As a business expands and delivers more services and products in new markets to more customers, there comes a time when it must determine whether to outsource its shipping and fulfilment operations.
To meet customer demand, many of these businesses turn to a third-party logistics (3PL) provider to do just that.
But not all 3PLs offer the same services and capabilities. Read on to learn everything you need to know about using third-party logistics providers and the critical business functions they support.
What is 3PL?
Third-party logistics companies offer logistics services and support some or all aspects of a business’s shipping operations, managing all aspects of moving goods from manufacturers and distributors to the end customer. A 3PL is commonly used in outsourced logistics and supply-chain management to outsource a company’s shipping and fulfillment services, which can include:
- Transportation
- Warehousing
- Materials procurement
- Inventory management
- Customs brokerage
- Freight audit
- Payment
- Shipment tracking
For these reasons, a 3PL is usually integrated within a company’s warehouse management and transportation operations for a comprehensive delivery workflow.
Some 3PLs offer customs brokerage, domestic and international transportation, and trade compliance, while others design and deliver omni-channel logistics solutions for manufacturers, retailers, and e-commerce companies.
Four Functions of 3PL Providers
- Shipping and Receiving
Shipping and receiving 3PL providers are focused on the management of the shipping process from start to finish. Often, these companies feature technology, usually a transportation management system (TMS), or integrated freight management services. These technologies were designed to streamline efficiency and automate routine, but also time-consuming tasks, such as freight payment and accounting. These 3PL providers also include management of carrier relations, and freight data, and matrix reports for real-time visibility and increased transparency throughout the shipping process.
- Transportation
Transportation 3PL providers are responsible for the actual transport of goods or services between locations. A common example is when a 3PL provider manages an inventory shipment between a company and the buyer. Many transportation 3PL providers often will leverage other transportation firms to complete the duties for their partner.
- Warehousing
Warehousing 3PL providers are one of the most common types of third-party logistics providers. A warehouse 3PL is integrated into a company’s warehousing and transportation procedures and specialises in the storing and distribution of goods and/or services. Many warehouse 3PL providers offer customizable ways to handle storage, distribution, and product transportation.
- Distribution
Many 3PL organisations also provide a wide variety of distribution and wholesale services, including outbound order fulfilment, picking and packing, custom labelling, and manufacturing. The efficient distribution of large product quantities can be a tough thing for a small company to manage; by outsourcing distribution to a third-party logistics provider, its employees can focus on other core competence business tasks.
The Benefits of Using a 3PL Provider
Using a 3PL has many advantages compared to doing logistics in-house. Ultimately, most of those benefits save you time and money. By outsourcing supply chain management, you can focus your resources on marketing, product development, and other (more exciting) aspects of your business.
Third-party logistics save money because they have a ready-built infrastructure of warehouse space, technology, transportation, and labor to execute logistical processes. Businesses don’t have to invest in building and maintaining all of this themselves, making scaling operations up or down more manageable. For example, businesses using 3PLs don’t have to invest in fleets of specialised trucks.
If there is fluctuation in your business, third-party logistics have the flexibility to strategize accordingly without excess expense for you. A 3PL is able to respond to so many different customer needs because they have access to a transportation management system (TMS). This software allows 3PLs to consolidate loads and optimise routing and distribution in ways that are difficult and cost-prohibitive for many companies. This also means third-party logistics help carriers reduce “empty miles” amid high fuel prices.
What to Consider When Selecting a 3PL
There are many third-party logistics companies out there. How do you make sure you find the one that’s the right fit for your business?
First, ensure that you choose a 3PL with reliable capacity for your business’s volumes. Does it have a proven multimodal network that can keep up with your business? Remember to think long-term about this point. If you plan to scale up, you want a third-party logistics provider that can keep up with your growth rather than lose time looking for a new one at a critical time in your business.
Given the nature of logistics, it’s best to ask if a 3PL’s technologies are compatible with your business’s. It should be familiar with how your platforms will interact and anticipate any potential issues. This is especially important for managing inventory and customer experience.
Transparency is critical in supply chain management. A 3PL should be able to readily provide quotes. Ask how you will be able to track shipments, as some use apps.
One of the most important characteristics a third-party logistics provider should demonstrate is responsive support from logistics specialists. Ask your potential 3PL how it sets up points of contact to support your business. Digital platforms are invaluable, but ultimately, it’s important to know that there’s a person supporting you in managing your supply chain. Ideally, a company can provide references from clients who can speak to its past performance.
Outsourcing logistics to a third-party logistics company can save your business time and money. By streamlining the supply chain, they free you to focus on your core competencies while also improving your customers’ experience. Make sure you choose a 3PL with the capacity, reliability, and support that your business needs.
Firms that possess logistics know-how in coordinating economic resources may have opportunities to provide advice. Such logistics coordinators, also called third-party logistics (3PL) providers, have been gaining attention. 3PL is a type of industry in which the shipper’s logistics activities can be outsourced. It is common 3PL practice not to outsource discrete logistics activities individually but rather to outsource multiple activities from the firm’s strategic point of view. 3PL providers today have the following characteristics:
1.Integrated (or multi-modal) logistics service providers
2.Contract-based service providers
3.Consulting service providers
The advantages of using 3PL result from economies of scale (merits from large truck fleets, warehouses, etc.) and economies of scope that encourage firms to increase net value by reducing costs. The effects of these economies vary depending on whether the 3PL provider is an “asset-type” or “non-asset type” provider. The former owns logistics-related assets such as truck fleets or warehouses while the latter does not. In the Japanese context, therefore, non-asset type 3PL Melbourne providers correspond to forwarders, generalised trading firms, or consultant firms.
Competent 3PL providers are skilled at coordination, enabling them to search out reliable partners or subcontractors and efficiently manage the inter-firm flow of goods. Such abilities can be developed through experience as a 3PL. Later we will consider the sources of such experience and specialisation.
At the same time, by outsourcing logistics activities firms are able to save on capital investment and reduce financial risk. Investment in logistics assets such as physical distribution centres or information networks usually requires large lump sum costs that involve financial risk. 3PL providers can spread their risk by outsourcing to sub-contractors.
According to Vitasek, they differ from 3PL as follows:
1.A 4PL organisation is often a separate entity established as a joint venture or long-term contract between a primary client and one or more partners.
2.A 4PL organisation acts as a single interface between the client and multiple logistics service providers.
3.All aspects, ideally, of the client’s supply chain are managed by the 4PL organisation.
4.It is possible for a major 3PL logistics provider to form a 4PL organisation within its existing structure.
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