Third-party Logistics (3PL)

Industry Basics

20 December 2022 • 9 min read

Third-party Logistics (3PL)

Raghav Sand

A company can also avoid making enormous infrastructure investments by using a 3PL provider for supply chain management because it can provide warehouse space, transportation, staff, and tracking technology, among other things.

Typically, 3PL companies arrange for their clients' incoming and outbound transportation and warehousing transportation. The majority of 3PL companies have contracts with other freight and shipping companies, and they either own or rent the warehouse space that they give to their customers.

Third-party logistics is referred to as 3PL. It refers to contracting out your order management and fulfilment to a different business. There are numerous sorts of 3PL service providers, each of which handles a distinct task, depending on the needs of your business.

As per a research published by Armstrong & Associates, 90% of Fortune 500 organisations seek assistance from third-party logistics (3PL) companies. The 3PL business has expanded at an exponential rate alongside the e-commerce industry and is expected to reach $1.75 trillion by 2026.

A 3PL aids retailers in controlling their supply chain. Typical 3PL services include order fulfilment, shipment coordination, retail distribution, exchanges, and returns in addition to the administration of warehouses and inventories. A 3PL facilitates the ability to focus on other aspects of a merchant's business is ultimately made possible by working with a 3PL.

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3PLs have been and will continue to be the secret ingredient that has helped many prosperous businesses survive the current supply chain crises. Unfortunately, the incidents of political unrest, natural calamities, a lack of human resources, and regulatory difficulties that we have witnessed over the past two years are not an outlier. Experts report that severe supply chain disruptions now occur every 3.7 years, indicating that these disruptions are occurring more frequently and with greater intensity.

Evaluating 3PL Partner

To get the best results from working with 3PL partner, you can keep the following points in mind:

1) Operations: Operational effectiveness is a prerequisite. All other considerations are irrelevant if the 3PL's performance metrics are unsatisfactory.

2) Pricing: Any brand finds it difficult to justify "paying more" because logistics (shipping + fulfilment) is a cost centre. But if the past few years have taught us anything, it's that it's not always wise to choose low-cost executives for various positions in one's company.

3) Technology: We categorise technology into two categories: (a) analytics/dashboards and (b) speed to integration, or how quickly and effectively they can interact with your technology platform.

4) Culture: To do this, you must get to know the entire 3PL team, not just the salespeople. Visits to the location are highly recommended so that you can tour the space, assess the layout and cleanliness, and, most importantly, get to know the people who will be doing the work for you—for example, the general manager, operations managers, etc.

5) Location: While some brands prefer locating a 3PL close by based on the distance to their home or workplace, we recommend focusing on your end user's proximity. This decreases the amount of money spent on shipping and the amount of time it takes for a package to arrive once it has been picked up by the carrier (costs rise with distance shipped).

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Advantages of 3PL

The advantages of using a 3PL service are numerous. The biggest benefit is that by contracting out these services, the company can concentrate on other areas of its operations. Let us talk get to know a few of these benefits.

1) Focus: Companies with little logistics skills can focus on their main competencies, such as product development, marketing, sales, and business expansion, without having to get engaged in these crucial but non-core tasks. Because of this, businesses may profit from expert logistical knowledge without having to neglect other, more crucial duties.

2) Cost and time reduction: Due to their expertise in logistics, 3PL providers will have a larger network than the supply chain of a typical business. They will presumably be more powerful in negotiations, have more privileged connections within the logistics sector, and be able to provide bigger volume discounts to customers. All of these could reduce overhead expenses.

3) Flexibility: Third-party logistics providers can give greater flexibility for geographic distribution and offer various services than client companies could arrange for themselves. Zone skipping, a freight consolidation technique that allows businesses to combine their packages and dispatch them across many locations, is an advantage that many 3PL suppliers pass along to potential clients. It results in lower shipping costs because it shortens the distance between the goods that need to be sent and the customers. Moreover, this allows companies to manage their resources predictably and accurately.

4) Scalability: Using 3PL provider services makes it simple to expand a business into new countries and regions, particularly emerging nations, without making any significant financial commitments like hiring employees or renting a warehouse. A company can enhance customer service, take advantage of new supply chains, and enter untapped markets by getting a 3PL.

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Activities under Third-Party Logistics

3PL Providers perform several functions. Let us try to know a few of them:

1) Shipping and transportation: These businesses frequently highlight technology, usually integrated freight management services or a Transportation Management System (TMS). These technological advancements were designed to boost productivity and simplify repetitive, monotonous tasks like financial reporting and freight payment.

2) Warehouse: 3PL companies support a company's warehousing processes with a focus on safely keeping goods. Numerous 3PL warehouse companies offer flexible storage management options.

3) Distribution: A lot of 3PL companies also provide a range of wholesale and distribution services, such as manufacturing, picking, packing, and outbound order fulfilment.

4) Customs clearance: For most businesses, it might be challenging to find dependable and consistent freight brokerage. By cutting out the middlemen, however, partnering with 3PL suppliers can simplify the process.

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