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A Case Study of 3PP in Action

  • V.G. Venkatesh
  • Clark Luo
  • Yangyan Shi
  2018

This article is a sidebar to "An Emerging Procurement Offering Inspires Customer Loyalty."

Third-party logistics (3PL) business ABC is based in China and works with a leading automotive manufacturer that has hundreds of service dealers. In the past, the client company would place service parts purchase orders (POs) directly from the parts manufacturers to be delivered to its dealers’ service departments. Unfortunately, delivery was sporadic, and customers often had to wait days for their repairs to be completed. Even though the dealers typically kept about one month’s worth of spare parts inventory, this still proved to be inadequate. 

The automotive manufacturer decided to address this problem with its 3PL provider’s help. Together, they created a dynamic service parts supply chain through which the dealer now places its POs with ABC to be fulfilled from its regional warehouses, which are much closer to the individual car dealers. Each week, ABC consolidates spare parts demand from the dealers and places POs of much larger quantities, thus spending less on spare parts overall.

ABC uses full-truckloads to transport the parts from the manufacturer to the regional warehouses. Because it already had established daily run routes for the delivery of vehicles to the dealers, there is little added cost associated with the spare parts deliveries. ABC also is in a better position to solve any payment issues with the dealers because its delivery crews interact with them frequently.

Today, the dealers are receiving spare parts much faster — often within the same day. They also benefit from the reduced purchase prices and no longer need to pay courier services for routine deliveries. Meanwhile, the automotive manufacturer is saving substantial administrative costs and has less working capital tied up in spare parts inventories. The client also can focus on its core competencies of designing, producing and selling vehicles. Profit margins and Customer Relations levels have increased for all involved, and the entire supply chain is much more sustainable and efficient.

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