A 2017 survey by Armstrong and Associated showed that 90% of domestic Fortune 500 companies depend on 3PL (3rd party logistics) providers for their logistics.
A 3PL logistical company provides outsourced services in supply chain management and logistics.
These services include warehousing, distribution, and transportation. So what is 3PL and how can it benefit your business?
In a business setting, a 3PL service is used to broadly refer to any contractual service pertaining to storage and shipment of goods.
A 3PL contract service can handle warehousing and shipping, or it can extend to broader functions of chain supply management.
What Is 3PL and What Are Its Elements?
3PL revolves around transportation and warehousing.
Logistics refer to the process of planning efficient transportation and storage (warehousing) of goods from the manufacturing point to the consumption point.
Ultimately, logistical planning is geared at meeting customer needs in a cost-effective and timely manner. This is crucial for any business.
Transportation in logistics is multipronged and can include road, air, rail, and ocean.
Transport management circles around optimally planning and executing the use of these transport channels to move goods between storage warehouses, retail points, and customers.
The other element of logistics is warehousing and warehouse management.
This entails all roles relating to warehouse infrastructure and technology, inventory management and final order fulfillment.
3PL vs. 4PL
The term 4PL crops up often in discussions around 3PL.
When a 3PL provider outsources any of their contracted services, they automatically become a 4PL provider.
How Can 3RD Party Logistics Benefit Your Business?
For an outsourced function to be justifiable, it has to bring some benefits to your business.
When assessing a 3PL company to work with, evaluate its ability to achieve the following for your business:
1. Save Money and Time
The efficiency of a business’s time and money is a key factor in outsourcing logistical functions.
Here is how a 3PL can help you achieve this:
- It saves time and money in building and equipping warehousing facilities
- It eliminates the need to hire additional labor (warehouse and transportation staff)
- It eliminates the need for maintenance of equipment and constant upgrading of both equipment and technology
- Helps you save time you would take in order tracking and driver communication and scheduling
- You are able to free up time you would otherwise use in identifying and booking various service providers
With a 3PL provider, a company can save money and focus its efforts on its core business and growth initiatives.
In addition to the costs listed above, outsourcing eliminates costs relating to training, billing and auditing the logistical department.
2. Support Market Expansion
When thinking about expansion into new locations and markets, working with a 3PL can shorten the process, cut costs and make the process easier.
The key considerations again include, where to store goods in the new location, how to track inventory, staffing needs and so on.
A 3PL company allows you to position your supply chain in new markets easily.
Because these companies have warehouses in different locations, they are able to ship and hold your goods for distribution in different parts of the world with relative ease.
3. You Benefit from Their Resources
Being in a particular industry gives you connections and resources only available to insiders.
This goes for any industry, and the logistics industry is not exempt.
These companies harness their power to bargain, find the best providers to support their functions and so on.
Ultimately, they are able to pass down these benefits to you. The main benefit is that you can get volume discounts which lower your overhead costs and increase your revenues.
You also hand down vetting of insurance companies, carriers for equipment and personnel to them.
4. Scaling Ability
Dealing with seasonal or fluctuating inventory can be a costly affair.
For one, keeping internal warehousing functions and personnel running, without utilizing them optimally is a negative business cost.
The reverse is also true. Handling high seasons or quick needs for expansion can be a daunting task when running things internally.
Here is another area a 3PL company can save you money. 3PL services can scale labor, storage space, and transportation based on your needs.
Similarly, this flexibility allows you to only pay for what you need at the time, without dealing with the constant scaling up and down of infrastructure.
5. Absorb Technological Costs
In all industries today, new technology is coming in fast and furious. However, adoption of these technologies does not come cheap.
Partnering with a 3PL company allows you to benefit from the best technology, without investing in it.
Some of the technologies 3PL companies use in logistics include:
- Transportation Management Systems (TMS)
- Route Optimization Tools
- Real-Time Order Tracking
- Freight auditing and Payment solutions
- Data Analysis Tools
Because 3PL providers share their technology with many customers, logistic companies can spread the cost.
Consequently, the percentage they hand down to each customer is relatively lower than it is for an individual customer to buy and use in-house.
As a business, you get the technology, at a fraction of the cost.
6. Industry Best Practice
As a niche service provider, a 3PL company has a wealth of industry operational experience and expertise.
They know the ins and outs of the freight market, regulations in the different jurisdictions and your industry.
Again, from their lessons in the industry, they can advise on scheduling, equipment, order configuration and pickup and delivery windows.
All this knowledge not only helps you streamline operations, but it also allows you to serve your customers better and avoid service issues.
When you are able to do this, you provide a great customer experience which is good for retention as well as onboarding new customers.
The Bottom Line
Like other outsourced functions, outsourcing logistics can significantly improve and streamline business functions.
By taking some of these functions off your hands, you can focus on your core business and competencies which will result in better productivity.
For more ideas on how to increase productivity, check out this blog.