Are you looking for a third-party logistics provider? How do you choose the best type of 3PL provider for your company? Where should you begin?
Worry not, as this article is here to guide you through the basics of understanding the different types of 3PLs. Hopefully, by the end of the article, you have a better idea of what kind of 3PL you would want to utilize for your business.
What is 3PL?
3PL, or third-party logistics, is the use of third-party companies to outsource portions of its distribution, storage, and fulfillment services.
The idea behind a 3PL is that essential supply chain management and logistics services can be found under one single offering. 3PLs do more than just picking, packing, and shipping. They also offer a variety of extra services, involving:
- The organization of ocean freight,
- FBA preparation,
- Fulfilling orders for customers,
- Process orders from e-commerce sites
- B2B shipping,
- Labeling projects,
- Custom packaging, and so on.
The extra services a 3PL offers are limitless, and not every 3PL has the same services. Make sure you know which services the 3PL has available before you decide to work with them.
Third-party logistics (3PL) benefits
3PLs do the outsourcing for you
A 3PL provider brings to the table a number of benefits. First of all, consider the 3PL as a team who does all the hard work of outsourcing logistic tasks for you – shipping, packaging, insurance – you name it, the company will work to complete the tasks for you.
3PLs free up time
By having someone doing all the hard work for you, your team has the time and space to focus on the core business activities and client relationships that actually drive value.
3PLs give you flexibility
3PL companies also provide your company with flexibility and scalability. Scaling an in-house team can take up to months – it is hard to afford so much time in today’s ultra-competitive market. 3PLs have you covered – it does not matter whether the number of orders suddenly goes up unexpectedly, there is a whole team of professionals to support you with scaling the business.
3PLs are cost-effective
The biggest benefit of all; however, is the cost saved when your company utilizes a 3PL. These providers utilize an economy principle called “the economy of scale”, which refers to the costs saved when production is efficient, and costs are spread over a larger number of goods.
So, while your company is purchasing material in a small quantity, 3PLs allow you to share costs with other organizations and benefit from the lower costs. As a result, overhead is reduced significantly.
Types of 3PLs
3PLs are classified based on a number of factors, including specialty, location, or industry. Therefore, there is no one sole “correct” method to classify them.
This article will take a look at three types of 3PLs.
Third-party logistics warehouse is the most common type of 3PL.
3PL warehouses offer basic fulfillment, warehousing, and distribution services. These consist of:
- Pick and pack
- Reverse logistics
- Inventory management
- Stock rotation
Other basic but common tasks 3PLs take care of include managing the seller’s transportation, managing the relationship with shippers, and identifying which shippers to use, and defining the best shipping route.
Shipment is going to be the first impression a customer has of you. First impressions in business are crucial. If you are promising them fast shipping, your warehouse needs to be geographically close to where your customer is. Additionally, you need to have the capability to manage inventory, so that no order is:
- Turned down when there are still more than enough goods in the warehouse,
- Taken when the warehouse is understocked.
Again, you are risking leaving a bad first impression on your customer. One bad review of your service gives customers second thoughts when they are thinking of your company’s service.
3PLs will take care of that problem for you, as they have their own network of warehouses and shippers. Moreover, they can also help you and your company expand globally – as you would need to establish a larger network of warehouses then.
Once you decide to work with 3PL warehouses, you also need to determine how many distribution centers (DC) you need to have access to. Again, the warehouses need to be geographically close to the location of your customers.
First impressions matter and 3PL warehouses can help you leave the right impressions from the get-go.
Just as the name suggests, transportation-based 3PLs focus on moving goods from one location to another. Of course, this type of 3PL does have the ability to take on tasks regarding other logistics services.
Often, they handle the transportation of goods between manufacturers and the warehouse, or between the seller and the buyer. The 3PL provider can either be:
- Leveraged 3PLs: they utilize the facilities of other companies, or
- Non-leveraged 3PLs: only utilizing facilities of the parent company.
Inventory transportation also consists of freight forwarding between countries and small parcel shipping.
Below are a few notes for you when you choose a transportation 3PL:
- Your shipping expectations: what timeframes do you expect the inventory to move?
- Provide your partner with the necessary information: what is your location?
- Understand what services your 3PL provider offers: what are the shipping methods? Are there any discounts? What about taxes? Are there any additional fees should there be a broker involved?
Financial- and information-based 3PLs
This type of 3PL is more common among larger e-commerce organizations, with revenue around eight to nine figures.
These 3PLs will provide you with detailed insight specific to your industry. Often, they try to get the most of your existing logistics network. After the pandemic, company’s have been more aware than ever when it comes to confident and quick decision-making during times of crisis. Understanding such demands, these companies provide you access to your financial information at your fingertips. Financial and information-based 3PLs typically offer services involving controlling your internal systems including accounting, cost controls, freight auditing, inventory management, and so on to ensure consistent and precise information.
Full-service 3PL providers provide all of the above services. They offer you end-to-end solutions to handle the logistics tasks as fast and as smoothly as possible. They will manage your warehouses: how your inventory is moving in or out of it, who and when they are shipped, and even fulfill orders for you. Of course, they will also provide you with industry-specific insights, making sure your logistics operates as fast, smooth, and cost-efficient as possible.
A 3PL brings numerous benefits to the table. Do keep in mind, however, that not every 3PL provider offers you the same services – so make sure you understand what your demands are. Each type of 3PL specializes in different areas of the logistics industry, including warehouse, transportation, financial, and information, or some can provide you with a full package.