Third party logistics, or 3PL, is a growing sector of the operations industry, expected to be worth $935 billion worldwide by 2020, according to the Chartered Institute of Procurement and Supply. 3PLs are third-party businesses that provide operational logistics processes to private sellers and companies. The U.S. Bureau of Transportation defines the 3PL service as “outsourcing all or much of a company’s logistic operations to a specialized company.”
3PLs have become a critical part of the transportation industry. Across the globe, transportation companies and managers have turned to 3PLs to reduce expenses and improve processes for their businesses. In response, 3PL companies have blossomed, constantly refining and improving their offered services to stay competitive. This means higher quality, specialized, customized services for companies that outsource to 3PLs.
3PLs are no longer a resource for only large companies and logistics partners. In fact, small business owners and individual proprietors have begun dominating the 3PL clientele in recent years. This is because small businesses don’t want to waste the time, resources, money, and manpower on transportation and logistics. They want to focus their key processes on sales strategy and implementation.
3PLs carry the logistics burden in an efficient, fast, improved fashion.
The Pros of 3PL
1. Service Customization
3PLs are highly flexible and personalized. As a seller, you can use a 3PL for full-service door-to-door transportation or a single service like freight forwarding. You use and pay for only those services that are most applicable to your business and your needs. This, in turn, increases efficiencies while reducing costs.
Each third party logistics provider is different; they serve different sorts of audiences and offer unique operational services. Many 3PLs specialize in a given area in order to deliver the strongest service and “own” a particular part amongst the logistics competition.
Generally, a 3PL services catalog could consist of:
- Picking and packing
- Outbound and inbound transportation
- Door-to-door delivery
- Inventory forecasting
- Freight forwarding
- Customs brokerage and clearance
- Contract negotiations
- Freight bill auditing and payment
2. Reduced Cost
The 2017 Annual Third-Party Logistics Study found that 75% of shippers said their 3PL contributed to a reduction in their operations costs.
As an eCommerce seller, working with a 3PL means you don’t have to worry about the overhead of a warehouse, logistics team, packing team, and more. Instead, you pay a flat fee or per-box fee to the 3PL—and that’s it. This keeps your logistics overhead low and consistent.
In addition, many 3PL companies optimize inventory levels and perform forecasting analysis. This can save you money on inventory holding costs or loss of unsold inventory.
Lower your transportation and operations costs, and you’ll quickly and effectively rev up your profit margins as well.
3. Increased Efficiencies and Resources
In the same 2017 study, 86% of 3PL users said third party logistics contributed to enhanced customer service and quality of deliverance. Why? Because 3PLs specialize in logistics services.
3PLs have the experience and intimate knowledge of the transportation industry. They have partnerships and resources within the supply chain world. They use the most efficient processes, technologies, and services to stay competitive. They have the resources to know what does and doesn’t work… because that is their business. They live and breathe operational processes.
In this way, partnering with a 3PL gives you access to a network of operational resources, services, and capabilities you wouldn’t have on your own.
4. Updated Technology
The term “third party logistics” was originally given to those transport companies that used online tracking and data. 3PLs were the original “tech transport.” Today, 3PLs maintain this reputation and are still at the forefront of technology. This enables highly efficient shipping practices and data collection over other transport companies.
As an eCommerce seller, you are usually focused on up-to-date sales and marketing processes. However, neglecting to stay up-to-date with operational trends could leave you with heavy bills, wasteful processes, and low margins. 3PLs are always focused on updating technology because they constantly need to better their services in order to stay competitive. Thus, partnering with a 3PL gives you access to the most cutting edge logistics technology—and you don’t have to put in any of the work.
5. Data Consolidation
A good 3PL company utilizes their software to consolidate all of the supply chain data, including analytics and reports. With one click, you can track shipments, spend, weight, and more. This helps you visualize how your company is doing in
various transportation areas, and also notice which areas can be consolidated or improved to further cut costs.A 3PL will pinpoint discrepancies in data and employ the appropriate techniques to remove financial or efficiency burdens. The reports are delivered right to you with an analysis of costs, spend, and future savings strategies.
6. Strategy Focus
Ultimately, 3PLs save you time, money, and manpower that can be utilized in other facets of your business. Focus on the sales, marketing, and customer service, while your 3PL handles the logistics.
The Cons of 3PL
The largest concern is that by handing over your logistics to a 3PL, you are giving up control of your transportation and delivery systems. You are entrusting your logistics processes to a third-party, so you are completely dependent upon their schedule and processes. This makes it especially challenging to control delivery timetables and to inspect for quality control or stock levels.
Plus, if something goes wrong in the supply chain due to the 3PL, it still makes your business look bad. In this way, you want to partner with a trustworthy 3PL with appropriate services and processes in place that enables you to maintain some control over logistics.
In addition, a 3PL can be a large upfront investment for new Amazon sellers. Although it pays for itself, in the long run, the initial growth and partnership can cut deeply in a cost benefit analysis.
You also may not want a 3PL that doesn’t integrate with Amazon processes. Amazon sellers have access to some of Amazon’s logistics services, such as Amazon FBA (Fulfillment By Amazon). Oftentimes, using FBA gives Amazon sellers an advantage to win the Buy Box, gain visibility, improve customer service, and get higher star ratings. This doesn’t mean you can’t use a 3PL service; it just means that you need to choose the right 3PL that will integrate appropriately with your Amazon logistics.
Choosing The Right 3PL Company
So how do you choose the best 3PL company to avoid the cons and enhance the pros?
Different 3PLs have different offerings and services. Ask the following questions to ensure you find the right fit:
- What services do you offer?
- How personalized and customizable are these services?
- What testimonials do you have? (What do those testimonials and references say about this 3PL’s customer service?)
- Do you have the capability for volume growth? Can you expand your services as we expand our business?
- Do you utilize an online data and software system? Is your tech system compatible with ours?
- Do you function with our eCommerce selling platform (i.e. Amazon)?
- How will you enhance and assure shipping efficiency?
- What is the cost?
Still not sure if you should outsource your logistics to a 3PL? Check out our article: Determining When To Outsource for more info.
The Bottom Line
Ultimately, 3PLs offer:
- Customized services
- Reduced logistics costs
- Regulated inventory
- Unique capabilities, resources, and partnerships
- Updated technologies
- Consistent supply chain management
- Improved customer service
Outsourcing your logistics gives you a new partner who can handle and manage your supply chain. This partnership ensures you always have access to updated technology, industry resources, personalized services, data reports, and “insider” supply chain info. Combined with reduced costs and a focus on sales strategy, you’ll love the ease and simplicity of a third party logistics provider.