Before the early 1970s, transportation contracts featured two parties, the shipper(retailers, manufacturers, or wholesalers) and the shipping carrier. As markets expanded and more sellers joined intermediaries, known as third-party logistics providers, rose to prominence.
Logistics includes all parts of the supply chain that plan, implement, and control the flow of goods and services to meet customer requirements.
3PL stands for third-party logistics, 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.
The market for 3PL has exploded. An estimated 86% of Fortune 500 companies and 96% of the Fortune 100 use these services.
Types Of 3PL services providers
Asset-based firms use their own trucks, warehouse and personnel to operate their business. (UPS, FedEx). Functions are typically arranging shipments, customs clearance, shipment visibility and carrier management/rate management.
Benefits: Shorter cycle time, lower freight cost and visibility of pipeline inventory.
Non-Asset-based firms do not own their own trucks or warehouse space. (PLS Logistics). They provide outsourced logistics solutions and freight brokerage services
Benefits : Huge network of freight carriers that they partner with.
Warehouse/Distribution-based firms have warehouse and distribution experience (Think Caterpillar Logistics). Functions include labor and supervision, receiving, storage and shipping.
Benefits: Lower capital investment and lower fixed/variable cost ratio.
Financial-based firms provide freight payment and auditing, cost accounting and control, tools for monitoring, booking, tracking and tracing and management inventory (GE Information Services). Functions include inventory finance, distribution finance, payment solutions and leasing.
Benefits: Reduced cost of capital, improved cash flow and reduced capital investment.
Also Read : BlackBuck’s successful uberization of freight and trucking business in India
Major functions
Transportation
Engage carriers
Consolidate less than container load (LCL) or less than truckload (LTL) freight
Keep track of freight payment and insurance documents, and work with private fleets.
Lower your transportation costs while driving efficiencies and developing solutions for complex supply chain challenges.
Often provide real time visibility to your inventory as it is in motion.
Global shipping
Shipping globally can be complicated and stressful on businesses. A 3PL can:
Take control of your global shipping logistics like customs, freight forwarding, and consolidation to relieve your allocated time and money for those processes.
As a representative of a client’s business, 3PLs also work to require all trade compliance requirements are met, costs are managed, and execution goes as planned.
Information technology
Manage ecommerce, customer relationships, transportation, and warehouse operations.
Tools like electronic data interchange (EDI), application programming interface (API), and cloud-based systems are the most popular tools trusted by 3PLs.
The goal is to provide increased visibility to supply chain processes as well as shipments in transit.
Reasons to use a 3PL
Save time and money
Organisation can save loads of money they would otherwise have to spend on building warehouses, additional labor, transportation, installing technologies, companies. This free up time to focus on core business initiatives.
3PL can eliminate the hassle of paperwork, billing, audits, training & staffing that are typically involved with supply chains.
Market expansion
You can position your supply chain in markets where you don’t have an established presence. Companies can flourish in new areas as they have access to distribution centers and warehouses. This creates opportunities to strategically position themselves to better serve their customers.
Resource network
3PL providers have a vast resource network that provides advantages over in-house supply chains. With access to such a network, supply chains can be expanded quickly. This network can open up opportunities for companies to receive volume discounts and lower overhead costs.
Scalability and flexibility
3PL providers can scale space, labor, and transportation based on the fluctuation of your inventory. Whether its seasonal inventory or new product releases, 3PLs can provide adequate space and resources between your busy and slow times, giving you maximum flexibility any time of the year.
Many in-house supply chains can become overwhelmed by the amount of work they have to accomplish with limited resources. By partnering with a 3PL, manufacturers can ensure the delight of their customers by offering faster delivery times and accurate order fulfillment.
9 Questions to ask a 3PL provider
Do you have references?
The logistics of your business needs to be handled by a reputable company with a proven track record in outsourced logistics. Ask for references from existing clients, preferably from within your own industry.
Is your business ready to grow with 3PL?
Can you scale with my business?
If your business continues to grow it’s important that your 3PL can grow with you. If they can’t meet your long-term goals then they may prevent your growth before you ever really get started.
Ensure your 3PL partner has the capacity to scale with your business.
Can you help me control my costs?
Managing a growing eCommerce business means that sales and revenue will vary. 3PL providers should offer cost control solutions that help you stay agile and flexible. This type of solution means you can stay responsive to your customers’ demands without being tied down to fixed costs.
What automation services do you offer?
You need constant visibility into the logistics of your whole supply chain. The 3PL provider and your business should integrate seamlessly. Reputable companies will be able to provide you with stage-by-stage notifications for warehouse transactions that you can use to track your growth.
Are your premises secure?
3PL companies store all of your stock and merchandise so it’s reasonable for you to expect that it be kept safe. Check that the company has adequate security and surveillance.
Do you offer real time inventory data?
Choosing 3PL should be an investment in the efficiency in your business. That means being able to access real-time metrics about your stock. They should be able to provide you with data about your inventory so you’re always able to meet demand and replenish supplies.
Can you integrate with my shopping cart?
The goal of outsourcing your logistics is to make your supply chain more efficient and give your customers a great buying experience. The 3PL must have software that can integrate with your shopping cart.
Am I locked in?
3PL companies shouldn’t be locking you into contracts and you should enjoy the freedom to walk away if you’re dissatisfied with the service. Instead, ask for Service Level Agreements that set out a minimum level and standard of service that is mutually agreed.
What freight carriers do you use?
3PL companies often rely on a range of freight carriers to get your products to your customers’ door. Ask for a list of their partners so you are clear on who’ll be transporting your stock. It’s likely that if they only offer one carrier option you’ll be paying a higher shipping rate on average than you probably should be.
Ready for a 3PL?
Hiring a 3PL company to take care of your logistics can really improve your supply chain and increase sales. Take the time to weigh the pros and cons, and to ensure a good fit between your inventory management system and your third-party logisitics provider.
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