Third Party Logistics (3PL) Provider
A third-party logistics (3PL) provider is a service provider that specializes in managing various logistics tasks for companies that ship goods. 3PLs may provide these services in their own distribution facilities or may provide onsite staffing to manage the company’s order fulfillment operations. 3PLs services can include (but are not limited to):
- Importation/Customs Clearance
- Receiving & inspection
- Warehousing
- Inventory management
- Picking & packing
- Packaging (custom, kitting, etc.)
- Shipping & freight
- Returns
Whether you’re considering the benefit of using 3PLs services to support your in-house operations or using their facilities, there are many factors to consider, including physical warehouse space, staffing requirements, equipment (ranging from vehicles to racking to conveyors), etc.
Advantages of Engaging a 3PL
The most significant advantage a 3PL can offer its customers is pricing benefits achieved by taking advantage of the economies of scale it can offer due to the volume of business managed across all its customers. As a result, companies can gain access to discounted pricing on packaging products and freight costs from carriers, retain a stable level of staff, etc., while allowing its customers to “cost-share,” reducing the overall cost to each.
The focus of a 3PL is on building their business, keeping costs low, and focusing on their core competencies. 3PLs specialize in freight, warehousing, and distribution, allowing companies that do not have expertise in those fields or do not wish to take on these responsibilities in-house to outsource these functions so that they can focus their attention on what they do best.
Factors to Consider in Partnering with a 3PL
When considering whether to partner with a 3PL, it all comes down to costs. 3PLs fees typically fall into four main categories:
1. Storage of products at the 3PL facilities
2. Picking & packing of orders
3. Packaging options
4. Freight fees
Each month (or more/less frequently, depending on their billing cycle), a 3PL generates an invoice for its customers based on the services provided, typically in combination with the number of orders processed for its customers.
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To determine the cost-effectiveness of using a 3PL, compare these monthly costs to the costs of managing these tasks with your own facilities and personnel over the same period. This is the number you want to compare to invoices from a 3PL over the same period, also factoring in the future growth of your business.
Factors in Choosing a 3PL
Other factors should be considered when selecting a 3PL partner including:
- Location. Is the 3PL located near your manufacturing operations to limit post-production transportation to the 3PL’s warehouse? Are their facilities geographically optimized to reduce transportation costs from the 3PL facility to your customers?
- Value-added Services. Does the 3PL offer the value-added services that you need? For example, if your packaging requires kitting or other specific knowledge and handling skills, it must have experience providing these services.
- Warehouse Automation Capabilities. Does the 3PL have the capability to exchange information between its warehouse operational systems with your systems?
- Scalability. Are the 3PL facilities capable of scaling up to handle higher order volumes as your business grows? If you receive a huge influx of orders on Black Friday, can they meet your delivery requirements?
- Customer-facing Services. Do you want the 3PL to be a customer-facing representative as they handle your fulfillment tasks? 3PLs can provide a significant ROI, and many are outstanding at what they do. However, if you are in a high-touch industry that requires your company to provide special handling, shipping, or last-minute customer-specific changes, make sure the 3PL can effectively handle these high-touch, last-minute requirements the way your staff would.
In summary, 3PLs can allow customers to outsource tasks such as warehousing and distribution so your company can focus on other tasks and leave those responsibilities to subject matter experts. When deciding whether to go with a 3PL or not, it comes down to ROI and whether they are a good fit for your company and business model.
Learn More
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