What is Third-Party Logistics (3PL) and How to Choose the Right One

For companies that rely on logistics suppliers , receiving, storing, and shipping inventory is crucial to their growth, especially when volatility impacts supply chain management.

As specialization of logistics functions becomes a necessity for many businesses, especially with the e-commerce and omnichannel networks, outsourcing to 3PL companies has now become a trend.

What is a 3PL Company?

A third-party logistics (3PL) company is a service provider that organizes or manages several supply chain functions for other businesses.

These functions include brokerage, shipping, warehousing and/or packaging of shipments, supply chain strategy, and access to technology.

Most 3PL companies do not have assets (they do not own physical equipment), because they are only in charge of organizing logistics services. However, some 3PL companies do have assets, such as warehouses used for e-commerce.

Companies can completely or partially outsource parts of their supply chain management (transportation, warehousing, etc.) when a 3PL company offers greater efficiency, expertise, and/or cost reduction when compared to in-house management.

What Does a 3PL Company Do?

A 3PL company typically offers one or two specialized services for small and medium-sized businesses. For example, an all-inclusive service provider manages the entire process, from confirming an order to updating the delivery tracker. On the other hand, a logistics company only manages day-to-day transactions. It is important to note that not all e-commerce shipping companies offer 3PL compliance services.

3PL compliance companies also differ from logistics service providers. Although many 3PL are dedicated to packaging, storing, and/or distributing products, some are large enough to take on additional responsibilities. Properly organized warehouses are the key to maximum efficiency.

When it comes to shipping logistics, it is important to distinguish between freight forwarders and 3PL transportation companies. Freight forwarders are middlemen who charge a fee to the seller to work with preferred couriers. 3PLs offer a wider range of services on a responsive scale, including transportation.

A 3PL warehouse company is dedicated to storing, managing, and monitoring its clients’ products, whether in its own warehouse or in others. Working with this type of 3PL companies is useful when there is a large inventory, when the warehouse has recently expanded, or when equipment needs to be freed up for other tasks.

Benefits

• Cost reduction and time savings. Once the delivery time is expedited, so is inventory rotation.
• It provides responsiveness to higher or lower order volumes (in other words, product seasonality).
• It allows businesses to grow in an affordable way.

Disadvantages

• Typically, a 3PL company only makes sense for small or medium-sized businesses. As companies grow, they realize there will come a time when they will require a more complete logistics company.
• It provides less control over inventories. Monitoring inventory analytics is vital to stay on top of trends, increases in sales, and out-of-stock products. With less control, then it is harder to monitor each KPI.
• Less control over customer experience. Excellent customer service starts in the warehouse. Direct shipping methods are usually the best choice to avoid delayed orders while eliminating significant costs.

Read Also: Reducing volatility in the supply chain an opportunity for build to suit distribution centers.

How To Choose a 3PL Supplier

Selecting a third-party logistics provider is probably one of the most important decisions to be made when expanding an e-commerce business.

This supplier will affect logistics, customer service, and repeat purchase rates. Trusting someone with sales, inventory, and other confidential information is a substantial risk.

The process of selecting the right logistics partner must include the following:

Evaluate logistics operations

The advantage of using a 3PL is that businesses can leverage their existing configuration to store, pack, select, and ship orders. Companies need to determine if this process is efficient enough and if the 3PL company is equipped to handle an increase in inventory as the business grows.

Ask about the costs

There are high upfront costs when a partnership with a 3PL company begins, but over time, there are likely to be savings from reduced overhead and labor costs. Businesses can calculate these likely savings by requesting a cost breakdown before making a decision.

Set expectations for reporting and communication

When a company works with a new 3PL provider, it is essential to ensure a smooth transition. This can be achieved by monitoring customer service channels and social media, which can detect customer complaints related to shipping. It is also important to ask the 3PL company for some kind of report to monitor the timeliness of the deliveries, the accuracy of the filled orders, and any damages related to transportation.

Determine delivery service levels

It is important to review the details of a contract with a 3PL supplier before committing to working with them.

Confirm integrations

It is also advisable to confirm that a 3PL company can be integrated with the business inventory management system, order management system, order processing software, and/or warehouse management system.

At Advance Real Estate , we currently have space available to meet the warehousing needs of any 3PL company.

Information sources:

1. https://www.bluecart.com/blog/3pl-meaning
2. https://redstagfulfillment.com/3pl-definition-process-resources/
3. https://resources.coyote.com/source/what-is-a-3pl
4. https://www.shopify.com/enterprise/third-party-logistics-3pl
5. https://www.extensiv.com/what-is-a-3pl