3PL logistics is an additional gear responsible for businesses going through an expanding phase of growth.
In today’s competitive business environment, it’s more important than ever to have solid logistics planning. That’s where 3rd party logistics (3PL) providers come in.
3PLs can not only help businesses of all sizes improve their logistics operations through their services, such as warehousing, transportation, inventory management, etc.
3PL logistics is the solution designed for those who want to boost efficiency, reduce costs, plus enhance their customer service.
In fact, a recent study by the Council of Supply Chain Management Professionals found that businesses that use 3PLs experience a 10% improvement in customer service, a 12% improvement in inventory turns, and a 15% reduction in logistics costs.
If you’re serious about taking your business to the next level, then 3PL logistics is the key you were missing all along.
Keep reading and find out what you need to know.
What is 3PL logistics? Each 3PL Specialization
First, let’s clear the 3PL meaning. 3PL stands for ‘third-party logistics. In simplest terms, it’s a service that receives stock shipments, stores & tracks warehouse inventory, picks & packs, and ships orders for other businesses..
Each 3PL services company specializes in different types of fulfillment and 3PL warehousing. Some are equipped for cold fulfillment, mainly responsible for refrigeration storing, and shipping food products.
Other 3PL companies also specialize in storing and shipping hazardous materials, apparel, etc. Red Stag Fulfillment is one of the 3PL providers for heavy, bulky, and high-value products.
We can further breakdown the main 3PL specialization model into 3 categories:
- Full-service providers: providers handling all aspects of the logistics process, from warehousing and transportation to inventory management and customer service.
- Warehousing providers: providers specialize only in warehousing and storage services.
- Transportation providers: providers specialize only in transportation services, such as shipping and delivery.
Apart from the different specializations of each facility, you also need to keep 3PL provider services in mind for your business..
Types of 3PL services: What are the different types of services that a 3PL provider offers?
A 3PL service may be a single provider, such as transportation or warehouse storage only, or it can be multiple services bundled, capable of handling your whole supply chain management.
It is pretty common for a 3PL warehouse to serve many clients, like sending orders for multiple eCommerce companies.
These services generally include:
- Warehousing
- Inventory management
- Picking and packing
- Shipping and receiving.
Additional services offered by some 3PL providers include:
- Freight forwarding & shipping
- Kitting (Pre-built product deliveries)
- Reverse logistics (Order returns)
- eCommerce fulfillment services (pick, pack, ship management)
You might still be confused about these services and who uses them. Let us share some example companies:
- Amazon uses a variety of 3PL providers to handle logistics operations. It uses Fulfillment by Amazon (FBA) to store and ship products for its sellers. It also uses other 3PL providers to handle transportation and inventory management.
- Nike uses 3PL providers to handle its global logistics operations. It uses DHL to handle its transportation needs and Kuehne + Nagel to handle its 3PL warehousing needs.
- Costco uses 3PL to handle its transportation and warehousing needs. It uses CEVA Logistics to handle its transportation needs, and Lineage Logistics to handle its warehousing needs.
And there you have it folks, even these big names have to leave some of its process headaches to others services.
Assuming, I have your attention, still, the question still remains, How to shortlist dynamic enough 3PL providers for your business specific needs? Let’s find out next.
Also Check: What Is Reverse Logistics
Choosing a 3PL provider: What factors should you consider when choosing a 3PL provider?
When choosing a 3PL provider, factors to consider must include your budget, the provider’s experience, and their location.
According to your specific needs, you should narrow down what type of services you need from a logistics provider. Do you need warehousing, transportation, inventory management, or a combination of services?
FYI: 3PL warehouses are huge infrastructure in itself, so you’ve to be very specific to cut down the cost that will come with it.
After deciding what you need, you start looking for the best suited budget fit service provider for yourself.
3PL providers can range in price from $100 per month to $10,000 per month. It is important to set a budget before you start looking at providers so that you do not overspend.
Being specific about price is hard because it will depend mainly on 3 factors:
- The type of services you need (services amount you want)
- The volume of your shipments (more packages, less price)
- The location of your business (expensive areas equal high service fees)
While shortlisting you might miss some essential yet basic points which include:
- Get quotes from multiple providers. Comparing prices will help you decide.
- Ask for references from other businesses.
- Make sure you have a contract in place. Clearly state the services and the terms of your relationship.
3PL services are available dime a dozen, doing this basic brainstorming and following our tips would land you a satisfying enough service provider.
The Pros & Cons of using a 3PL provider: Why Even Consider?
You considering a 3PL provider is already telling a lot. But still, it all depends on your specific circumstances.
Here’s our take to summarize all:
- If you are looking for ways to reduce your logistics costs, increase efficiency, or free up your resources, and don’t care about the loss of control then a 3PL provider may be a good option for you.
- However, if you like full control over your operations because of sensitive security requirements, then you may want to reconsider something else. Handling your logistics yourself would be better..
Now, the pros, include:
- Access to expertise: 3PL providers would have access to expert people you might never be able to hire for managing resources. This way even a newbie can survive the logistics of your operations.
- Scalability: 3PL providers are bound to expand their operations to meet your needs no matter what. You just need to add or remove services as your business grows.
- Reduced costs: A 3PL provider helps you to reduce your logistics costs. Businesses can expect to save anywhere from 10% to 30% easily.
- Compliance: 3PL providers are familiar with the latest regulations and compliance requirements. So, you are always at peace of mind, because they’re dealing with costly mistakes and ensuring you are in compliance with the law.
If you ask us, that’s 101 business saving tips for dummies. Almost half of your worries can be shifted to autopilot on a monthly fee so you can focus on your product instead of nitty-gritty details.
Hmm. Sounds too good to be true? Isn’t it? Now, let’s hear the other side of the story..
Now, the cons, include:
As for the pros, 3PL has its fair share of challenges too. I mean ‘autopiloting’ pretty much gives it. In the real world, things fall apart real FAST!
- Communication challenges: Most of the time, people’s commitment falls short when you actually need it the most. And here you completely depend on a 3rd party service.
- Data security: Each shipment will go through someone else’s warehouse. Your data won’t be end-to-end protected anymore.
- Dependency: Outsourcing makes you dependent on a provider. Every day you’ve to hope and pray that a 3PL provider won’t experience problems.
- Fixed flexibility: Your present and future demands need to fit into 3PL providers’ services so they can adapt to your changing needs as quickly as you would like. Any other way would and you might have to hunt another service.
- Lack of visibility: Logistics would become fairy dust for you. You won’t get a detailed analysis of how they’re dealing with each of your fulfilments. You have to rely on them to track shipments and identify problems.
See Also: Does UPS Put Packages In Mailbox
FAQs
What is the difference between 3PL and 4PL and 5PL?
| Characteristic | 3PL | 4PL | 5PL |
| Services Scope | Specific logistics services, such as warehousing, transportation, or inventory management. | A comprehensive logistics service that includes planning, execution, and optimization. | A strategic overview of a business’s logistics operations as a partner. |
| Involvement | Business retains control over the logistics process. | 4PL provider takes over the entire logistics process for the business. | 5PL provider works with the business to identify areas of improvement needed for their logistics efficiency, and effectiveness. |
What is the difference between 3PL and a freight forwarder?
A freight forwarder is a company that helps businesses arrange the transportation of goods; While 3PL provides warehousing or inventory management services which freight forwarders typically miss.
What is the difference between 3PL and a distribution center?
A distribution center facility is used to store and distribute goods. They do not typically provide transportation or inventory management services.
How does 3PL differ from 1PL and 2PL logistics?
1PL (First-Party Logistics) represents a company managing its own logistics, while 2PL (Second-Party Logistics) involves a company hiring a carrier directly.
In contrast, 3PL involves outsourcing logistics to a third-party provider with expertise in various aspects of supply chain management.
Is 3PL suitable for small businesses?
Yes, 3PL is beneficial for small businesses. It allows them to access professional logistics services without significant investments in infrastructure and expertise.
How can I measure the success of my 3PL partnership?
Key performance indicators (KPIs) such as on-time delivery, order accuracy, inventory turnover, cost savings, and customer satisfaction are the gauges of success.
What are the typical service level agreements (SLAs) between businesses and their 3PL providers?
SLAs in 3PL contracts mostly outline expectations for performance metrics like on-time delivery rates, order accuracy, and inventory management. This ensures that both parties are on the same page regarding service standards.
Do 3PL providers offer insurance coverage for goods in transit or warehoused items?
Many 3PL providers offer insurance options, but the coverage can vary. It’s essential to discuss insurance needs and options with your chosen provider beforehand.
Are there any disadvantages to using a 3PL provider for businesses in highly specialized or niche industries?
In niche industries, 3PL providers may lack exact expertise, leading to potential challenges in meeting unique requirements. So, you’ve to carefully evaluate a provider’s capabilities in such cases.
How do 3PL providers handle seasonal fluctuations in demand, such as during holiday seasons or special promotions?
3PL providers have strategies in place to handle seasonal demand fluctuations, such as scaling up labor and storage capacity during peak times to ensure smooth delivery.
Are there hidden fees or additional costs that small businesses should be aware of when partnering with a 3PL provider?
It’s crucial for small businesses to thoroughly review contracts and service agreements to comprehend all costs, including handling, storage, and value-added service fees.
Can a new business with limited inventory experience benefit from 3PL, and how can they ensure accurate inventory management?
Yes, new businesses can benefit by ensuring accurate inventory management plus working closely with 3PL providers to check on their inventory tracking systems and regularly reconcile stock levels.
Can a new business engage with a 3PL provider on a trial basis before committing to a long-term contract?
Some 3PL providers offer trial periods (aka short-term agreements) to allow new businesses to evaluate the partnership before committing to long-term contracts.
Conclusion
In today’s competitive business environment, it is essential for businesses to focus on their core selling point. By outsourcing their logistics, businesses can focus on what they do best and let the experts handle the rest.
In addition to the obvious benefits of 3PL logistics, such as reduced costs and efficiency, there are other ways that the 3PL model can benefit businesses.
For example, 3PL can help businesses comply with regulations, reduce their environmental impact, improve their supply chain visibility, and expand into new markets.
If you are considering using a 3PL provider, we encourage you to do your research and to find a provider that can meet your needs. There are a number of factors to consider when choosing a 3PL provider, such as the services they offer, cost, and their location.
By taking the time to choose the right 3PL provider, you can reap the many benefits that 3PL logistics has to offer.