Third Party Logistics (3PL)

  Warehousing, Transportation, Order fulfillment and Inventory Management and Optimization.  We’ve all heard these terms before.  But, did you know how tightly linked they are to a third-party logistics provider?  Many companies in today's day and age rely on logistics providers to help scale and enhance their business.  Companies like Amazon, Walmart and Grainger all use 3PL’s.  And, with the growth of e-commerce and the growing complexity of today's supply chains 3PL’s are becoming a must have for almost every organization.  So, what exactly is a 3PL?

What is Third Party Logistics?
  3PL is an abbreviation for third party logistics.  Formally defined, a 3PL typically includes a buyer and supplier relationship that outsources the supply chain operations and/or logistics and delivery services. 3PL’s generally offer many different specialized Logistics solutions.  Some examples include: 

• Receiving.
• Storing.
• Packing.
• Shipping Services.

Many 3PL companies provide additional services, referred to as, value added services. These can include services such as:

• Inventory Management.
• Order Fulfillment.
• Kitting and Assembly.
• Postponement Packaging.
• Break Bulking and many others.

​With all these different service options it is important to note that most 3PLs will offer a variety of services and some 3PLs specialize in one or two areas of logistics.  It is important to become familiar with your 3PL and develop somewhat of a relationship. 
Example:
Let’s simplify this concept. 

1. If you’re a manufacturer and you ship items to a customer using your own vehicles, you’re a 1PL. 
2. If you’re a manufacturer and you ship materials to your customer using a shipping company like fedex, UPS or USPS, you’re a 2 pl. 
3. Now, Let’s say you are a manufacturer and you are ordering raw materials from one of your suppliers.  As you can see we have a buyer and supplier relationship.  Now, let’s say the supplier contracts with a shipping company outside of the buyer and supplier.  The shipping company will pull the materials from a warehouse and transport the goods to the buyer.  This company is a 3PL company.

Benefits and Advantages of a 3PL:
  Seems pretty simple, right?  Maybe.  But why would a company want to use a third party logistics company?  While there are many different reasons that organizations use third party logistics some of the main reasons include:

• Cost Savings - The primary reason a seller outsources their fulfillment needs to 3PLs is cost savings.  Because 3PL’s are an outsourced organization they have customers of their own.  This means they have many sellers they are connected to which can allow them to spread costs over there sellers.  As a result, 3PLs can in many cases offer better rates than if the seller managed things on their own.
• Core Competencies - Another reason that sellers outsource to 3PL’s is so that they can focus their time, money, materials and resources  on their core competencies.  In general, 3PL’s in today's supply chain are quite transparent.  Links allow suppliers to track deliveries and portals or websites can help manage inventory and storage locations if need be.  This allows companies like manufacturers to still see information when needed and focus on manufacturing instead of logistics. 
• Experience and Expertise - Because 3PL’s specialize in logistics they often have years of experience, specialized equipment, technology and expertise.  They are capable of coordination and collaboration with various service providers and government agencies.  While your in-house team may be able to handle these functions, they likely would need to invest in expensive materials, training and systems.  As a seller’s business grows, the complexity of their logistics and fulfillment grows as well.  As such, it is generally a better option to establish a trusted 3PL provider who can manage the complex nature of logistics.
• Offloading Investments and Overhead - Logistics by nature requires resources to maintain.  Whether it is trucks, people, software, information or supplies the cost to maintain logistics can be heavy.  When a supplier uses a 3PL they can re-allocate these resources towards other ventures and consolidate costs.

  With all of these advantages and benefits of third party logistics, you should also be aware of some of the disadvantages.  While there are not many, some notable disadvantages are:  Less control over inventory,  Less oversight and insight for customer experience, Loss of a potential skills and expertise and 3PL’s oftentimes only apply to small- or medium-sized businesses.  You now know what a 3PL is. 
Challenge: 

• Now, before we go let’s build a community, get you some business or help someone out.  To implement 3PL you need to have access to a 3PL or third party logistics company.  These are companies that manage all or part of another company’s product delivery options.  So,  if you’re a 3PL company or you know of a 3PL company, would you please comment below and tell us about your 3PL company.  Some helpful information might include: the company name, website and contact information so that people who see this can reach out.