The Cash Flow Advantages of 3PLs as Supply Chain Orchestrators

With the increasingly open global economy and advanced technologies, some third-party-logistics providers (3PLs) have emerged as supply chain orchestrators, linking buying firms' needs with dispersed manufacturers worldwide. In addition to their traditional transportation services, these orchestrators provide procurement and financial assistance to players in the supply network, especially small and medium sized enterprises (SMEs) in developing countries. Oftentimes, the 3PLs can obtain payment delay arrangements from the financially stronger manufacturers, which in turn can be partially extended to the SME buyers, alleviating their high cost of capital. This paper explores the conditions under which this innovation benefits all parties in the chain so that the business model is sustainable. Using a model that explicitly captures the cash dynamics in a supply chain consisting of a manufacturer, several buyers and a 3PL firm, we characterize these conditions and show that they are more likely to occur with many small buyers. We also show that the supply chain profit is higher under leadership by the 3PL than by the manufacturer. We find that the intermediary role of the 3PL is crucial, in that its benefit vanishes if the manufacturer chooses to grant payment delay to the buyers directly