Supply chain management, Logistics

Third Party Logistics (3PL) - Everything You Need to Know

BY Crystal Gilliam 11 Sep, "15

What’s 3PL? Nope - it’s not a new brand of office supplies! 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. 

Third-party logistics companies provide any number of services having to do with the logistics of the supply chain. This includes transportation, warehousing, picking and packing, inventory forecasting, order fulfillment, packaging and freight forwarding. Wondering if your business needs to use a 3PL provider? When in doubt, use a pro-con list - we got started on one for you.

Here’s the good

Using a 3PL provider offers lots of advantages. The biggest is that by handing over these logistics, you can focus on other aspects of your business such as sales, marketing and product development. Outsourcing 3PL leaves you with more time and resources. Here are a few other advantages:

1.Gain instant expertise and knowledge in the field.

Especially if you’re just starting out, who better to take care of your logistics than a company that specializes in them? Fulfillment, warehousing and shipping come with major challenges of their own, so handing it off to the experts can really make a difference in the way you function - and it leaves you to focus on increasing your overall value to your customers.

2.Get a handle on international logistics.

If you’re selling internationally, 3PLs can take care of documentation, customs, duties and other issues that come up at the borders that can delay your shipments and result in high costs if not done thoroughly. Plus, you save time trying to work out complicated rules pertaining to different countries.

3. Generate cost savings.

When it comes to warehousing, not having to maintain your own space and staff can be a big cost-saving measure. Also, companies that provide good inventory forecasting can help optimize your inventory levels and save money on inventory holding costs.

Here’s the not-so-good

However,  a 3PL isn’t for every business. Here are a few drawbacks for you to consider. Would these impact your business?

1. Lesser control over the delivery process.

With a third-party taking care of your shipping, there can be challenges when there are delays or problems in shipping a customer’s order. The customer will be looking at you for the resolution, not your 3PL.

2. Larger upfront investment.

On the flip side of the cost issue, while hiring a 3PL can pay for itself in the long run, the investment can still be a large cost in the beginning.  If you don’t need a big warehouse or don’t have many orders, the cost of a 3PL can be prohibitive.

3. More distance between you and your product.

The 3PL you choose may position you far away from your products, which would be an inconvenience if you run into quality control issues, or need to physically inspect your stock for any reason.

Having said all that, not all  3PL providers are equal!

There are a variety of different 3PL companies and they all offer different levels of support. Some take care of warehousing and fulfillment only, some add forecasting to their services, others focus mostly on shipping and delivery, and so on.

Some companies only take over the fulfillment and shipping of your orders and have many clients. Others offer integrated solutions and only have a few clients that they focus on exclusively to provide a much more customized, in-depth service.

TradeGecko integrates with a number of 3PL providers including ShipStation and ShipIT and provides a 3PL exporter for other providers.  On a bigger scale, UPS, FedEx, and DHL all offer 3PL service, and aside from these there are thousands of other companies to choose from.

Which 3PL company is right for you?

Because of the sheer number of options, choosing a final provider can be an overwhelming process. Cost and services offered aside, remember that this is a company that will be taking on a major part of your operations. You’re basically inviting them into your business - make sure they’re worthy of the invite.

Here are a few things for you to consider when making that decision:

1. Current and forecasted volumes

Choose a 3PL that can handle your current volume, but that also will be ready to handle your volume if you suddenly add a bunch of new stock, increase your stock volumes, or have a great spike in sales.  You want to choose a 3PL that can handle your business now and handle it when you’re at full speed! 

2. References and business performance.

Check out references from other customers that use the 3PL provider and get a report on the company’s performance over the last few years. Seek out references and information about on-time deliveries versus delays, and how they compensate businesses when there are problems. See what their customers are saying about them - customer case studies and quotes are a good indicator of how the 3PL provider has built and maintained the customer relationship.

3. Compatible technology

If you’re rockin’ a cloud-based inventory management system, you should probably choose a company that is similarly cutting-edge and ready to integrate with your system. Ensure that the 3PL provider’s technology works with how you work.

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 you and your third-party logisitics provider. 

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See Also:

Will Alibaba and Amazon further disrupt the distribution game?

SKUs and UPCs: do your products have a unique identity?

Are eCommerce businesses turning into logistic companies? - an interview with RedMart’s CEO on the operations backend

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