What is 3PL?

3PL stands for Third-party logistics. Wikipedia identifies 3PL in supply chain management and in logistics as the use of third-party businesses to “outsource elements of its distribution, warehousing, and fulfillment services”.

The general idea of a 3PL is to utilize the 3PL providers’ facility, employees, and expertise. 3PL allows you to utilize a warehouse and its additional services without owning one or having any kind of expertise. 

There are different types of 3PLs based on the specialty, location, or industry. 3PLs are common in industries like e-commerce, retail, apparel, B2B (business-to-business), raw materials, and so on. They also operate based on specific business needs or specialized functions. 

The term “3PL” was first used during the 1970s and 1980s in America. The Council of Supply Chain Management Professionals traced one of the first uses of the phrase to refer to intermodal marketing companies (IMCs) in transportation contracts. Before the existence of 3PLs, there were only the shipper and the carrier involved. Now that IMCs acted as the middleman to deliver the shipment with other rail carriers, they have become the third party of the contract. They have become the 3PL. 

Moreover, during this time, businesses have increasingly tried to look for ways to delegate fulfillment processes. In the modern world we live in today, there has been a variety of businesses than ever before. E-commerce is booming. For those reasons, the demand for customized fulfillment processes has gone up significantly. 3PLs have more or less become a major factor in the success of large businesses in today’s ultra-competitive market.

Understanding 3PL – What does it do?

The term “3PL” refers to any businesses that provide logistical services for payment. As mentioned earlier, 3PL offers a number of additional services besides their main services like warehousing, fulfillment, or distribution. These services may include:

• Picking and packing, which include customizing packaging
• Freight forwarding
• Warehousing
• Transportation
• Inventory management
• Shipping and distribution
• Order fulfillment
• Storage
• Fleet and route optimization
• Reverse Logistics

Simply put, 3PLs handle the supply, distribution and the last mail delivery. The services allow companies to manage their money and time more efficiently while also focusing on their main competencies. 

Below is a brief, simplified infographic so that you better understand how 3PLs work:

Advantages

3PLs do the outsourcing for you

Third party logistics are companies you outsource services like warehousing or distribution to. 3PLs have a network of service providers, which are all brought together under one roof. 

So, the very first benefit of a 3PL is that:  You have a company doing all the outsourcing for you. This goes for any type of service, from software, shipping, and packaging to insurance.

3PLs save you time

It is obvious that the 3PLs are experts in their chosen area. Not only will they provide you with the service you need, but they will also help you better understand the logistics of your business. They provide you with the values in areas your company might simply not be proficient in.

As a result, you and your team can focus more on crucial business objectives, like scaling up the business. The time freed up can be utilized on further investing in the areas you are an expert in rather than spending too much time figuring out how to manage your logistics operation.

3PLs save you money

You have probably heard people claiming that outsourcing your services will save you money. But have you ever questioned, how?

3PLs make use of an economic principle known as “Economies of scale”. Simply put, by purchasing the materials or equipment at scale, third-party logistics are charged a lower price. The cost advantages are obtained due to the costs spreading over a large number of goods. 

When you reach out to 3PLs, you are essentially using other people’s material, equipment, and employees. Not only do you have access to their expertise but you also share the cost with other people – which is the main reason behind the lowering costs. 

All in all, using 3PLs brings you access to others’ facilities without owning them outright. This is a great option if you are looking to lower the start-up cost and operating costs.

3PLs offer scalability

Businesses may experience order volume significant fluctuations during specific seasons in a year. If you and your team are inexperienced in managing logistics operations, such circumstances may take you and your team a lot of time to figure out how to handle the situation. However, with 3PLS, a bigger or smaller order volume would not be a problem. As experts in their industries, your orders will be handled smoothly. 

Disadvantages 

Less insight into customer experience

As much as the relationship with your partners’ matters, so does the relationship with your customers. Their experience starts from the warehouse, then moves on the tracking and shipping. 

Logistics is how you leave an impression on your customers without meeting them face to face. Loyal customers can even be testimonials for your company’s products and services.

However, with 3PLs, you will not have as much oversight on the customer’s experience. It can be difficult to pinpoint where the exact problem lies, and even then, it can take some work and time to fix it. 

Upfront investment

In the long run, 3PLs do save you a significant amount of money. However, when you first start using 3PLs, you need seriously invest in the service. These costs involve the integration of their applications, the accounts, and the SKU uploads. There are other kinds of costs like warehousing fees, shipping costs, account set-up charges, the minimum fee you need to pay to maintain the service, and so on. Should you utilize any more extra services, you will surely need to pay more. Not every 3PL is the same. Each offer different extra services, so make sure you have done your homework and understand what they offer and what the fees are going to look like.

Different working hours

There is a certain dependency when you use 3PLs. When it comes to shipment, most companies would want to prioritize the speed – the packaging should be shipped as soon as possible. It can be tempting to get your own team to do the packaging and send it out as soon as possible. 

Nonetheless, when utilizing 3PLs, you have to follow their working hours and workflows. Sometimes, this can have an effect on your business. This is also partly why some find using three-partly logistics costs them control over their logistics.

Conclusion

Third-party logistics have their pros and cons, just like every other outsourced services. To truly determine whether it is right for your company, make sure you first understand what a 3PL is, what its advantages and disadvantages are, and if you find that the merits outweigh its demerits. Moreover, make sure you understand your business needs and what services are essential. If you are looking to outsource your 3PL services, especially, if you are searching for 3PL warehouses, let SCS Solutions team help you. We will be more than happy to help you get started. Contact SCS Solutions via our website https://www.scssolutions.io/, Linkedin, or Facebook.