Guide to understanding third-party logistics (3PL)

You need to get your goods from A to B — without diluting your time or effort. And efficiency is paramount. Enter third-party logistics (3PL).

A pivotal shift in how businesses handle their supply chain and distribution operations, 3PLs lighten the responsibility of managing logistics and supply chain, allowing you to focshippus on other business areas. Let’s explore what 3PLs are, their benefits, and what services they offer.

Overview of 3PL: What, who, why?

What is 3PL?

Outsourcing your logistics functions, like warehousing, transportation, and fulfilment, to a specialised service provider is third-party logistics, or simply 3PL. They can handle tasks ranging from goods storage, packing, and shipping to managing inventory and reverse logistics.

Who uses 3PL?

Businesses of all sizes can benefit from 3PL services, especially those in e-commerce that deal with goods storage and order fulfilment. This partnership can be the keystone for companies looking to scale without the burden of expanding their logistics operations internally.

Why is 3PL so important?

Businesses (you) are constantly looking for ways to improve their efficiency and reduce costs. 3PL providers offer cost and time-effective solutions by leveraging their expertise, infrastructure, and technology. This aids you in scaling your logistics operations up or down quickly as required and focusing your resources on other competencies like product development or marketing.

Why should I outsource my logistics to 3PLs?

• Cost savings: 3PL providers leverage economies of scale to bring down costs and eliminate the need for your own warehouses and equipment. You can also save on upfront costs and reduce overheads associated with logistics operations.
• Expertise and technology: They bring in-depth industry knowledge about compliances and regulations as well as advanced technology and tools without significant investment, like transport management systems (TMS) and data analytics software.
• Flexibility and scalability: You may experience fluctuations in demand due to seasonal trends, market dynamics, and other factors. With 3PL, scale your operations up or down as your business needs change — without lengthy delays or excess inventory costs.
• Global network: With their extensive network of carriers, warehouses, and distribution centres, 3PLs can help you manage your shipping and expand internationally. You can also test new markets and distribution strategies in operations.
• Focus on core business: By outsourcing logistics, you can concentrate on what you do best and enhance customer satisfaction. 3PLs also offer tailored solutions to meet your business needs, enabling faster delivery times and quality assurance.

READ MORE: What are 1PL, 2PL, 3PL, and 4PL logistics in supply chain management?

Types of 3PL providers

With different companies specialising in different areas of logistics and supply chain management, 3PLs vary according to their specific functions.

• Warehouse-based 3PLs: They focus on the storage and management of goods, including scalable storage solutions, inventory management, and order fulfilment.
• Transportation-based 3PLs: They specialise in the movement of goods, including freight brokerage, carrier management, and freight payment solutions.
• Financial and information-based 3PLs: They offer services that go beyond the physical aspects of logistics. These include freight payment and audit services, cost accounting and control, and inventory management through advanced IT systems.

3PL is a widely adopted model, but here’s how it stacks up against other logistics models:

3PL vs. 4PL

3PL tackles the ‘how’ while 4PL focuses on the ‘how’ and ‘why ’of logistics.

READ MORE: The difference between 3PL vs 4PL

3PL vs. freight forwarding

3PLs act as an extension of the logistics arm of your business, while freight forwarders function only as transportation specialists.

What services do 3PLs offer to businesses?

The core functions of 3PL providers revolve around managing logistics operations from warehousing to the final delivery, including handling returns, offering value-added services, and providing data insights.

Receiving, warehousing, and storage

When goods arrive at a 3PL’s facility, the receiving process begins. This entails checking shipments for accuracy, documenting the inventory, and storing items in the designated location within the warehouse. This ensures goods can be easily retrieved, safely stored, and managed while optimising space and resources.

Inventory management

3PLs take the burden of overseeing your stock levels. They implement sophisticated software systems that offer real-time visibility into inventory levels, helping prevent stockouts or excess inventory. This operational efficiency supports better forecasting and replenishment planning.

Order fulfilment (picking, packing, and shipping)

Once a customer places an order, the 3PL springs into action, retrieving the ordered items from storage (picking), securely packing them for shipping, and arranging for their dispatch to the customer’s address. This streamlined process is central to maintaining customer satisfaction and ensuring prompt delivery of goods.

Transportation and returns management

Most 3PLs manage the transportation of your goods, selecting the most efficient transport mode based on factors like cost and speed. At the same time, handling returns or reverse logistics is an intricate part of the process, which requires a systematic approach to inspecting, restocking, or disposing of returned items. A competent 3PL provider manages both these operations efficiently, minimising disruptions and associated costs.

Value-added services (Labelling, assembly, and customisation)

Beyond basic logistics services, many 3PLs offer added-value services like kitting (combining individual items into ready-to-ship packages), product assembly, and customisation according to customer specifications. These services enable businesses to provide customers with a broader range of products and personalised options without overburdening their internal operations.

Data analytics and insights

By harnessing the power of data, 3PLs provide insights that help businesses optimise their supply chains. This includes analysis of shipping times, inventory turnover rates, and customer buying patterns. These data points can help make informed decisions and enhance efficiency.

At Maersk, we offer a range of logistics models and supply chain solutions to meet your needs and help your business scale. Explore our logistics solutions.