solutions by
being servitised by their suppliers of trucks, warehouses
and terminals.
Conclusion
▪ LSPs allow companies to focus on core competencies
▪ LSPs, as experts, can use assets more intensively than the
shipper
▪ LSPs can better work with other LSPs to share resources and
assets and gain greater knowledge from a wider range of
customers, hence providing competitive expertise
▪ LSPs increase the shipper’s flexibility and reduce capital lock-
in effects
▪ LSPs must continually innovate and align themselves with
their clients interests as well as under the changing context
Questions?