Plastics : 3PL(Third-Party Logistics) partnership and Developing In-House Capabilities

For plastic manufacturers and distributors, partnering with a 3PL provider offers a valuable opportunity to learn logistics operations before investing in in-house capabilities. 

This strategic approach allows companies to benefit from immediate logistics expertise while developing the knowledge needed for eventual self-sufficiency.

Benefits of starting with 3PL partners:

1. Reducing initial capital investment:

• Example: Formosa Plastics initially partnered with C.H. Robinson for distribution, avoiding $3-5 million in warehouse investments and fleet acquisition while learning distribution requirements for different plastic resins.
• Advice: Begin with a comprehensive 3PL service that includes all aspects of your logistics needs, transportation, warehousing, inventory management, and fulfillment to observe the complete operational model.

2. Learning specialized requirements for plastic materials:

• Example: Dow Chemical utilized 3PL providers to better understand temperature control requirements for different polymer types before developing their proprietary distribution system for heat-sensitive plastics.
• Advice: Request regular operational reviews that include detailed explanations of special handling procedures for your specific plastic products.

3. Understanding technology requirements:

• Example: A mid-sized plastic packaging manufacturer partnered with a 3PL using advanced warehouse management systems for two years, documenting workflows and requirements before selecting and implementing their own system.
• Advice: Negotiate access to dashboards and reporting tools from your 3PL, and assign team members to become power users who can eventually translate this knowledge to in-house systems.

Creating a structured learning path:

Phase 1: 

Observation and documentation (6-12 months):

• Document all logistics processes handled by the 3PL
• Identify key performance indicators and measurement methods
• Analyze cost structures and breakdown of service components
• Example implementation: SABIC assigned dedicated logistics coordinators to work alongside their 3PL partner DHL, creating detailed process maps and cost analyses that served as the foundation for their eventual in-house operation.
• Advice: create standardized documentation templates for each logistics process and maintain a centralized knowledge repository.

Phase 2: 

Active participation and control (12-18 months):

• Take control of certain logistics decisions while leaving execution to the 3PL
• Implement joint improvement projects
• Begin building your internal team with key logistics hires
• Example implementation: Berry Global gradually took over route planning decisions from their 3PL while letting the 3PL execute the transportation, allowing them to develop expertise in optimization before handling execution.
• Advice: Start by controlling the areas with highest strategic importance or cost impact, such as carrier selection or inventory positioning.

Phase 3: 

Selective insourcing (18-24 months):

• Begin bringing specific logistics functions in-house
• Maintain 3PL relationships for specialized or overflow needs
• Develop hybrid model with clear handoffs
• Example implementation: Alpek Polyester first insourced their customer service and logistics planning functions while keeping physical distribution with their 3PL, creating a foundation for their logistics department before adding physical assets.
• Advice: Start with functions requiring less capital investment (planning, procurement) before moving to asset-heavy operations (warehousing, transportation).

Data collection priorities during 3PL partnership:

1. Cost structure analysis:

• Total logistics cost as percentage of product value
• Cost breakdown by function (transportation, warehousing, labor, etc.)
• Volume-based cost variations
• Example: LyondellBasell created detailed cost modeling during their 3PL partnership that revealed opportunities to reduce costs by 17% through location optimization when they transitioned to in-house operations.

2. Performance metrics:

• On-time delivery percentages by product type and region
• Inventory accuracy rates
• Order cycle times
• Damage rates specific to different plastic products
• Example: A major PVC pipe manufacturer used performance data from their 3PL to establish realistic KPIs for their future in-house team, avoiding unrealistic targets that would have required excessive investment.

3. Customer requirements:

• Delivery time expectations by market segment
• Special handling needs
• Documentation requirements
• Packaging preferences
• Example: Eastman Chemical discovered through their 3PL partnership that certain customers valued delivery appointment accuracy over speed, influencing their eventual in-house logistics design to prioritize reliable scheduling.

Critical skills to develop before transition:

1. Regulatory compliance expertise:

• Plastics logistics involves various regulations including DOT hazardous materials rules for certain resins, EPA requirements, and international shipping regulations.
• Advice: Assign team members to shadow 3PL compliance specialists and obtain relevant certifications before transition.

DOT hazardous materials rules: federal regulations controlling how dangerous materials must be transported. For plastics, these apply to flammable resins, certain additives, and chemical precursors. 

They require proper labeling, packaging, documentation, and trained staff.
EPA requirements: rules protecting the environment from industrial activities including plastic production and disposal. 

These govern air emissions, wastewater discharge, waste management, and reporting of potentially harmful chemicals used in plastic manufacturing.

2. Network Design Optimization:

• Understanding the optimal placement of inventory and distribution centers for plastic materials that balance customer service with logistics costs.
• Advice: Participate actively in network design reviews with your 3PL, and develop skills in logistics network modeling software.

3. Specialized Equipment Management:

• Many plastic products require specialized handling equipment, from silos for resin pellets to specific racking systems.
• Advice: Document equipment specifications and maintenance requirements from your 3PL to inform future purchases.

Transition planning: from 3PL to in-house:

1. Creating a Phased Implementation Plan:

Example Timeline:

• Months 1-6: Transition customer service and order management
• Months 7-12: Transition inventory management and planning
• Months 13-18: Establish initial warehousing capabilities
• Months 19-24: Develop transportation capabilities
• Example Success: Indorama Ventures used a 30-month transition plan with their 3PL, maintaining dual operations during transition phases to ensure business continuity.

2. Maintaining 3PL backup capabilities:

Even after transitioning to in-house logistics, maintain relationships with 3PLs for:

• Peak season capacity
• Geographic expansion
• Specialized services
• Risk mitigation
• Example: Braskem maintains 80% in-house logistics operations but contracts with 3PLs for peak season capacity and certain specialized market segments.

3. Technology Transition Considerations:

• Advice: start with manual processes supported by basic tools before investing in advanced systems
• Consider middleware solutions that can connect with customer and supplier systems
• Prioritize data migration planning from 3PL systems
• Example: a mid-sized acrylic manufacturer attempted to implement a comprehensive logistics management system simultaneously with their 3PL transition, resulting in significant service disruptions and eventually returning to the 3PL for an additional year.

Case Study: 

Successful Transition in the Plastics Industry:

A mid-sized distributor of plastic resins and additives followed the below approach

Initial Phase (Years 1-2):

• Partnered with a specialized chemical 3PL
• Assigned two employees specifically to learn logistics operations
• Documented detailed requirements for temperature control for different resins
• Analyzed their shipping patterns to identify core lanes versus occasional destinations

Mid-Phase (Years 2-3):

• Hired a logistics director with industry experience
• Created a hybrid model—insourced customer service and logistics planning
• Maintained 3PL partnership for physical distribution
• Developed proprietary inventory allocation algorithms

Final Phase (Years 3-5):

• Established their own warehouse for fast-moving SKUs
• Maintained 3PL relationship for slow-moving products and seasonal overflow
• Developed in-house fleet for core delivery routes
• Used 3PL carriers for non-core regions
• Results: The company achieved a 22% reduction in overall logistics costs while improving on-time delivery by 7 percentage points. They maintained their relationship with the 3PL for 30% of their volume where in-house operations weren't economically justified.

A Stock Keeping Unit (SKU): is a unique identifier assigned to each distinct product or item in inventory.
They help businesses track stock levels, monitor sales, and manage warehouse operations. 
For plastic manufacturers, SKUs might differentiate between resin types, colors, grades, or packaging formats.

Conclusion:

A strategic 3PL partnership offers plastics companies a valuable learning opportunity before transitioning to in-house logistics. 

By following a structured approach focused on knowledge acquisition, data collection, and phased implementation, companies can develop effective in-house capabilities while minimizing risks. 

The hybrid model, while maintaining some 3PL relationships even after developing in-house capabilities, often provides the optimal balance of control, cost efficiency, and flexibility.