Third-Party Logistics (i.e. 3PL) is a service that allows you to outsource operational logistics from warehousing, all the way through to delivery, and ultimately enables you to focus on other parts of your business.

Third-party logistics companies provide any number of services having to do with the logistics of the supply chain. This includes transportation, warehousing, picking and packing, inventory forecasting, order fulfillment, packaging and freight forwarding. In simple terms, Third Party Logistics Services and 3PLs can be defined as: Outsourcing all or much of a company’s logistics operations to a specialized company.

Wondering if your business needs to use a 3PL provider? When in doubt, use a pro-con list – we got started on one for you:

 

The Advantages…

Using a 3PL provider offers lots of advantages. Here are a few of them:

Time and resources for core business focus: The biggest is that by handing over these logistics, you can focus on other aspects of your business such as sales, marketing and product development. Outsourcing 3PL leaves you with more time and resources

Gain instant expertise and knowledge in the field: Especially if you’re just starting out, who better to take care of your logistics than a company that specializes in them? Order fulfillment, warehousing and shipping come with major challenges of their own, so handing it off to the experts can really make a difference in the way you function – and it leaves you to focus on increasing your overall value to your customers.

Get a handle on international logistics: If you’re selling internationally, 3PLs can take care of documentation, customs, freight forwarding services, global airfreight, duty optimization and other issues that come up at the borders that can delay your shipments and result in high costs if not done thoroughly.

Generate Cost Savings such as…

Opportunity Cost Savings: When it comes to warehousing, not having to maintain your own space and staff can be a big cost-saving measure. Also, companies that provide good inventory forecasting can help optimize your inventory levels and save money on inventory holding costs.

Reduce Current Cost: Cost management is still the number one priority for shippers, and 3PLs often have scale advantage across their total operations.

Reduce Future Cost by leveraging the 3PL’s expertise and technology: The best 3PLs are using tools such as Lean and the latest technology to create continuous improvement. The best 3PLs have a state-of-the-art warehouse management system, transportation management system, and other system capabilities, all of which contribute to greater efficiency. The best 3PLs have state-of-the-art network optimization capabilities to select optimal warehouse locations and better manage omnichannel flows.

Improve customer satisfaction: With accurate order fulfillment and on-time delivery. The best 3PLs have real-time tracking and event management systems to provide real-time alerts when delays occur and are able to respond to change more rapidly and efficiently.

Reduce risk: This includes a range of risks like people risk (e.g. workman’s compensation, union issues, high headcount), environmental risk, and supply chain performance risk.

Enable Start-up: Logistics and the associated systems, along with labour acquisition, can involve significant capital requirements for a start-up operation. Even in an existing company, sufficient internal management resources may not be available to deploy this task. The 3PL can provide this support for a start-up operation.

Strategic Partner Benefit: Companies expect their 3PL to take direction, respond rapidly, and generate ideas for improvement. They further expect the 3PL to become a strategic partner in efficiently growing the business. Aggressive continuous improvement is assumed.

The potential disadvantages…

However, a 3PL isn’t for every business. Here are a few drawbacks for you to consider. Would these impact your business?

Lesser control over the delivery process: With a third-party taking care of your shipping, there can be challenges when there are delays or problems in shipping a customer’s order. The customer will be looking at you for the resolution, not your 3PL.

Larger upfront investment: On the flip side of the cost issue, while hiring a 3PL can pay for itself in the long run, the investment can still be a large cost in the beginning.  If you don’t need a big warehouse or don’t have many orders, the cost of a 3PL can be prohibitive

More distance between you and your product: The 3PL you choose may position you far away from your products, which would be an inconvenience if you run into quality control issues, or need to physically inspect your stock for any reason.

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