Many businesses are reluctant to outsource their logistics operations. Others, still, may not even be familiar with what third party logistics (3PL) providers are and what they have to offer. Those that do consider outsourcing their logistics management to a third-party logistics company may not know where to begin. Choosing the right 3PL can be somewhat difficult, given the wide variety of companies and services that exist on the market.
There’s a lot of confusion surrounding these 3PLs, making logistics outsourcing a risky endeavor. In fact, choosing an experienced 3PL company that’s right for you is one of the most important business decisions that you can make. Such a relationship can help your business grow, expand your reach, improve your supply chain visibility, and boost your customer experience. It will also save you a lot of time and money in the process.
This complete and definitive guide to third party logistics outsourcing will help you learn more about 3PL core competencies, the different types of 3PL providers, as well as highlight when it’s time to outsource your logistics operations. This 3PL guide will also tell you how to identify and choose the right 3PL partner based on your specific needs. So, let’s start with the basics.
What is 3PL?
Third-party logistics providers, commonly referred to as 3PLs, are organizations specialized in handling the transportation, warehousing, and distribution needs of their customers. When you’re outsourcing your logistics management to a 3PL company, they will handle your distribution, warehousing, order fulfillment, inbound freight, customs, outbound freight, and more.
Basically, they will offer an all-encompassing logistics service package for all or part of your supply chain management functions. That said, not all 3PL providers are the same. While some are a full-service organization, some may focus on only certain sections of the supply chain.
What Are the Common 3PL Services?
- Transportation – Transportation services include elements such as domestic freight, overseas shipping, as well as import/export logistics. Oftentimes enterprise eCommerce fulfillment requires global shipping. As such, logistics providers will need to abide by international trade guidelines. Such services will also require some form of cross-docking capabilities so that they can distribute goods to their final destination without needing to store them.
- Warehousing – Most 3PL companies will also cover your warehouse management necessities. Typically, a 3PL warehouse will be a more cost-effective option for you. Aside from the warehouse space, itself, 3PLs will also have to invest in the proper equipment, staff, and warehouse management software to streamline operations. All of these mean time and cost savings for you.
- Order Fulfillment – eCommerce fulfillment is often affected by lost or missed deliveries. 3PLs do not only need to make sure that the right goods reach the buyer but that they’re received on time and in good condition. The order fulfillment process starts with receiving inventory. Those goods are then stored, processed, and shipped to the end-user. An often forgotten step of order fulfillment is returns processing. This refers to reverse logistics, where goods are returned from the buyer to the retailer/manufacturer or even as far back as raw materials via recycling.
- Cargo Consolidation Service – To improve the fulfillment process, some logistics providers consolidate small goods into a single, large shipment. This provides better freight rates and security of cargo, as well as lower logistics costs. Such logistics providers are also known as freight consolidators.
The Different Types of 3PL Companies
There are several types of 3PL providers out there, largely segmented based on the type of services they specialize in. By understanding these differences, you will be in a better position to select a 3PL partner that will best meet your demands.
Transportation Based 3PLs
Such 3PLs handle all matters related to transport management. They will warehouse, pick, pack, and ship your products, offering you a full set of logistics services. Within transportation based 3PLs, we have two sets of subcategories:
- Asset-Based 3PLs – Also known as non-leveraged, asset-based 3PLs use the assets and facilities of their parent company. Among these assets, we can include things such as trucks, fulfillment centers, or distribution nodes. Such logistics companies tend to be larger and more stable since they own their equipment.
- Non-Asset based 3PLs – Leveraged 3PLs, on the other hand, use the assets and facilities of other companies, either in full or as a way to enhance their own capabilities. These tend to be more flexible since they are not tied to any one provider and can change assets when needed. Non-asset based 3PLs can, therefore, focus their efforts more on technology and lowering the shipping cost since they don’t have to maintain large assets.
Transportation based 3PLs are usually the choice for Direct-to-Customer (DTC) brands looking for pick and pack services.
Warehouse and Distribution Based 3PLs
A warehouse and distribution based 3PL specialize in storage, warehousing, and transportation of your products. Oftentimes, these types of 3PL providers will further specialize in the type of goods they handle. You can have things like general storage, dry goods, electronics, apparel, cold storage, pharmaceutical storage, FDA-registered warehousing, etc.
While all of these will store inventory, it’s important to note that a 3PL warehouse will generally differ from a distribution center. Here, goods are not stored long-term; they make a short stop before they are moved to a different location or are broken down into smaller shipments.
Freight forwarders are 3PL companies that act as a middleman between the initial shipper and end-user. They get the goods from the initial shipper and will handle all customs, duties, and other paperwork to send them to the buyer. They will typically handle all international freight parcel shipments and can perform these duties more effectively, saving you both time and money. Freight forwarders will also provide your customers with the option to prepay taxes and track their packages while in transit.
Financial Based 3PLs
Some 3PL providers may focus their services mostly on financial-based logistics. These refer to freight payment and audit services, accounting services, as well as tools used to manage and monitor your company’s logistics and inventory. Many 3PLs will offer one or more of these financial services as part of their package.
Lead Logistics Providers (LLPs)
Also known as fourth-party logistics (4PLs), lead logistics providers exist to add an additional layer when outsourcing your logistics needs. 4PLs exist to manage all of your 3PL relationships on your behalf. This means that they are removed from providing the actual logistics services or functions. In addition, being removed from the functional role, 4PLs can also help you decide which logistics solutions you should outsource to 3PL providers.
In short, a 4PL’s management team will monitor all 3PLs under one roof and will closely look over the daily workflow and performance of these providers. Therefore, a 4PL is a welcomed addition to a brand that needs to juggle multiple logistics providers or isn’t working with one that offers full-service capabilities.
When and Why To Use a 3PL Provider
There are plenty of reasons and benefits for why a brand should consider outsourcing its supply chain operations. For starters, 3PLs can provide a supplementary supply chain support in regional markets where you don’t currently have a presence. This can be done without even having to open a new distribution or fulfillment center.
Second, companies that have peak seasons can use a 3PL provider to scale their logistics operations. And once these busy months are over, they can scale back. In addition, working with a third-party logistics provider can give you access to high-quality technology systems that will help with your inventory management and increase overall performance.
Also, a 3PL company can lower your fulfillment costs since they can leverage things like load consolidation and various backhaul opportunities. And without major capital investment, you can quickly and easily build a multi-location distribution and fulfilled network.
The Benefits of 3PL Service
Similar to the points above, you can consider the following benefits of working with an experienced 3PL partner:
- Scalability and Flexibility – Depending on your industry and type of business, 3PLs can help you scale your operations at a moment’s notice. For several months, while you are in your busy season, you can increase the scale, then reduce the size of your operations.
- More Resources – 3PL service provides you with a large resource network by comparison to an in-house supply chain. This will allow your business to be more efficient, saving time and money while your business grows. Your 3PL provider will also optimize each stage of the supply chain, allowing everything to be more streamlined, transparent, and effective.
- Better Customer Service – Providing same-day or two-day shipping and improving your supply chain visibility will definitely improve your customer relations. The fast and efficient service your customers will receive will also ensure return customers.
- Time and Cost Savings – Since you will not have to deal with many of the investments that go into building and maintaining an effective supply chain network, such as transportation, technology, warehouse space, billing, training staff, audits, etc., you can save a lot in terms of both time and money. You will also be able to build a global logistical network at only a fraction of the cost.
How to Choose Your 3PL Providers?
This guide to 3PLs has provided you with a more in-depth insight into what third party logistics companies are and what they can provide. Next, we will be looking at some of the criteria that go into selecting a 3PL partner that will best suit your needs.
The Examination Phase
The first step in making a proper selection is to examine your current supply chain. Look for your strengths and weaknesses and consider how a logistics partner may be able to complement those requirements. Like you, most 3PLs will also have certain areas where they excel and others where they do not. Some, for example, may be great at transportation and warehousing, while others can better handle the import/export process.
Understand Your Technology Needs
Transportation management systems, warehouse management software, inbound freight monitoring, and advanced load tracking systems are but a few of the tools needed to run and maintain a smooth supply chain in the 21st century. They will help you streamline day-to-day processes, increase supply chain visibility, and provide you with the business intelligence to grow your organization.
An experienced 3PL provider will not only need to have these tools at their disposal but also help you implement them effectively. In addition, these will need to be integrated with your already-existing systems to provide a seamless experience.
Seek an Omnichannel Expertise
Most 3PL companies today will need to be well versed in all the nuances that go into omnichannel commerce. Look for a logistics provider with a proven record of performance and ample experience in your industry. This is a sure way of providing a great customer experience.
Look for Scalability and Continuous Improvement
A great logistics partner is someone who is able to leverage the needs of all of its customers, allowing them to scale their operations whenever needed. Similarly, they will need to keep themselves up-to-date on all the latest trends in the logistics industry, as well as utilize the best and most efficient assets and technologies to get the job done.
Those that will continuously improve their operations will also help you do the same. Look for providers committed to service excellence and quality management. They are usually the ones that use proven logistics solutions able to keep up with the latest trends.
Whenever you partner with a 3PL, you will be entrusting them with your brand’s reputation. It’s, therefore, important to find someone with a long history of success. Financial stability is also a telltale sign of someone that constantly invests in systems, equipment, facilities, and human resources needed to maintain optimal logistics solutions.
Multiple Fulfillment Centers
It’s also a good idea to consider a 3PL that takes a strategic approach to their network configuration when it comes to their fulfillment centers and warehouse space. They will be in the best position to help you determine the right locations for distribution centers that will cover your current and future needs. Their logistics network should also be developed enough to cover your requirements as they are at the moment.
Put simply, working with third-party logistics providers can offer you plenty of benefits. The key is to know what your requirements are and choose a logistics provider whose core competencies will perfectly complement yours. We hope that this 3PL guide has helped you make a more informed decision. Logistics Titans is a full-service 3PL that allows you to gain control and full transparency of your supply chain. Contact us today for more information!