3PL

White 3PL container truck on flyover

Third-party logistics (3PL) is a business model whereby companies outsource a part or all of their logistical needs to an external provider. This means that the 3PL company will be in charge of storing inventories, packing goods for shipping or delivering them to customers, or all of the above.

Companies may outsource their logistics for various reasons such as expanding their customer base, venturing into new markets, or focusing on their core business. 

Overall, companies that engage 3PL providers maintain management oversight while leaving the day-to-day operations to the third party.

Summary

  • 3PL is a business model by which companies outsource part of, if not all of their logistics functions to another company.
  • 3PL service providers can help a company reduce its costs, break into new markets and increase the speed of delivery. They also allow the company to focus on its core business and mitigate its risks.
  • However, the business may have less control over its logistical functions and face difficulties managing product and service quality.
  • Advantages of 3PL

    Businesses that engage 3PL companies can enjoy certain benefits such as reduced costs, access to industry expertise, increased speed of delivery and reduced risk.

    • Cut costs and increase efficiency 

    3PL service providers are industry experts who are knowledgeable and experienced in various key functions of logistics.

    In addition to creating a systematic workflow for companies, they also provide warehousing solutions and up-to-date logistical software and technology. This allows businesses to reduce the time and resources needed to build their own fulfillment networks.

    Furthermore, they work with various freight companies on behalf of their customers, enabling them to enjoy cost savings by shipping in bulk.

    • Leverage industry expertise to break into international markets 

    3PL providers are well-versed in many areas of logistics including international compliance, transport documentation, importing and exporting.

    Companies looking to expand their business internationally can, therefore, leverage the knowledge and expertise of these providers to improve their processes and ensure a smooth expansion.

    • Focus on core aspects of the business 

    By allowing experts to handle the day-to-day operations, companies will not have to worry about navigating the complexities of logistics. Instead, they can focus on their core business.

    • Mitigate risks 

    These service providers are likely to have various storage facilities in different countries and regions. In case of unforeseen geopolitical events or natural disasters, they are equipped with alternative solutions to allow goods to be delivered to consumers. 

    • Increase speed of deliveries

    Ensuring fast deliveries can often increase customer satisfaction. As 3PL companies have extensive distribution networks, they are able to deliver goods to customers promptly and efficiently.

    Disadvantages of 3PL

    Engaging a 3PL company involves certain risks and disadvantages such as loss of control and increased distance between businesses and their products.

    • Less control over logistical operations 

    By entrusting their day-to-day operations to another company, businesses have less control over their goods and product delivery. This can have a direct impact on customer satisfaction if any issues arise.

    • Increased distance between businesses and their products 

    As products are handled by the 3PL service provider and may be spread out across different locations, businesses may not be able to physically inspect their stock should the need arise. This can lead to a lack of quality control and subsequently affect customer satisfaction.

    What are some key considerations when choosing a 3PL company?

    These are some of the key factors to consider when choosing a 3PL service provider:
  • Services offered: Define the key functions of logistics that your company needs and ensure that the 3PL provider offers or specializes in them.
  • Reach of the service provider: Consider where you plan to expand your business and if the 3PL company has the network and resources to reach these regions.
  • Technological infrastructure: Ensure that the company has a reliable infrastructure that can support your company as your business grows.
  • Values and ethos: Establish that their values and ethics align with your company.
  • Reviews: Evaluate the reviews of their past and current clients to understand their standard of service.
  • 3PL vs 4PL

    Fourth-party logistics (4PL) is a business model in which companies outsource the entire supply chain to another company. 4PL service providers differ from their 3PL counterparts mainly with regard to their area of responsibility and assets owned.

    • Area of responsibility

    4PL providers oversee, manage and optimize the entire supply chain on top of managing day-to-day logistics operations. This includes taking charge of functions such as procurement, financial management and business planning and analysis.

    In comparison, a 3PL provider oversees the operational aspects of the various logistics functions while the business retains management oversight.

    • Assets owned

    Most 3PL service providers own assets such as warehousing facilities and transportation vehicles (e.g. vessels for sea and air freight). On the other hand, 4PL providers do not own these assets and tend to outsource certain logistical functions to other 3PL companies.

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