In today’s fast-paced world, a majority of large businesses rely on third-party logistics (3PL) providers to enhance their supply chains. The rise of ecommerce has also led numerous small businesses to join the 3PL bandwagon. But what is a 3PL? In this article, I’ll help unravel the mystery behind 3PLs. This includes an examination of what a 3PL is (and is not), why companies use them, and the array of services they offer. Moreover, discover tips that will help you pinpoint the perfect 3PL partner, ensuring maximum value for your business needs!

“Logistics must be simple–everyone thinks they’re an expert.”

Anonymous

What Is A 3PL And What It Is Not?

A 3PL stands for third-party logistics provider—an organization that offers outsourced logistics and fulfillment services to businesses. Basically, it is a business operation that is set up to manage the movement and storage of inventory throughout the supply chain. Moreover, 3PLs go beyond traditional carriers—like freight and express delivery providers. Namely, 3PLs provide a suite of services, such as warehousing, inventory tracking and management, and more. To detail, see the following definitions and discussion on what is a 3PL and what is not. 

1. 3rd Party Logistics (3PL) Definition.

To establish a baseline of what a 3PL is and what it is not, below is the definition of 3rd Party Logistics Providers from The Council of Supply Chain Management Professionals (CSCMP).

“A firm which provides multiple logistics services for use by customers. Preferably, these services are integrated, or “bundled” together by the provider. These firms facilitate the movement of parts and materials from suppliers to manufacturers, and finished products from manufacturers to distributors and retailers. Among the services which they provide are transportation, warehousing, cross-docking, inventory management, packaging, and freight forwarding.

CSCMP Glossary

So the key points about this definition is that a 3PL company provides outsourced logistics services. Specifically, 3PL logistics services “… facilitates the movement of parts and materials from suppliers to manufacturers, and finished products from manufacturers to distributors and retailers.” So these 3PL services include both inbound logistics (to the manufacturer) and outbound logistics (to the end-customer or consumer). Further, for ecommerce or outbound supply chains, the end customer can be either a business or a consumer.

2. Is Freight Brokerage A 3PL?

Yes, a freight broker does provide limited 3PL services. Specifically, a freight broker is a business that works with a carrier to arrange the shipment of goods from one party to another. So all freight brokers are 3PLs though extremely limited in the scope. On the other hand, not all 3PLs are necessarily freight brokers as some 3PLs do not offer freight brokerage services.

3. Is Order Fulfillment Operation A 3PL? 

Yes, many 3PLs provide order fulfillment services. Specifically, these services can include receiving and storing the customer’s goods, then collecting, packing, and delivering the orders when requested.

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4. Is A Transportation Carrier A 3PL?

No. A transportation carrier’s core service, moving goods from point A to point B, is not typically thought of as a 3PL service. On the other hand, some carriers such as UPS and FedEx do provide logistics services as a separate service such as warehousing to name a few. Also, most 3PL providers do provide transportation services that includes the “facilitating” or managing of transportation which can include dispatching either dedicated transportation or an external transportation carrier.

5. Drop Shipping Vs. 3rd Party Logistics.

A drop shipper is not exactly a third-party logistics (3PL) service. A key difference is that when a retailer employs drop shipping, it circumvents its established supply chain, relying on the drop shipper to handle all aspects of logistics. This includes delivery directly to the final customer. Conversely, a 3PL provider normally augments an existing supply chain rather than replacing it entirely. 

“Logisticians deal with unknowns. They attempt to eliminate unknowns, one by one, until they are confident that they have done away with the possibility of paralyzing surprises.”

Lt. General William “Gus” Pagonis, Master Logistician

Why Would You Need To Use A 3PL?

Businesses may find themselves needing to outsource their logistics for many reasons. This could be because their in-house logistics team is overwhelmed with the number and complexity of shipments. Or the company is in need of a specialized service better done by a 3PL. As a result, companies outsource part of their logistics operations to a 3PL in order to free up their own resources. Hence, they can focus on their core business, and ensure that their shipments are handled in a timely and efficient manner. 

So there are good reasons to use a 3PL company. In fact, 90% of Fortune 500 companies use third-party logistics to augment their supply chain. Also even if you are a small company shipping 20 orders a day, a 3PL may be able to help you. To list, here are the typical circumstances that would prompt a company to consider using a 3rd party logistics provider.

Reasons To Partner With A 3PL Provider

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• Order Fulfillment. Struggling to fulfill orders.
• Warehousing. Running out of warehouse space.
• Supply Chain Service Issues. Limited resources to handle logistics and transportation.
• International Customers. Struggling to deliver to international customers.
• Demand Surges. Not able to effectively handle surges In demand during peak seasons.
• Returns. Taking up too much labor and Is not cost effective to handle returns..
• IT Systems / Staff. Do not have the logistics systems to be competitive.
• Operational Improvements. Logistics operations are not competitive, but do not have the expertise or investment capital to be innovative.
• Expertise Needed. Do not have the expertise to make good choices on logistics decisions.
• Custom Services. Not willing to invest or not able to maintain proficient staff for customized logistics services such as kitting.
• New Markets. Need to test and launch in new domestic or international market.
• Capital Investment. Free up capital for other than logistics operations.
• Risk Management. Supply chain disruptions hurting business and increasing risks

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For more on why you would need a 3PL, see Alibaba’s What is a third-party logistics (3PL) partner, and how to select one? and Redwood Logistics’ Top 10 Benefits Of Working With a 3PL.

“My logisticians are a humorless lot … they know if my campaign fails, they are the first ones I will slay.”

Alexander the Great

What Is A 3PL? – Types, Capabilities And Services.

A 3PL typically offers a broad range of capabilities and services, including warehousing and distribution, inventory management and tracking, freight management, reverse logistics, and ecommerce fulfillment. Also, they are often able to provide customized services and tailored solutions to meet the needs of their customers. Further, some 3PLs are small focused on a niche 3PL service or industry. Lastly, other 3PLs are large and global in nature offering a full range of 3PL services. To list, below are the types of capabilities and services that a 3PL provides.

Types of 3rd Party Logistics Provider Capabilities

1. B2B and DTC Fulfillment And Distribution. Providing order fulfillment services for both business-to-business and direct-to-consumer orders.
2. Warehousing. Receiving, picking, packing, and storing inventory for efficient order fulfillment.
3. Inventory Management. Keeping track of inventory levels and ensuring that products are always in stock.
4. FTL and LTL Freight Shipping: Offering both full truckload (FTL) and less-than-truckload (LTL) shipping options for efficient transportation of goods.
5. Freight Brokerage. Assisting with the coordination of shipments between shippers and carriers.
6. Parcel And Same-Day Shipping. Providing fast and reliable shipping options for small packages and urgent orders.
7. International Fulfillment. Offering air and ocean freight forwarding services for international shipments.
8. Kitting And Customized Value-Added Services. Providing additional services such as product assembly, packaging customization, and labeling.
9. Reverse Logistics (Returns). Managing the return process for products that need to be sent back to the warehouse or manufacturer.
10. eCommerce Platform Integration. Integrating with various eCommerce platforms to streamline the order fulfillment process.
11. Customer Service. Providing support to customers throughout the entire order fulfillment process.
12. Supply Chain Consulting. Offering expertise in supply chain optimization, RFP management, carrier scorecarding, and other areas related to supply chain management.
13. Supply Chain Systems. Major logistics systems include transportation management system  (TMS),  warehouse management system (WMS), order fulfillment, and eCommerce integration to name a few.

To explore in more detail the services and capabilities of 3PLs, see RedStagFullfillment’s What Is a 3PL? Third-Party Logistics Definition, Process, & Resources, ShipBob’s Third-Party Logistics (3PL) Guide, Coyote Logistics’ What Is a 3PL? The Beginner’s Guide to Third-Party Logistics, GlobalTranz’s 3PL Services & Types of 3PLs Explained, and Shopify’s What is 3PL: How to Select a Third-Party Logistics Partner.

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3PL Technology and Automation.

Many of the reasons that companies use 3PLs are for the 3PL’s advanced supply chain IT systems. Most companies either do not have the IT expertise or are not able to continuously invest in the latest supply chain technology and IT staff. 3PLs not only have the best logistics technology, but also can support a wide range of supply chain functions. So, below is a list with links detailing key logistics technologies by the supply chain function area.

Logistics Technologies Capabilities By Supply Chain Function

• Supplier Sourcing: AI And Data Analytics Game-Changers.
• Supply Chain Planning: Logistics Technology Trends.
• Ecommerce / Order Fulfillment: 9 New Trends In eCommerce Automation And Emerging Tech.
• Warehousing: Warehouse Robots – 7 Types Of Truly Revolutionary Smart Robotics.
• Transportation Technology: Trucking Tech – 9 Awesome Innovations That Are Going Mainstream.
• Visibility And Tracking: 9 Tracking Technology Trends.
• Freight Bill Auditing And Payment: Ideas To Leverage Technology And Streamline Processing.

For the full article on logistics technology trends, see Logistics Technology Trends: The Best Advice To Empower Your Supply Chain Right.

Click here to explore the vast array of logistic technology enablers and trends that are revolutionizing our supply chains as we speak. Moreover, we’ll look into the intricate details of these groundbreaking innovations’ impact on a wide range of supply chain functions. Namely, each of the key technology trends that are transforming supply sourcing, planning, eCommerce fulfillment, warehousing, trucking, supply chain visibility, and freight bill auditing & payment. Enjoy, and I hope this will give you ideas to improve your supply chain.

How To Match Up A 3PL Capabilities To Your Business Needs.

When selecting a 3PL partner, it is important to determine the capabilities you need. Indeed, a good 3PL partner will be able to provide the specific services that are of the most value to you while keeping costs as low as possible. For a detail explanation, see my article, Outsourcing Logistics Right: Use These 7 Easy Steps To Secure The Best 3PL.

No worries! Click here and I’ll explain a simple, 7-step process that will guide you to finding the ideal 3PL partner for your business. Please note that this article may not cover all the answers to your questions about choosing the right 3PL. However, if you follow this 7-step evaluation process, it will certainly help you uncover everything you need to make an informed decision about logistics outsourcing.

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For more information from Supply Chain Tech Insights, see the latest articles on Supply Chain and Outsourcing.