INTRODUCTION TO LOGISTICS

MANAGEMENT
MODULE 4

Prepared by:
PRANAV R PAI
 TOPICS COVERED
• OUTSOURCING
• REASONS FOR OUTSOURCING
• THIRD PARTY LOGISTICS PROVIDERS
• FOURTH PARTY LOGISTICS PROVIDERS
• STAGES OF OUTSOURCING
• ROLE OF LOGISTICS PROVIDERS

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 OUTSOURCING
OUTSOURCING IS ABOUT CONTRACTING OR SUB-CONTRACTING OF NON-CORE ACTIVITIES TO FREE
UP CASH, PERSONNEL, TIME AND FACILITIES FOR ACTIVITIES IN WHICH A COMPANY HOLDS
COMPETETIVE ADVANTAGE.
NON CORE ACTIVITIES ARE OUTSOURCED TO EXPERTS IN RESPECTIVE FUNCTIONS. THIS RESULTS
IN EFFECTIVENESS AND EFFICIENCY.
COMPANIES MAY SOON BE MORE OUTSOURCED THAN IN-SOURCED
OUTSOURCING IS THE MAIN REASON FOR BOOM IN LOGISTICS SECTOR.
TYPES OF OUTSOURCING:
1. MANUFACTURING OUTSOURCING:
COMPANIES CAN OUTSOURCE PART OF MANUFACTURING PROCESS OR WHOLE MANUFACTURING
TO A VENDOR. THIS HELPS COMPANIES TO WORK ON UPGRADATION AND NEW PRODUCT
DEVELOPMENT.
2. IT OUTSOURCING:
OUTSOURCING PART OR WHOLE IT FUNCTIONS TO THIRD PARTY.

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3. KNOWLEDGE PROCESS OUTSOURCING:
FOR GAINING CRITICAL KNOWLEDE FROM CONSULTANCIES FOR DECISION MAKING.
4. BUSINESS PROCESS OUTSOURCING:
OUTSOURCING A BUSINESS PROCESS OR PARTS OF BUSINESS PROCESS TO THIRD PARTY VENDOR.

CATEGORIES OF LOGISTICS OUTSOURCING:

1. PHYSICAL LOGISTICS AND DELIVERY: TRANSPORTATION, PACKAGING AND PHYSICAL FLOW OF
GOODS.
2. NON-PHYSICAL LOGISTICS: IT OR INFORMATION SERVICES, OPERATIONS MANAGEMENT
SERVICES.
3. REVERSE LOGISTICS: DISPOSAL, RECYCLING AND RETURNS OF GOODS.

COMMON FUNCTIONS TO BE OUTSOURCED:

4. WAREHOUSING.
5. TRANSPORTATION
6. ORDER PROCESSING

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4. INVENTORY CONTROL.
5. CUSTOMS BROKERAGE.
6. PRODUCT ASSEMBLY
7. PACKAGING AND LABELLING
8. REVERSE LOGISTICS
9. INFORMATION TECHNOLOGY

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 REASONS FOR OUTSOURCING LOGISTICS
1. IMPROVE CAPABILITIES:
 FOCUS ON WHAT’S IMPORTANT FOR YOUR BUSINESS- FREES UP TIME AND RESOURCES TO
CONCENTRATE ON CORE ACTIVITIES AND BUSINESS GROWTH.
 CREATE ADDITIONAL CAPACITY AND PROVIDE BACKUP CAPABILITY.
 ACCOUNTABLE- THIRD PARTY LOGISTICS (3PL) PROVIDER WILL TAK RESPONSIBILITY FOR
BUSINESS AND CAN BE HELD ACCOUNTABLE FOR PERFORMANCES.
 GAIN ACCESS TO NEW TECHNOLOGY AND ADVANCED SKILLS.
 PROVIDE FLEXIBLE FACILITY CAPACITY.
 ADVANTAGE OF ECONOMIES OF SCALE.
 COMPLETE PEACE OF MIND- 3PL OFFERS SAFETY AND SECURITY. MOST OF THE RISKS LIKE
LABOR RISKS, FINANCIAL RISKS DUE TO INVESTMENTSIN EQUIPMENT, VEHICLES AND REAL
ESTATE IS TRANSFERRED TO 3PL. SERVICES WILL ALSO BE PROVIDED TO A LEGALLY BINDING
CONTRACT WITH FINANCIAL PENALTIES AND LEGAL REDRESS.
 LEVERAGING A GLOBAL KNOWLEDGE BASE- ENABLES BUSINESSES TO TAP IN GLOBAL
KNOWLEDGE BASE AND ACCESS WORLD CLASS CAPABILITIES, NEW CONTACTS, NEW
EXPERIENCES, NEW POSSIBILITIES AND NEW WAYS OF THINKING.

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 UTILIZATION OF RESOURCES
 RISK MANAGEMENT
 REDUCED LIABILITIES- 3PL HANDLES ALL TYPES OF CONTRACTS RELATED TO LOGISTICS,
INSURANCES, ETC. LIABILITIES ARE MINIMUM BECAUSE BUSINESS DOESN’T INVEST MUCH FOR
LOGISTICS.

2. INCREASE REVENUE:
 INCREASE FLEXIBILITY AND RESPONSIVENESS: PROVIDES OPERATIONAL FLEXIBILITY TO MEET
CHANGING NEEDS OF CUSTOMERS. LOGISTICS SERVICES CAN BE CUSTOMISED FOR MAJOR
MARKETS OR ACCOUNTS.
 INCREASED SPEED TO THE MARKET: ACCESS TO BEST PRACTICES THAT WOULD BE DIFFICULT
AND TIME CONSUMING TO DEVELOP IN-HOUSE. PRODUCTION CAN BE ACCELERATED THROUGH
ADDITIONAL CAPABILITY PROVIDED BY 3PL.
 IMPROVE QUALITY: QUALITY OF LOGISTICS SEVICE CAN BE IMPROVED.
 DECREASE RESPONSE TIME FROM CUSTOMER : IMPROVEMENT OF CUSTOMER SERVICES, QUICK
FEEDBACKS AND EXPANSION OF MARKET KNOWLEDGE.
 GAIN ACCESS TO NEW MARKETS AND NEW VALUE ADDED SERVICES

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3. REDUCE COST:
 REDUCE CAPITAL INVESTMENT: LEAST INVESTMENT IN TRANSPORTATION FLEET, WAREHOUSES,
HANDLING EQUIPMENT , PERSONNEL ETC.
 MEET DOWNSIZING REQUIREMENT: HUMAN RESOURCE REQUIREMENT IS MINIMIZED AND
LIMITED TO COORDINATING AND MONITORING 3PL PROVIDER’S ACTIVITIES & PERFORMANCES.
 REDUCE OPERATING COSTS: INSURANCE COST, DOCKING COST, TRANSPORTATION COST, FIXED
COSTS RELATED TO LOGISTICS AND PETTY EXPENSES ARE TAKEN CARE OF AND HANDLED BY
3PL. THIS TAKES PRESSURE OFF OF ACCOUNTING DEPT. THIS RESULTS IN COST-RESTRUCTURING
AND RE-PRICING.
 TRANSFORM FIXED TO VARIABLE COSTS (COST RESTRUCTURING)

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 THIRD PARTY LOGISTICS-3PL
ACTIVITIES CARRIED OUT BY AN EXTERNAL COMPANY ON BEHALF OF A SHIPPER AND
MANAGEMENT OF MULTIPLE LOGISTICS SERVICES.
THESE ACTIVITIES OR SERVICES ARE IN AN INTEGRATED WAY, NOT ON A STAND-ALONE BASIS.
THE COOPERATION BETWEEN SHIPPER AND 3PL PROVIDER IS AN INTENDED CONTINUOUS
RELATIONSHIP.
THE 1990s WITNESSED THE GROWTH OF 3PL FIRMS, WHEN COMPANIES AROUND THE WORLD
REALIZED THAT LOGISTICS IS THE KEY TO THE SUCCESS OF SUPPLY CHAIN.
3PL MAYBE A SINGLE SERVICE SUCH AS TRANSPORTATION OR WAREHOUSING, OR IT CAN BE A
SYSTEM-WIDE BUNDLE OF SERVICES CAPABLE OF MANAGING THE ENTIRE SUPPLY CHAIN.

STAGES OF 3PL EVOLUTION:

1. 1980s: ONLY TRADITIONAL LOGISTICS SERVICE PROVIDERS EXISTED SUCH AS TRANSPORTATION
COMPANIES, WAREHOUSES, FREIGHT FORWARDERS, SHIPPERS AND AGENTS.
2. EARLY 1990s: NETWORK PLAYERS, MAINLY PARCEL COMPANIES SUCH AS DHL, FEDEX, UPS GOT
INVOLVED IN THE INDUSTRY.
3. LATE 1990s: COMPANIES FROM DIFFERENT SECTORS LIKE CONSULTANCIES, FINANCE AND IT
COMPANIES ENTERED THE INDUSTRY. TRADITIONAL LOGISTICS PROVIDERS EXTENDED THEIR
SCOPE OF SERVICES.
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TYPES OF 3PL:
1. THE STANDARD 3PL PROVIDER:
PROVIDES BASIC SERVICES LIKE PICK AND PACK, WAREHOUSING AND DISTRIBUTION. 3PL MAY NOT
BE THE MAIN ROLE OF THESE 3PLs.

2. THE SERVICE DEVELOPER:

PROVIDES ADVANCED VALUE ADDED SERVICES LIKE TRACK AND TRACE, CROSS DOCKING,
SPECIFIC PACKAGING, UNIQUE SECURITY SYSTEM. SOLID IT SYSTEMS AND ECONOMIES OF SCALE
ENABLES 3PLs TO PROVIDE THESE SERVICES.

3. THE CUSTOMER ADAPTER:

TAKES OVER COMPLETE CONTROL OF THE CLIENT’S LOGISTICS ACTIVITIES. HOWEVER NEW
SERVICE DEVELOPMENT IS [Link] CLIENT BASE OF 3PL PROVIDER IS TYPICALLY QUITE SMALL.

4. THE CUSTOMER DEVELOPER:

HIGHEST LEVEL FOR 3PL ACCORDING TO THE PROCESSES AND ACTIVITIES. HERE, 3PL INTEGRATES
WITH THE CLIENT AND TAKES OVER ENTIRE LOGISTICS FUNCTION. THE CLIENT BASE WILL BE
SELECT FEW, BUT WILL PERFORM EXTENSIVE AND DETAILED TASKS FOR THEM.

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 ADVANTAGES OF 3PL
THE MOST IMPORTANT REASON FOR THE RAPID ACCEPTANCE OF 3PL PROVIDERS HAS BEEN THE
QUICK GAINS FOR USERS. SURVEYS SUGGEST THAT LOGISTICS COST IS REDUCED BY 7.8 PERCENT,
LOGISTICS ASSETS FELL BY 21.6 PERCENT, ORDER CYCLE TIME REDUCED FROM 6.3 TO 3.5 DAYS. SOON
3PL FIRMS STARTED PROVIDING MORE SERVICES IN THE AREAS OF TRAFFIC MANAGEMENT,
MULTIMODAL, FREIGHT CONSOLIDATION, CROSS-DOCKING AND PAYMENT COLLECTIONS.
• SAVES TIME AND MONEY
3PLS EXPERTISE, TRANSPORTATION MANAGEMENT SOFTWARE, CARRIER NETWORK AND REPORTING
CAPABILITIES ASSURE TIME AND COST SAVINGS FOR THE SHIPPER.
• RESOURCE NETWORK
LEVERAGE INDUSTRY RELATIONSHIPS AND SHIPMENT VOLUMES TO GET LOWER PRICES. THEY CAN
NEGOTIATE LOWER FUEL SURCHARGES. 3PLS HAVE THOUSANDS OF CARRIERS IN THEIR FLEET
NETWORK, SO CARRIERS BID ON FREIGHT WHICH LOWERS THE PRICE SIGNIFICANTLY.
• OPTIMIZATION
A 3PL WILL CONTINUOUSLY SEARCH FOR WAYS TO CUT COSTS AND ADD VALUE TO YOUR LOGISTICS
OPERATIONS. DEDICATED TEAM OF EXPERTS MONITOR, ANALYZE AND OPTIMIZE PROCESSES EVERY
DAY. MAKES SURE TRANSPORTATION OPERATIONS NEVER FAIL TO THE CONSTANTLY CHANGING
SUPPLY CHAIN ENVIRONMENT.

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• RISK MANAGEMENT
TRANSFERS THE RISKS OF TRANSPORTATION OPERATIONS TO THE 3PL, PROTECTING YOUR
ORGANIZATION FROM PENALTIES AND FINES. IF A SHIPMENT IS LOST, STOLEN OR DAMAGED IT'S THE
3PLS RESPONSIBILITY. A 3PL LOWERS THESE INCIDENTS ANYWAYS.
• TECHNOLOGY
A 3PL WITH A TMS IS INSTRUMENTAL FOR INSIGHT INTO THE SUPPLY CHAIN. TMS TECHNOLOGY
PROVIDES THE CUSTOM DATA YOU DESIRE. TMS SOFTWARE IS VERY EXPENSIVE, SO WHEN A 3PL
INTEGRATES THE TECHNOLOGY. YOU SAVE MONEY, PLUS GET MORE ACCESSIBILITY TO CAPACITY.
SHIPPERS BENEFIT FROM INCREASED LOAD CONSOLIDATION, MORE FREQUENT BACKHAULS AND
OPTIMIZED ROUTING AND DISTRIBUTION.
• OPERATIONAL CONTROL
THROUGH A 3PL PARTNERSHIP, YOUR OPERATIONAL CONTROL WILL INCREASE. A REPUTABLE 3PLWILL
COLLABORATE AND REPORT TO YOU REGULARLY WHO CREATE VISIBILITY AND REAL TIME METRICS
INTO YOUR TRANSPORTATION PROCESSES THAN EVER BEFORE.

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 POTENTIAL RISKS AND BARRIERS RELATED TO 3PL
OUTSOURCING
• THE POSSIBILITY OF INEFFICIENT MANAGEMENT
• FEAR OF INFORMATION LEAKAGE
• LOSS OF LOGISTICS INNOVATIVE CAPACITY.
• POOR CONTRACT OR WRONG SELECTION OF PARTNER
• HIDDEN COSTS, REPUTATION RISKS
• AUTHORITY/ACCOUNTABILITY MISMATCH
• OVER-DEPENDENCE ON THE 3PL PROVIDER
• LOSS OF CONTROL OVER THE 3PL PROVIDER
• POOR PERFORMANCE OR BAD RELATIONS, NOT GIVING ACCESS TO BEST EMPLOYEES OR
TECHNOLOGY
• DECREASING FLEXIBILITY - INABILITY TO REACT FAST TO CUSTOMER NEEDS.
• PROBLEMS OF EVALUATING & MONITORING 3PL'S PERFORMANCE.
• DISSATISFIED CUSTOMERS - AS A RESULT OF BAD 3PL PERFORMANCE.
• LOSING CONTRACT IN SPITE OF EXCELLENT PERFORMANCE.
• CONFLICTS OF FIRMS' CULTURE
• LACK OF TOP MANAGEMENT SUPPORT
• LACK OF SHARED GOALS.
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 SELECTION OF 3PL
FACTORS TO CONSIDER:
1. FOCUS OF A PROVIDER ON CONTINUOUS IMPROVEMENT
2. USING NEW IT
3. COLLABORATIVE PARTNERSHIPS
4. VARIETY OF VALUE-ADDED SERVICES
5. ABILITY TO PROVIDE WITH CORE SERVICES.
6. QUALITY.
7. UNDERSTANDING OF THE CONTRACT- A PROVIDER NEEDS TO FOLLOW ALL THE REQUIREMENTS
THAT HAVE BEEN MENTIONED IN THE CONTRACT.
8. TECHNICAL FEASIBILITY- THE POSSIBILITY TO ACHIEVE HIGHER RESULTS BY USING PROPOSED
TECHNOLOGIES, METHODS AND SOLUTIONS
9. ABILITY TO MANAGE. THE ABILITY OF PROVIDER TO SUCCEED AND TO DEVELOP
10. EXPERIENCED AND HIGH-QUALIFIED PERSONNEL.
11. FINANCIAL RESOURCES OF PROVIDER.
12. TYPE OF PROVIDER.
13. RECOMMENDATIONS AND FEEDBACKS FROM THE PREVIOUS CLIENTS
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 4PL
THE TERM "4PL" WAS ACTUALLY COINED BY ACCENTURE CONSULTING GROUP.
“A 4PL IS AN INTEGRATOR THAT ASSEMBLES THE RESOURCES, CAPABILITIES, AND TECHNOLOGY OF
ITS OWN ORGANIZATION AND OTHER ORGANIZATIONS TO DESIGN, BUILD. AND RUN
COMPREHENSIVE SUPPLY CHAIN SOLUTIONS”
IT INDUSTRY PLAYS A MAJOR ROLE IN SCM ON A GLOBAL SCALE.
A NEW TREND HAS EMERGED WHEREIN THE IT FIRMS ARE PROVIDING LOGISTICS SOLUTIONS,
BUILT AROUND THE DOMAIN KNOWLEDGE PROVIDED BY 3PL COMPANIES.
A 4PL FIRM FULFILS ALL THE DIFFERENT NEEDS OF THE CLIENTS FROM A SINGLE SOURCE INSTEAD
OF GETTING INTO MULTIPLE 3PL ALLIANCES.
LEVELS OF 4PL
1. REINVENTION –
ENHANCEMENT IN SUPPLY CHAIN PERFORMANCE COMES THROUGH SYNCHRONIZATION OF
SUPPLY CHAIN PLANNING & EXECUTION ACTIVITIES ACROSS SUPPLY CHAIN PARTICIPANTS.
REINVENTION LEVERAGES TRADITIONAL SUPPLY CHAIN MANAGEMENT CONSULTING SKILLS,
ALIGNS BUSINESS STRATEGY WITH SUPPLY CHAIN STRATEGY & IS FACILITATED BY TECHNOLOGY
THAT INTEGRATES & OPTIMIZES OPERATIONS BOTH WITHIN & ACROSS PARTICIPATING SUPPLY
CHAINS.

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2 TRANSFORMATION –
TRANSFORMATION EFFORTS FOCUS ON IMPROVING SPECIFIC SUPPLY CHAIN FUNCTIONS. THESE
INCLUDE SALES & OPERATIONS PLANNING, DISTRIBUTION MANAGEMENT, PROCUREMENT
STRATEGY & CUSTOMER SUPPORT. AT THIS LEVEL SUPPLY CHAIN TECHNOLOGY BECOMES
CRITICAL TO THE SUCCESS OF THE SOLUTION. TECHNOLOGICAL LEADERSHIP & EXCELLENCE IS
LEVERAGED WITH STRATEGIC THOUGHT, PROCESS REDESIGN & ORGANIZATIONAL CHANGE
MANAGEMENT TO IMPROVE & INTEGRATE THESE SUPPLY CHAIN ACTIVITIES & PROCESSES BY
BRINGING THE BEST IN CLASS SOLUTIONS.
3. IMPLEMENTATION - A 4PL IMPLEMENTS RECOMMENDATIONS INCLUDING BUSINESS PROCESS
REALIGNMENT, SYSTEMS INTEGRATION OF TECHNOLOGY ACROSS THE CLIENT ORGANIZATION &
SERVICE PROVIDERS, & TRANSITION OF OPERATIONS TO THE 4PL DELIVERY TEAM. CAREFUL
ATTENTION IS PAID TO ORGANIZATIONAL CHANGE, RECOGNIZING THAT THE "PEOPLE" FACTOR IS A
CRITICAL DRIVER OF SUCCESS IN THE TRANSITION TO THE 4PL ARRANGEMENT.
4. EXECUTION - A 4PL PROVIDER TAKES ON OPERATIONAL RESPONSIBILITY FOR MULTIPLE SUPPLY
CHAIN FUNCTIONS & PROCESSES. THE SCOPE GOES WELL BEYOND TRADITIONAL THIRD PARTY
TRANSPORTATION MANAGEMENT & WAREHOUSE OPERATIONS TO INCLUDE: MANUFACTURING,
PROCUREMENT, IT, DEMAND FORECASTING. NETWORK MANAGEMENT, CUSTOMER SERVICE
MANAGEMENT, INVENTORY MANAGEMENT, & ADMINISTRATION.

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 ROLE OF LOGISTICS SERVICE PROVIDERS (LSP)
THE APPEARANCE OF LSP IS CAUSED BY THE INCREASE IN THE AMOUNT OF SERVICES COMPANIES
WANT TO OUTSOURCE. SERVICE PROVIDERS OFFER A VARIETY OF LOGISTICS INNOVATIONS,
OPPORTUNITIES AND DIFFERENT SOLUTIONS.
TYPE OF LSP
1. 1PL – (MEANS IN-HOUSE LOGISTICS). THEY ARE COMPANIES WHICH PROVIDE ALL THE SERVICES
BY THEMSELVES USING THEIR OWN RESOURCES, FACILITIES AND STAFF. A IPL CAN BE A
MANUFACTURER, TRADER, IMPORTER/EXPORTER. WHOLESALER, RETAILER OR DISTRIBUTOR.
2. 2PL – ON NEXT LEVEL, COMPANIES CAN HIRE A LOGISTICS SERVICE PROVIDER. 2PL PROVIDES
COMPANIES WITH BASIC NECESSARY FUNCTIONS SUCH AS TRANSPORTATION, MATERIAL
HANDLING AND WAREHOUSING. A 2PL IS AN ASSET BASED CARRIER, WHICH ACTUALLY OWNS
THE MEANS OF TRANSPORTATION. EG. SHIPPING LINES WHICH OWN, LEASE OR CHARTER THEIR
SHIPS, AIRLINES WHICH OWN, LEASE OR CHARTER THEIR PLANES AND TRUCK COMPANIES
WHICH OWN OR LEASE THEIR TRUCKS.
3. 3PL - PERFORMS THE WHOLE LOGISTICS PROCESS AND OFFERS THE VARIETY OF LOGISTICS
ACTIVITIES.
SERVICES THAT 3PL OFFERS: MONITORING MATERIAL FLOWS THROUGH IT; CUSTOMS
PROCEDURES AND DOCUMENTS; MONITORING OF DOCUMENTS; DELIVERY PLANNING;
WAREHOUSING SERVICES; VALUE ADDED SERVICES.
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 ROLE OF LOGISTICS SERVICE PROVIDERS (LSP)
4. 4PL - PROVIDER THAT OFFERS SERVICES CONCERNING PROJECTING AND PLANNING SUPPLY
CHAINS. 4PL IS AN EVOLUTIONAL DEVELOPMENT FROM 3PL.
A 4PL IS AN INDEPENDENT, SINGULARLY ACCOUNTABLE, NON-ASSET BASED INTEGRATOR WHO
WILL ASSEMBLE THE RESOURCES, CAPABILITIES AND TECHNOLOGY OF ITS OWN ORGANIZATION
AND OTHER ORGANIZATIONS, INCLUDING 3PLS, TO DESIGN, BUILD AND RUN COMPREHENSIVE
SUPPLY CHAIN SOLUTIONS FOR CLIENTS.
SERVICES THAT 4PL OFFERS: MONITORING, PLANNING AND OPTIMIZATION OF SUPPLY CHAINS;
INTEGRATION OF IT SYSTEMS; MONITORING OF ORDERS INSIDE SUPPLY CHAINS, OPTIMIZATION OF
DELIVERY PROCESS: MANAGING STOCKS INSIDE SUPPLY CHAINS, MONITORING OF DOCUMENTS;
MONITORING OF QUALITY
5. 5PL. - 5PL IS A NEWER CONCEPT TO THE LOGISTICS WORLD. AS A RESULT, ITS DEFINITION
REMAINS LESS DEFINED THAN OTHER LEVELS OF LOGISTICAL SUPPORT. THAT BEING SAID, 5PLS
OFTEN: 
• FOCUS ON LEVERAGING TECHNOLOGY AND BIG DATA TO CREATE EFFICIENCIES. 
• OPTIMIZE NOT JUST SUPPLY CHAINS BUT SUPPLY CHAIN NETWORKS. 
• MAINTAIN A STRONG E-COMMERCE FOCUS AND ARE MOST USEFUL TO COMPANIES WHO DON’T
HAVE A BRICK-AND-MORTAR PRESENCE. 
IT IS DEVELOPING IN RESPONSE TO APPEARANCE OF E-COMMERCE. THE KEY COMPONENT OF SPL
IS IT.
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