3rd Party Logistics 3PL

Jan 28 2022

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Whether your business is new, old, big, or small, a cost-effective 3PL model is worth considering if shipping is a must for your business's success. Third-party logistics is an integral part of the supply chain, including inventory management, order fulfillment, and warehousing. Receiving, storing, and shipping are major components of the growth of an eCommerce business. Using 3PL is becoming necessary for many organizations, especially with complex supply chain management.

With the continuous increase of omnichannel and eCommerce businesses, many companies outsource specific logistics responsibilities from third-party warehouses. But what is a 3PL warehouse? A third-party warehouse offers a wide range of eCommerce fulfillment services, including order processing, warehousing, shipping, and receiving. Some 3PL warehouses provide returns processing, customer support, and product customization. Apart from the 3PL model, other outsourced logistics companies include the 4PL and 5PL, but most companies prefer the 3PL model.

Before you start looking for third-party logistics, it's vital to understand 3PL basics and how you can integrate them into your operations. Read on and learn more about third-party logistics examples, order fulfillment, and how 3PL differs from 4PL and 5PL.

3PL Companies

Third-party logistics companies offer comprehensive solutions for the business supply chain. Their services include packaging, warehousing, transportation, and order fulfillment. These companies use best practices and technologies that align with your enterprise processes to help you solve challenges in logistics management.

Why work with 3rd party logistics companies? Whether you have a big or small business, you should run your supply chain more effectively and efficiently to gain a competitive advantage. Third-party logistics companies will help you venture into new markets, expand your customer base and improve your customer experience. 3rd party logistics companies provide services similar to order fulfillment companies.

Some 3PL companies specialize in different warehousing and fulfillment services. For instance, some are equipped to store and transport hazardous products, while others specialize in cold fulfillment. These are used to ship food products that need refrigeration. Others specialize in bulky, heavy, and high-value products that require much storage space. In your search for the 3rd party logistics companies near me, you will get a list of the top 3PL companies. Some of the largest 3PL companies include C. H. Robinson, XPO Logistics, J.B. Hunt, and DHL Supply Chain.

What is 3PL

As aforementioned, a third-party logistics abbreviated as 3PL is an outsourced company that takes care of enterprises' logistics and supply chain operations. In other terms, 3PLs provide warehousing and distribution services for their customer's fulfillment. 3PL warehouses manage, hold and ship stock of multiple businesses, including their inventory. Note that warehouses that only deal with an order fulfillment of their products are not considered as 3PLs. In many discussions about 3PL, the term fourth-party logistics pops up. But what is 3PL and 4PL? How do they differ?

If you have decided to use an outsider provider for your company's logistics, need, the next step is to choose whether 3PL or 4PL model is the best for your supply chain operations. Both 3PL and 4PL logistics play a huge role in the supply chain. However, you should know the difference between 3PL and 4PL to make the right choice.

3PL vs. 4PL

Often, it becomes hard for many businesses to choose either 3PL or 4PL logistics to optimize their supply chain management. Understanding their unique advantages and disadvantages is essential to maximize the efficiency of your supply chain to give your business a competitive edge.

In 3PL a, manufacturers maintain oversight of their supply chain but outsource transportation and logistics operations to third-party logistics providers. 3PL focuses on logistics services like order fulfillment, transportation, and warehousing. On the other hand, a 4PL logistics model manages all aspects of the supply chain. The manufacturer outsources both the organization and management of its supply chain. They go beyond physical logistics to include procurement, IT, and sometimes finance.

5PL (fifth-party logistics) is a logistics model that has recently emerged, with the concept having various definitions. 5PL optimizes supply chain networks and leverages big data to ensure efficiency. You can utilize 5PL to run all your supply chain aspects. 3PL vs. 4PL vs. 5PL, which is the best logistics solution for your company? Choosing a suitable model depends on the size of your business. However, if you only want to outsource providers who handle only the transportation part of the supply chain, go for 2PL.

3PL fulfillment

The scope of services 3PL offer varies significantly. Some only provide pick, pack, and ship services, while others offer kitting and management of returns. However, even the most basic third-party logistics follow primary 3PL fulfillment processes. They include:

  • Receiving of inventory
  • Picking
  • Packing
  • Shipping

A 3PL will offer operational expertise, experience, physical infrastructure, and resources required to create an efficient and effective supply chain for your eCommerce business. While you could be maintaining your order fulfillment and supply chain in-house, as your business expands, execution and scalability can be a challenge. That's why 3PL can benefit you in eCommerce fulfillment.

The Continuous growth of eCommerce fulfillment has significantly impacted 3PL fulfillment pricing. The fee includes the costs associated with the order fulfillment process like inventory receiving, storage, order, and return processing. While you pay for these services, you expect a third-party logistics company to fulfill customer orders efficiently, quickly, and accurately. The process of order fulfillment is complex, and it involves a lot of data, and a slight mistake at any stage of the process can lead to significant losses. That's why 3PL software is necessary to save you money, stress, and time. A 3PL software manages all outsourced supply chain activities, including transportation and warehousing.

Top 3PL Companies 2020

In today's volatile business environment, many 3PL companies are being pushed into making dramatic changes and actions to continue generating revenue and impact. When leading industry analysts are compiling the annual list of the top 3PL companies, they mainly focus on the leading trends that indicate the market direction.

Many other metrics are utilized to determine the top third-party logistics companies, such as the number of warehouses, revenue, warehouse square footage, and others. For instance, in 2020, the top companies such as United Parcel Services (UPS), DHL Group, and FedEx were all ranked in terms of revenue and warehouse coverage across the globe.

In the top 3PL companies 2021 category, many are ranked in terms of speed and responsiveness, especially to shippers' distress calls. While analysts used this strategy, still revenue is the leading key factor when ranking these top companies like XPO Logistics, C.H. Robinson Worldwide, UPS, and others. The speed and response determinant is used because slow and inaccurate third-party logistics providers are disastrous to your business.

When choosing a 3PL company, ensure it's the right one for your business. Not every service provided by these companies fits all clients. In all categories and rankings, including the top 10 3PL companies, the responses from clients are based on a company's efficiency in getting the job done. With the pandemic's disruptions, distortions, and delays, there was growing uncertainty in these companies' ability to perform and meet demand.

While many kept operations flowing, revenue generation was affected during the pandemic, as observed in the top 100 3PL companies 2020, such as C.H. Robinson. However, the spike in online shopping triggered by the COVID-19 outbreak forced many third-party logistics companies to adjust operations to meet demand and remain in business. Still, the role of 3PL companies remains vital for many businesses to continue thriving and meeting customers' needs.

Role of a Third Party Logistics Company

The leading role of a third-party logistic company is to provide supply chain processes for various businesses. These include distribution, transportation, and procurement services that are customizable to fit each client's needs. But to help you understand what 3PL is in the supply chain, the logistics companies shoulder the burden of inventory management, allowing clients to focus on their core products and services.

Order fulfillment, especially in an e-commerce business, is a sensitive part of your transactions. Sometimes it becomes non-feasible or challenging to fulfill orders in-house. This is the point where you need the services of a logistics company. Your business takes the orders in such cases, but the 3PL company you choose mostly manages shipping and storage. Some will even handle certain customer service functions on your behalf. But this is per the contract or agreement you set.

You can always save time and energy by handing over storage, labor costs, and technology associated with the supply chain of your business to 3PL providers. As you engage these services, you also get familiar with third-party logistics advantages and disadvantages. While picking, delivery, and packaging are some of the advantages, don't overlook the most common drawbacks of 3PL. These are mostly coordination problems such as schedule, cultural change, and language, mainly where international transactions are involved.

Also, as you advance your business, you may need 4PL. However, it's important to understand the difference between third-party logistics and fourth-party logistics. 3PL mainly focuses on logistics, while 4PL deals with the whole supply chain.

4PL Companies

4PL introduces a higher level of supply chain management for your business. Sometimes it can be hard to determine if your operations need 3PL or 4PL services. In today's business environment, there are several fourth-party logistics examples. Still, a clear understanding of fourth-party logistics will help you decide. Fourth-party logistics companies integrate the services of 3PL and take them a step further. This is through managing infrastructure, related technology, and resources to develop a design with strategic insight and operations for your entire supply chain.

You will also need to contrast the relative fourth-party logistics advantages and disadvantages to know if you need it. When a fourth party logistics provider takes over operations, one advantage to the manufacturer is that they no longer need to oversight their supply chain. This is because they coordinate or organize the entire operations, including 3PLs. However, one disadvantage is you have less control of the developed design or system.

Despite the minimal control you have, the role of these fourth-party logistics providers cannot be overlooked. The activities they carry out eventually transform your company's entire supply chain, thus, in many cases, increasing revenue. You can get more information on any fourth-party logistics service provider by directly consulting the company or other sources.

A simple way of getting detailed information on a 4PL is through various approved sources like a fourth-party logistics pdf. Alternatively, fourth-party logistics Wikipedia pages will also give you a good understanding of these companies.

Integrated 3PL

Depending on your business structure and clientele, you may need to employ the integrated 3PL approach to streamline operations. This is where you hire one 3PL for transportation, one for procurement, and another for warehousing. With the integrated approach, the role of 3PL in supply chain management becomes easy for your business. The services providers take full accountability and ownership of logistics that you don't have to worry about operations anymore.

Integrated third-party logistics does not undermine the purpose of 3PL, but it eliminates the uncertainty of who is responsible for what and other concerns. For instance, you can tell if it's the warehouse fault or the carrier if a delivery is late. Additionally, it's easy to take the integrated 3PL approach for your business with the many types of third-party logistics companies available, enabling greater business efficiency.

However, as a wise business person, you still need to evaluate and understand the impact of 3PL on your business in the long run. An easy way is to ask yourself, what are the risks of using 3PL for the company? For instance, partnering with the wrong third-party logistics firm is one problem. But if you focus on finding the right logistics service provider, the benefits will always outweigh the disadvantages.