What is 3PL, and why do companies use 3PL?
Have you ever been wandering through a grocery store, stopped to stare at a store shelf and wondered how those particular food products ended up there? The answer: 3PL, also known as third-party logistics. It takes a lot of maneuvering and strategy for suppliers to transport every type of product to all corners of the world, so they depend on logistics, specifically third-party logistics. Let’s break down the specifics of what all is involved in third-party logistics.
What is 3PL?
3PL firms, or third-party logistics providers, take over distribution and logistics work from one company and then create better, faster distribution channels for goods.
They are, as the name suggests, third-party businesses that specialize in integrated operations of warehousing and transportation services that can be scaled and customized to customers’ needs, based on market conditions, to meet the demands and delivery service requirements for their product.
If a can of tuna is on the grocery store’s shelf, it likely came from a manufacturer that used a provider firm to distribute across regions and different grocery stores.
Third-party logistics provide many functions for firms, including order distribution, warehousing and resource management, and inventory.
These 3PL firms handle shipping, inventory, packing, and returns in the eCommerce market. This process is even visible in online order tracking features where you might see a distributor pick up your item.
This distributor is often a logistics firm responsible for promptly getting your product to your doorstep. The firm has to do this because not all suppliers have a presence in your local market.
Experts say that most companies outsource their logistic functions because the 3PL firms create more efficient distribution networks. This shift is because 3PL firms have the expertise and logistic network access needed to handle the scales of supply chains and logistics required.
3PL firms can negotiate better rates with carriers and suppliers, encouraging small, mid-sized, and even large-scale firms to utilize third-party logistics firm distribution and logistics services to get volume discounts.
The firms have market density, and research shows that 3PL firms can help the firm overcome market uncertainties.
What do 3PL companies do?
A third-party logistics company outsources shipping, storing, and distributing through a vast network of shippers and owner-operators. A third-party logistics company has access to different resources most companies cannot access, and their goal is to streamline shipping processes to minimize costs. Companies that provide 3PL services offer many services like order fulfillment companies.
These services include:
- FTL and LTL freight shipping
- Picking and packing
- Inventory management
- Shipping and receiving
- Kitting and customization
- Reverse logistics
Who uses 3PL?
Now that we know the answer to “What is 3PL,” the next question would be, who should take advantage? The short answer is everyone. Whether you’re a startup or a fast-growing company, partnering with a 3PL has proven to help fulfill orders faster, save on logistics costs, and ultimately scale at an incredible rate.
Small e-commerce shops on Etsy use 3PL distributors and carriers to get their products from their production locations to customers.
Getting a silver charm bracelet from Dallas, TX, to New York, NY, will be expensive if a small business creates a supply network.
Using 3PL networks, they can get the products packaged, distributed, and delivered quickly and cheaply. The same is true for medium-sized firms like a chain of beauty stores that need 3PL firms to distribute and preserve their shampoo products.
According to a Reuters report, even retail giants like Walmart are taking advantage of 3PL distributors to manage some of their 23 distribution centers and the 6.3 billion annual packages processed there.
Firms like Walmart use third-party firms because it is easier to manage the volume of the products for their 260 million customers, particularly when the customer trends have begun to shift towards e-commerce sales instead of in-house buying.
Top industries that can benefit from 3PLs:
- Electronics Manufacturers
- Cosmetics Makers
- Pharmaceutical Companies
- Trade Show Transportation
- Large and Small Retailers
- Industrial Machinery
- Restaurant Equipment and Supplies
- Aerospace Industry
Why should I use a 3PL for my business?
Your 3PL will manage shipping problems that shouldn’t cross your mind.
As if producing quality products, worrying about employee satisfaction, client happiness, and budget management were not enough, imagine throwing inventory storage, shipping (along with making sure orders are on time, undamaged, etc.), and distribution on top of this nightmare.
Your 3PL company establishes supply and distribution chains from multiple sources. For most clients, outsourcing this work is more efficient than spending hours of research and thousands of dollars in staffing to end up with supply lines that siphon your revenue.
No matter what type of product or industry, by using a 3PL, companies benefit from saving time and money with a more streamlined order fulfillment process.
What are the advantages of 3PL?
Companies use 3PL techniques for several reasons:
3PL reduces costs
If the company chooses 3PL methods, they can save a lot of money on transportation, warehouse infrastructure, labor costs, and technical expertise and resources. A 3PL company can handle these functions, so it does not have to invest itself. The provider can negotiate lower logistics and supply volumes rates and open new markets and industrial networks. A company on its own cannot extend these factors as effectively.
Unlike hiring an internal team to manage inventory and shipping, 3PLs store your inventory for you and their team of fulfillment experts are trained to keep overall logistics costs down. You don’t have to pay for equipment, certifications, rent, packaging, and other materials you would need to on your own.
3PL allows growth
In any company, 3PL allows for business and market expansion. The 3PL firms can handle market logistics and inventory for the growth of a new company.
If a preserved fruit company wants to expand its business and enter new markets, the 3PL firm can handle its entry. They will help manage supply chains by organizing warehousing tactics and labor expansion.
3PL allows scaling
Companies often do not have the luxury to increase or decrease their production scales quickly. However, 3PL companies can allow the company to scale its supply up and down based on the business requirements and market forces. The 3PL company will keep an eye out for demand increases and surges to optimally utilize investments and firm resources and increase production when required. Because the 3PL firm works with core functions, strategic logistic processes are optimal.
3PL Small Business Benefits:
Successful companies of all sizes understand the value of partnering with an experienced third-party logistics provider. Working with a 3PL can provide your business with the benefits of modern warehousing and distribution facilities without adding unnecessary costs. 3PLs have the infrastructure and expertise to lower the overall costs of your supply chain operations.
Today’s 3PLs provide many services like quality checks, packaging, labeling, bulk breaking, and last-mile distribution. Most small and medium businesses face operational challenges when managing multiple departments in one professional space; these companies may not have the required infrastructure to address a multi-functional facility’s complexities.
3PLs offer flexible storage capacity, with multiple customers to even out seasonal demand variations within the same facility. Working with a 3PL can pay for what you need and protect yourself from changing warehousing requirements and costs.
Regularly reviewing your operational processes ensures your business constantly improves. Analytics offers insight into your efficiencies and overall warehouse management, revealing the number of units you move and highlighting areas that need attention. Embed analytics in your warehouse IT infrastructure capture accurate data.
A quality 3PL provider has robust analytics tools already in place with the experience of providing their customers accurate reports of their products and detailed information on each SKU and its performance.
A third-party logistics provider has the equipment, space, labor force, and industry expertise to provide value-added services – and with the skill to ensure a smooth flow of operations. Bundling all the services offers their customers savings in cost and time and improves the overall warehousing experience.
A quality 3PL provider has the experience and long-standing relationships to fit all these pieces efficiently. By delegating the logistics puzzle, you are free from managing multiple partners; plus, your 3PL provides a single-point solution for all logistics needs. With your 3PL handling the many supply chain third parties they work with, they will be able to see the overall picture of your entire supply chain and provide a strategy to help your business achieve long-term goals.
In a way, 3PL firms like R2 Logistics keep the world running. They get products to the store and your doorstep. Although the 3PL industry faces significant climate and economic challenges, researchers predict they will continue their pivotal role in the global economy.