3PL Solutions: Third Party Logistics


Third-Party Logistics Solutions

What is a 3PL Service?

Simply put, logistics is the transportation of goods from a factory, warehouse or distribution center to the customer.

Third-party logistics solutions companies (3pl solutions) allow businesses to outsource their fulfillment, transportation and distribution functions to experts. They help businesses with the logistics of shipping, receiving, warehouse inventory, and tracking. Third-party logistics providers do not take ownership of the goods at any point, but rather ensure proper storage, handling, and transportation of the goods, sometimes all the way from the plant to delivery to the customer. Many also handle other logistics solutions operations and aspects of the e-commerce process such as customer service, billing, Internet marketing, and technical support.


Portrait of manual worker and manager scanning package in the warehouse


Why do companies use third-party logistics?

The use of 3pl solutions companies is growing. Several overall economic trends have accelerated this growth, according to IWLA (International Warehouse Logistics Association). These are the general trends toward outsourcing non-core functions, the growth of e-commerce, and the benefits of a partnership between the manufacturer and the marketer and logistics management provider.


Companies decide to use third-party logistics services for several reasons:


To Focus on Core Business

The primary reason companies use 3pl solutions is so that business owners can focus on their core business while outsourcing the components of logistics, such as transportation and supply chain management services to an expert. A business might start out with an idea for a product, market it over the Internet, store it in a small warehouse, and hire employees for the management, warehousing and logistics, and transportation of the product. But, after a while, the business grows and outsourcing warehousing services from 3pl solutions becomes necessary in order for the business to scale. Outsourcing logistics services and making use of 3pl solutions allows the business owner to focus on what he knows best -- the company's primary business and services. 3pl solutions provide management services and logistics for the warehousing needs of your business.


To Allow for Growth

Many companies lack the capital to invest in the large-scale logistics, including transportation and warehouse operations needed to expand the business. By outsourcing to a 3pl solutions firm, businesses gain better control over warehousing and logistics and are able to ship anywhere quickly. The company also gains additional marketing, sales and customer service capabilities. All these additional capabilities are obtained for a much smaller investment than if the company had to build these logistics capabilities in-house. 3pl solutions provide warehousing services and logistics that aid your company and ultimately allow for growth.


To Implement a Strategy

A study quoted by IWLA found that 95 percent of CEOs believe they need some form of warehousing and logistics strategy. Third-party logistics services often are a staple of that strategy. 3pl solutions can lower personnel, transportation and warehouse management costs through shared services and more efficient warehouse layout and logistics automation. They can assemble and pack items more efficiently for faster and more accurate delivery services, provide better customer support, improve cycle time, and free up resources in the manufacturers' and marketer's non-core areas, IWLA says.


To Better Manage Peaks and Valleys

For many e-commerce operations and services, product demand varies with the seasons. This requires smart and swift transportation and management among the logistics of warehousing. A 3pl solutions company can more easily scale up and down to manage this variance than a small business is able to do. They also have the ability to provide incentives to their logistics employees to improve productivity during peak times. This ability to scale is crucial to supply chain management services because customer's expectations for quick fulfillment often are highest during peak seasons such as the Christmas holidays.

3pl solutions companies also know how to organize supply chain and logistics operations so that items can be found and shipped quickly. They use analytics to determine which items are hot sellers and place them close to each other in the warehouse.


To Allow for International Expansion

Many 3pl solutions are already international. They have distribution centers and supply chain networks around the world. They also understand the local markets, transportation systems and regulations needed to operate in them. By partnering with a 3pl solutions provider, a company can use their warehousing and logistics knowledge to expand globally much faster and easier. This enables a company to expand into another country or region with a smaller investment.


To Improve Environmental Performance

The U.N. Global Corporate Sustainability Report 2013 indicates that companies are increasingly aware of the importance of sustainability in supply chain management and are making progress in setting expectations for suppliers. However, most companies fall short of acting on behalf of sustainability throughout the supply chain. Many 3pl solutions firms have already taken many of these actions and can help a company with its sustainability goals in relation to supply chain logistics. They can reduce transportation emissions. Also, because 3pl solutions are able to optimize warehousing and distribution networks, they save energy. They also have the transportation expertise to train drivers in fuel-efficient behaviors and to specify and afford low-emission technology.


To Improve Security

Cargo thefts and other security threats are occurring more frequently. Goods must move freely over a secure transportation system and the supply chain must be able to withstand any threats to its security, according to Security Magazine. Because supply chain management is a core business for 3pl solutions companies, they are able to advise on and implement security measures all along the supply chain from information security to warehouse access control systems to cargo security. They also can help manufacturers improve their own supply chain security measures with the use of modern technology services.


To Make Process Changes Faster

Manufacturing services who want to grow quickly may experience difficulties in scaling up quickly. However, with third-party logistics services, the manufacturer can take advantage of an already existing warehousing and transportation infrastructure and experienced and well-trained staff that aids in the logistics throughout the entire supply chain. As the business continues to grow, the third party logistics services continue to find solutions at each new stage.


To Handle Orders Efficiently

A 3pl solutions firm can provide call center or Internet order taking services, as well as implement systems that track item availability, material use and distribution at every stage of the supply chain.Third Party logistics services also often can help manage the logistics of order returns effectively, saving the company money and loss of unhappy customers.


To Improve Sales

A good 3pl solutions firm has experienced customer care staff who, through various methods such as call or chat, often can ask questions of the customer and then consult with them about products and services that meet their needs. In many cases, this upsells the customer. This improves revenue as well as leading to happier customers over the long term. As part of their services, the firm also can assist with mass mailings of samples to key potential customers and with followup direct mail campaigns. It can also monitor social media for product or company mentions.


To Obtain Knowledge Without Hiring

A 3pl solutions firm is able to attract, train and retain high-caliber employees in order to deliver outstanding services. This means that companies who contract with third party logistics firms have access to that expertise without needing to go through the long process of recruiting and training employees on their own or the day-to-day management of them.

What is the difference between a 3pl and a 4pl?

A 4pl solutions firm, while still being a firm to which supply chain operations are outsourced, often tends to work with a company on a long-term or even joint venture basis. Using the technology at its best, the 4pl will be the sole interface between the company and its various logistics service providers, typically using management software to accommodate the requirements of their customers and these various providers. Customers of 4pl firm, then, typically turn over control of all their supply chain logistics to the 4pl, so they can focus on what they do best.

A 4pl also tends to focus heavily on the logistics of process improvement, often through automation -- a classic wonder of technology. A 4pl also handles all aspects of the supply chain management, including warehousing and reverse logistics, or all the logistics and services that happens after the product is delivered to the consumer. This would include things such as recycling, refunds on defective merchandise, repairing or refurbishing machines, and decreasing the costs of disposing of obsolete machinery. Their services go far and beyond the basic supply chain management.

A study estimates that about 30 percent of all items purchased online will be returned. These returns can be costly to a company, both in terms of immediate lost revenue and unhappy customers who may go to a competitor in the hope of quality services that they need. A 4pl solutions firm can help lower these costs. If a customer returns a product, the 4pl solutions firm would issue a refund or send a suitable alternative product, just as a third party logistics would do. The 4pl firm then would go a step further, to research what caused the unsatisfactory customer experience in the first place and take steps to ensure this doesn't happen again.

3pl solutions firms can sometimes form a 4pl within their existing structure in order to offer holistic warehousing and distribution services throughout the supply chain to businesses across the board.

Is a 3pl right for your business?

A 2014 Deloitte study quoted by the Logistics Bureau shows that 79 percent of companies with efficient warehousing supply chain management achieve above-average revenue growth for their industries. On the other hand, only 8 percent of those with less efficient supply chain management achieve above-average growth. A third party logistics company can significantly improve the way your supply chain management goes.

A 3pl solutions company also can scale up as your business grows, allowing you to grow with a smaller investment. A full-service third party logistics also can improve your sales, directly through its call center, and indirectly through ensuring satisfied customers. It can also help you reach your environmental goals, as well as your goals of expanding into other countries.

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