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Third Party Logistics Providers (3PL)

Apr 07, 2012

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Third Party Logistics Providers (3PL). Kyle Sera Amy Irvine Scott Andrew Carrie Schmidt Ryan Lancaster . Overview. What are 3PL’s Why use them Tips for implementation of 3PL’s 4PL’s. Types of 3PL Providers. Transportation Based

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• successful 3pl implementation
• ups supply chain solutions
• transactional transparency
• new markets
• tactical outsourcing
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Third Party Logistics Providers (3PL) Kyle Sera Amy Irvine Scott Andrew Carrie Schmidt Ryan Lancaster

Overview • What are 3PL’s • Why use them • Tips for implementation of 3PL’s • 4PL’s

Types of 3PL Providers • Transportation Based • Services extend beyond transportation to offer a comprehensive set of logistics offerings. • Leveraged 3PLs use assets of other firms. • Non-leveraged 3PLs use assets belonging solely to the parent firm. • Examples: Ryder, Schneider Logistics, FedEx Logistics, UPS Logistics

Types of 3PL Providers • Warehouse/Distribution Based • Many have former warehouse and/or distribution experience. • Examples: DSC Logistics, USCO, Exel, Caterpillar Logistics, IBM

Types of 3PL Providers • Forwarder Based • Very independent middlemen with forwarder roles. • Non-asset owners that provide a wide range of logistics services. • Examples: AEI, Kuehne & Nagle, Fritz, Circle, C. H. Robinson, Hub Group

Types of 3PL Providers • Financial Based • Provide freight payment and auditing, cost accounting and control, and tools for monitoring, booking, tracking, tracing, and managing inventory. • Examples: Cass Information Systems, CTC, GE Information Services, FleetBoston

Types of 3PL Providers • Information Based • Significant growth and development in this category of Internet-based, business-to-business, electronic markets for transportation and logistics services. • Examples: Transplace, Nistevo

Logistics? • Logistics: Managing the flow of information and goods inbound from suppliers and outbound to customers. • Why be good at this? • Core competency?

Why Use 3PL’s? • Save time • Don’t need to invest in: • Trucks • Training • Development • Help expand • New markets • International • No roads

Why Use Cont. • Narrow your focus • Allows you to focus on your strengths • Don’t get spread too thin • Reach more customers more effectively • Can ensure delivery times • can help a company run leaner

Management Focus • Furthering your company • Consider potential benefits and drawbacks • 3pl’s can increase profitability • Can you be a 3PL to someone else?

Levels of Outsourcing • Transactional Outsourcing: Based on transactions, with no long term contracts and no bonding between the 3PL and the outsourcing company. • Tactical Outsourcing: Outsourcing on a long term basis with negotiated contacts and integrated IT systems to facilitate free information flow and create supply chain visibility. • Strategic Outsourcing: Based on long-term relationships with successful outcomes, 3PL companies become partners in supply chain management and establish transactional transparency.

3PL Defined • Can be ambiguous as there are many definitions • Some say “all or a significant part” • Some say “at least one part” • Best definition is probably a combination: • Businesses that provide one or many of the following logistics services: • Transportation Management • Public/Contract Warehousing • Distribution Management • Freight Consolidation

As a Manager…Which 3PL Provider Do I Choose? • Inbound Logistics recognizes top 10 • Uses its readers to conduct vote • Over 300 companies nominated with 3,000+ votes • Top 3 this year: • 1) UPS Supply Chain Solutions • 2) Schneider Logistics • 3) C.H. Robinson

How is a 3PL Differentiated From a Transportation Provider? • Transportation provider gets product from point A to point B • Could be considered a 3PL • Just one function of logistics • 3PL provider assists in multiple functions

Successful Implementation of 3PL • Why you want to select the right provider the first time • Only about 65% of companies believe their provider is doing a “good” job. • 55% of logistics outsourcing contracts end in 3-5 years • The source had a list of 14 key tips for success, but we are going to focus on the 5 most important issues.

Tips for Successful Implementation 1) Have an outsourcing strategy. • Know what your outsourcing strategy is. It needs to be well thought out and measured against in house solutions and capabilities. • SWOT analysis. As a company you should understand the strengths, weaknesses, opportunities and threats of outsourcing logistics, rather than keeping them in house. 2) Do your homework. • Do a comprehensive study • Clearly document advantages, challenges, costs and benefits. • Document expectations • Set down expectations in clear terms and include current costs.

Tips Continued… • Create a robust selection process. • Invite companies in to give a formal presentation without giving requirements. This can help document their strengths and weaknesses. • Make a site visit to the 3PL, and talk with its existing customer. 3)Measure and review performance • Have a efficient and accurate measurement system. • Qualitative measures that focus on effectiveness and quantitative measures that focus on efficient utilization. • Have an efficient costing system • This will help you to understand the costs involved in outsourcing. • “Are we making money doing this?”

Tips Continued… 4) Create an Implementation Strategy • Create a project plan road map • Be clear who does what, create a project management team with members from both organizations and review progress vs. planned milestones. 5)Nurture the Relationship • Both Parties must nurture the relationship to make outsourcing successful. • Create mutual trust, respect and a sense of integrity.

4PL Providers • Manage and direct the activities of multiple 3PLs, serving as an integrator • Refinement on the idea of 3PLs • 4PLs are not asset based like 3PLs • Assembles and manages the resources, capabilities, and technology of its own organization and other organizations to design, build and run comprehensive supply chain solutions

Transways Express 4PL • One stop transport and logistics supplier • Work with suppliers and customers

Sources • 3PL definition: http://accuracybook.com/glossary.htm • Top 10 3PL providers: http://www.inboundlogistics.com/3pl/awards.shtml • Successful 3PL implementation: http://logistics.about.com/od/thirdparty/a/uc041805a.htm • Sangam, VK. (2006). Implementing Third Party Logistics. Retrieved May 5th, 2006. From Massey University, About Business and Finance website: http://logistics.about.com/od/thirdparty/a/uc041805a.htm • Red Prairie: http://www.redprairie.com/Industry%20Solutions/Third%20Party%20Logistics.aspx • Class lecture slides: http://logistics.about.com/od/thirdparty/a/uc041805.htm

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Third party Logistics (3PL)

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An Introduction to the 3PL – Third-Party Logistics Explained

What is 3PL?

There are three major players in the supply chain: shippers, carriers, and third-party logistics solutions, also known as 3PLs. The first two are pretty self-explanatory - the shipper is the business that has a product that needs to be shipped, while carriers are the truck fleets and drivers that carry those products from origin to destination.

While that sounds fairly simple, it comes with a myriad of logistical hurdles on a national or even global scale. This is where the third party comes in. The 3PL specialist is a professional problem-solver. Their entire job is to make the shipping process as seamless and as streamlined as possible for both the shipper and the carrier.

3PL companies handle both inbound and outbound logistics for shippers to ensure their freight goes from end to end without hassle to the shipper.

Services provided by third-party logistics solutions

Companies are focused on creating quality products for consumers and don’t have time to keep an eye on the ever-changing landscape of the supply chain. By partnering with a 3PL, shippers get back hours every week to generate more revenue they would have otherwise spent trying to navigate their products throughout the many destinations they ship to.

One of the biggest problems the supply chain faces is the lack of transparency and shipment fulfillment. On their own, it can be very difficult for shippers to know that their product will make it to the destination on time, but to also know that their shipment is being handled with the utmost care by the carrier.

These two problems are what make third-party logistics companies so critical. One of the benefits of working with a 3PL is the freedom to let them handle all of the logistics from end to end. The 3PL expert you choose to go with will have eyes on your product as it moves along its route, and provide updates as needed. On top of that, through years of working in the supply chain, 3PLs develop strong relationships with carriers and can put the right carrier on the job for shippers and their products.

Depending on which 3PL work with, you can leverage their network of carriers and the technology they utilize for their shipments to benefit your supply chain. After all, most of the industry is competing with the bold claims from Amazon with two-day shipping but don’t have the resources in-house to guarantee that on every order. This is where the third-party solution makes a crucial point. Some of the benefits to working with 3PLs include guaranteed quick pick-up, fast shipping, real-time tracking, and more to help any shipper compete with some of the biggest competitors in their direct supply chain.

Types of companies who should use a 3PL

Online stores: If you are a small business and running a purely online store, a 3PL might be a solution to consider. Because time is such an important commodity in small businesses succeeding, it’s important to make sure that you aren’t spending a significant amount of time on the shipping process. To get back the hours you normally spend handling shipping logistics , hire a 3PL and focus on the aspects of your business that need more of your attention.

Getting your focus away from shipping can allow you to put it more into marketing and sell more products to a broader audience.

Inventory restricted: Businesses who have limited inventory space and are constantly struggling to find more could greatly benefit from a third-party solution.

This goes hand in hand with some online stores as well, but inventory space is not easy to come by and can be particularly difficult depending on the type of product you manufacture.

3PLs come in handy in two ways for this problem. Some 3PLs offer warehousing space to their shippers because it actually helps them get shipments out faster to ensure guarantee promises. Think of it like an Amazon fulfillment warehouse, but for any business.

The other way is that 3PLs can automate shipping processes for you to keep up with the pace of manufacturing. That way, businesses will have products moving out of the warehouse just as fast (or faster) than products coming in.

Businesses without shipping departments: This one sounds obvious but it should be stated. If your small business plan doesn’t include a full-time supply chain expert on the books, then you need to factor in a 3PL from the start. 

Some businesses are made by their customer satisfaction. It can be an uphill battle if they have a lot of customer complaints about the shipping early on.

Benefits of working with third-party logistics solutions

Saving time and money : The 3PL is designed to maximize profit for shippers. Time can be more valuable than money, but a 3PL can save you both. 

Top level industry knowledge: The folks that work for third-party logistics solutions groups often have years of hands-on knowledge. Shipping is one of the oldest processes in the world, and believe it or not, there are so many antiquated elements that are holding the entire supply chain back from being a transparent, automated infrastructure. Having an expert handle your shipments can alleviate stress and frustration from your life.

Networks and technology: Alongside having an expert on your team, 3PLs invest in dedicated carrier networks and modern tracking and management technology.

Some 3PLs will even share data and software access to the shipper so they can see exactly what the status of their shipment is and to mitigate expectations in case of delays.

3PL order fulfillment process

As companies grow larger over time, the ability to oversee order fulfillment in-house might not be possible. In some cases, businesses can hire top level industry experts for their own in-house team to manage order fulfillment. However, when scaling happens most companies opt for a different solution. As orders grow, you need to maintain the same quality of service a customer would expect, which usually leads to trusting your orders to third-party industry professionals.

Scaling a company is a lot harder than it sounds. When a company grows, it has to deal with personnel limitations, space limitations, even financial limitations that could put them in a worse spot down the line if things are not handled properly.

Most 3PLs use a transportation management system that allows them to access real-time visibility of products in transit and update shippers faster than before. Others offer warehousing space to guarantee order fulfillment for the shipper by taking out the process of moving products from shipper to the fulfillment center early on.

How to know which 3PL to work with

In order to determine which 3PL is the right one for shippers to work with, there are a number of things to consider in regards to the needs and culture of the shipping company themselves.

First, there are several kinds of trucks that are designed to carry specific loads over the road. Lock in with a 3PL who has great relationships with carriers who excel in hauling the type of products or materials you plan to ship.

If the shipper prefers person to person business and would rather conduct their shipments that way, there are certainly 3PLs who can cater to those needs. Whereas, if the shipper loves technology and would prefer to automate their processes between all supply chain parties, then you want to select a 3PL who is integrated with your transportation management system—or TMS.

3PL pricing

There are several modes of shipping in the supply chain that aren’t all equal. Choosing the right mode for you can determine the price and delivery times of each shipment. Here are some of the modes you’ll frequently see:

Full truckload, or FTL, is when a shipper requests an entire truck for their shipment. This decision can be made based on the volume of product, the weight of the product, and dedicated shipping (from point A to B only).

Less than truckload, or LTL, is when a shipper needs a small amount of product on a truck and is willing to share that truck with one or a few other shippers’ products. Because you are using less of the truck, you will pay less than an FTL shipment, however, your product might not be delivered within the projected window based on the route of the other products’ destinations.

Drayage isn’t an over-the-road mode of shipping but is often used to transport shipments from shipping vessels or railroads to a nearby distribution center. From there, an FTL or LTL shipment is typically required.

Final Mile is a service that most consumers are aware of because they operate in commercial and residential delivery. For companies that need to ship products directly to consumers, they need to take into consideration utilizing a final mile mode.

The bottom line

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What Is 3PL? A Guide to Understand Third Party Logistics Providers

• FirstHeading

Third-Party Logistics Definition

Third-party logistics (3pl) basics, are 3rd-party logistics the same as order fulfillment, 3pl services vs. drop shipping, benefits of third-party logistics provider, will your business benefit from third-party logistics, the third-party logistics process, integration with other systems like erp or order management, it infrastructure and technology requirements for 3pl providers, cost structure and pricing models of 3pl services, risk management and mitigating risks of outsourcing logistics, how to evaluate and select the right 3pl provider, downsides or disadvantages of using 3pl vs in-house logistics, logistics automation and how 3pls leverage automation, sustainability and green logistics practices of 3pl providers, future trends and innovations in the 3pl industry, regulations and compliance considerations when using 3pl services, how 3pl improves customer experience and satisfaction, security considerations when partnering with a 3pl, real-life case studies: famous brands leveraging 3pl, 3pls and small businesses: a power duo, the expertise advantage, cost-efficiency at scale, seamless scalability, focusing on core competencies, access to advanced technology, loss of control, communication challenges, cost considerations, dependency on external expertise, transition challenges, pros and cons of 3pl for small businesses, 3pl trends in business-to-consumer (b2c) e-commerce.

• 3PL Tech Trends: Shaping Tomorrow's Logistics

The Future of 3PL: Beyond Horizons

A 3PL (Third-Party Logistics) system is a model that offers outsourced logistics and supply chain management services to businesses, including e-commerce companies. These services encompass everything from transportation, warehousing, inventory management, and even fulfillment centers to other related functions.

The infrastructure within a 3PL is complex and impressive. They have invested in technology, staff, warehouse storage space, and even internet-based tools to streamline logistical operations, offering advantages like flexibility, value, and scale.

When setting up with a 3PL provider, they’ll need details about the products, shipping volume, the shipping carrier partners, preferences, and specific delivery requirements. The efficiency of every 3PL system can be tracked by crucial KPIs depending on your operation size, objective, and capital. This information helps in customizing the service, pricing strategy, and ensuring compliance with various country regulations.

3PL encompasses all logistics and distribution functions, while order fulfillment is a specific aspect that refers to the process of shipping orders fulfilling customer orders.

3PL services offer control, visibility, and expertise over traditional third party logistics company or drop shipping methods same services. They provide real-time supply chain visibility, performance metrics, and quality control, impacting the bottom line positively.

3PL offers numerous benefits, including cost savings, improved efficiency, increased customer satisfaction, capital efficiency, and employee management.

Businesses facing issues like lack of logistics expertise, high logistics costs, or difficulty in meeting customer demands can benefit from 3PL.

The 3PL process includes eCommerce platform integration, inventory management, picking, packing, and shipping, same-day shipping, and reverse logistics.

When partnering with a 3PL provider, integration with existing enterprise systems is key for efficient operations. The 3PL should have APIs and connectors that allow seamless data sharing between warehouse management systems, ERPs, order management tools, and other platforms. This integration enables real-time inventory updates, order information sharing, and overall visibility across systems. Companies should evaluate integration capabilities when selecting a 3PL partner.

3PL providers invest heavily in IT infrastructure and technology to deliver optimized logistics and transportation services. They utilize warehouse management systems, transportation management systems, barcode scanning, RFID, IoT sensors, and other technologies. Robust IT capabilities allow 3PLs to provide clients with shipment tracking, warehouse and inventory management, visibility, analytics, and more. When partnering with a 3P L, understanding their technical expertise and how they leverage technology is important.

The cost structure of 3PL services varies but is typically asset-based, user-based, or a hybrid model. Asset-based pricing depends on the resources the 3PL provides like warehouse space, labor, vehicles. User-based pricing charges per service like per shipment or inventory handling. Hybrid models blend both fixed and variable costs. The pricing model impacts the overall costs so companies should analyze different 3PL cost structures.

While outsourcing logistics can provide many benefits, it also comes with risks around losing control, integration issues, and dependence on the third party logistics provider alone. Strategies like properly vetting providers, using multiple 3PLs, benchmarking costs, and maintaining oversight help mitigate risks. Companies should also have contingency plans to bring the third party logistics warehouse back in-house if necessary.

Choosing the right 3PL requires researching multiple providers, issuing RFPs, checking references, understanding capabilities, visiting sites, and more. Key criteria include services offered, integration abilities, technology, reliability, costs, security, and industry experience. Taking the time to thoroughly evaluate 3PLs improves the chances of selecting the best fit.

While 3PL services offer many advantages, potential downsides exist like reduced control, communication challenges, and issues ending the relationship. Companies have to rely on the 3PL yet may lack visibility into day-to-day operations. Rigorous oversight and governance processes can help minimize downside risks when outsourcing logistics services.

Automation is a major trend in the 3PL industry. Leading logistics and logistics service providers now utilize automated warehousing with robotics, automated inventory tracking, self-driving trucks, and more. This automation provides accuracy, speed, and efficiency benefits. When selecting a 3PL, evaluating their automation capabilities and expertise ensures access to optimized, tech-driven services.

Many 3PLs now focus on sustainability KPIs related to energy, waste, emissions, and more. They implement green practices around packaging, transportation mode selection, facility design, renewable energy, and recycling programs. Companies wanting to improve supply chain sustainability can benefit from choosing an eco-conscious 3PL partner.

Experts forecast key trends for 3PL services including further automation, blockchain adoption, predictive analytics, warehouse robotics, self-driving vehicles, increased vertical integration, and cybersecurity focus. Companies should stay abreast of innovations by attending tradeshows, reading industry content, or directly asking 3PLs about emerging capabilities.

Companies must ensure 3PLs follow regulations around areas like safety, labor, traceability, and hazardous materials handling. 3PLs should provide compliance expertise related to regulations like C-TPAT, FSMA, hazmat transport rules, and OSHA standards. Non-compliance can disrupt operations and cause penalties, so confirming regulatory capabilities when selecting a 3PL is crucial.

Leveraging 3PL expertise and infrastructure enhances the customer experience and satisfaction. 3PLs offer faster deliveries through localized warehousing. Their scale enables meeting demand spikes. Tracking and visibility improves communication. Higher inventory accuracy reduces problems like stockouts. Overall, the capabilities 3PLs provide lead to superior customer experiences.

Maintaining supply chain security is critical when outsourcing logistics operations. Companies should ensure 3PLs have strict facility access controls, cargo screening procedures, cybersecurity measures, surveillance systems, and staff background checks in place. Conducting security audits and having contractual security requirements provides oversight of 3PL security practices.

Now, let’s delve into real-life case studies of renowned brands that have harnessed the power of Third-Party Logistics (3PL) to streamline their entire supply chain and operations and enhance customer experiences.

Case Study 1: Amazon Amazon, the global e-commerce giant, is a prime example of how 3PL can revolutionize logistics. By partnering with multiple 3PL providers to outsource fulfillment to, Amazon has been able to ensure timely deliveries, optimal inventory management, and efficient order fulfillment. Their real-time tracking, discounted shipping rates and diverse delivery options have become industry standards, contributing to their unparalleled customer satisfaction rates.

Case Study 2: Nike Sportswear behemoth Nike has embraced 3PL services to optimize its distribution network. By collaborating with 3PL providers, Nike has streamlined its global supply chain operations, reducing lead times and enhancing inventory visibility. This has enabled them to meet customer demands more effectively and fulfill orders swiftly, even during high-demand periods like product launches.

Case Study 3: Walmart Walmart, the retail giant, has tapped into 3PL capabilities to bolster its supply chain efficiency. By entrusting certain its logistics management functions to specialized 3PL partners, Walmart has optimized its transportation and warehousing operations. This has led to reduced costs, improved and cost effective inventory management, and a more responsive supply chain, ensuring shelves are stocked and products are readily available to customers.

These case studies underscore the transformative impact of value added services that 3PL can have on businesses across diverse industries. By outsourcing logistics and supply chain management functions to capable partners, these brands have not only enhanced operational efficiency but also elevated their customer experiences to new heights.

Small businesses often operate with resource constraints, making it challenging to handle the complexities of logistics and supply chain management. This is where Third-Party Logistics (3PL) providers step in as a crucial ally. These third party logistics service providers offer small businesses access to a network of logistics experts, advanced technologies , and a well-established infrastructure without requiring the small business to invest heavily in these areas.

3PLs bring their expertise to the table, helping small businesses navigate the intricate world of logistics. Whether it’s optimizing routes for efficient deliveries, managing inventory levels to prevent stockouts, or ensuring compliance with regulations, 3PLs offer a depth of knowledge that can significantly benefit small businesses.

One of the primary benefits of partnering with a 3PL for small businesses is cost savings. 3PLs leverage their large scale and volume to negotiate better rates with carriers, secure storage spaces, and access technology platforms that might be cost-prohibitive for individual small businesses. This cost-efficiency allows small businesses to focus their financial resources on core activities, such as product development and marketing.

As small businesses experience growth, their logistics needs evolve. 3PLs are well-equipped to accommodate this growth seamlessly. Whether it’s managing increased order volumes during peak seasons or expanding fulfillment company into new markets, 3PLs can scale their fulfillment services up or down to meet the changing demands of small businesses.

Outsourcing logistics to a 3PL enables small businesses to concentrate on their core competencies. Instead of dedicating time and effort to the intricacies of supply chain management, small businesses can channel their energy into areas where they excel, such as product innovation or customer engagement.

3PLs invest heavily in technology to optimize their operations. By partnering with a 3PL, small businesses gain access to state-of-the-art technologies, including warehouse management systems, tracking tools, and analytics platforms. This technology-driven approach enhances visibility, streamlines processes, and facilitates data-driven decision-making.

However, there are potential downsides to consider when embracing 3PL partnerships.

Outsourcing logistics means relinquishing a certain degree of control over critical processes. While 3PLs are experts in their field, small businesses must strike a balance between granting autonomy to the top third party logistics services provider and maintaining oversight.

Clear communication between the small business and the 3PL is paramount. Effective coordination requires transparent sharing of information, aligned expectations, and open channels of communication. Miscommunication can lead to operational hiccups and customer dissatisfaction.

While outsourcing logistics can lead to cost savings in the long run, it’s essential for small businesses to evaluate the financial implications. 3PL services come with associated fees shipping costs, which need to be weighed against potential cost savings and operational efficiencies.

Relying on a 3PL for critical logistics functions can create a certain level of dependency. While this is often advantageous, small businesses should have contingency plans in place to mitigate risks in case the partnership needs to be reevaluated or changed.

If a small business decides to transition logistics back in-house, the process can be complex. Reintegrating logistics functions requires careful planning, coordination, and potential adjustments to the business’s infrastructure.

• Expertise : 3PL providers are logistics experts, handling the complex processes that might overwhelm small businesses.
• Cost-Efficiency : 3PLs leverage economies of scale, reducing costs for warehousing, transportation, and technology.
• Scalability : As small businesses grow, 3PLs adapt quickly to handle increased order volumes and expansion into new markets.
• Focus on Core Activities : By outsourcing logistics, small businesses can concentrate on their core competencies, like product development and customer engagement.
• Access to Technology : 3PLs invest in advanced technologies that small businesses might not afford, enhancing efficiency and visibility.
• Loss of Control : Outsourcing means relinquishing control over critical processes, requiring a balance between autonomy and oversight.
• Communication Challenges : Effective coordination with 3PLs demands transparent sharing of information and aligned expectations.
• Cost Considerations : While cost savings can be substantial, businesses need to evaluate fees against potential benefits.
• Dependency : Relying on external expertise requires contingency plans to mitigate risks of dependency.
• Transition Challenges : Transitioning logistics back in-house can be complex and requires careful planning.
• Same-Day Deliveries : B2C ecommerce business demands speed. 3PLs integrate same-day deliveries and rapid fulfillment to meet customer expectations.
• Personalization : 3PLs help B2C brands create personalized experiences, from custom packaging to tailored recommendations.
• Returns Management : 3PLs streamline fulfillment and manage inventory process for returns, ensuring a seamless process that enhances customer satisfaction.
• Omnichannel Integration : 3PLs enable B2C brands to offer a unified experience across their online store and offline channels.
• Last-Mile Innovations : Drones, robots, and self-driving vehicles become the norm as 3PLs redefine last-mile delivery methods.

3PL Tech Trends: Shaping Tomorrow’s Logistics

• Automation Revolution : Warehouses equipped with robots and AI reduce errors and enhance efficiency.
• Blockchain Trust : Blockchain ensures transparent and secure supply chains, building trust among stakeholders.
• Predictive Analytics : Data-driven insights enable 3PLs to predict demand patterns and optimize operations.
• Sustainability Tech : Solar-powered warehouses, electric fleets, and eco-friendly practices drive green logistics.
• 3D Printing Integration : 3PLs incorporate 3D printing to enable on-demand and customized production.

Tomorrow’s 3PL thrives on hyper-connectivity. AI predicts shortages and optimizes every step. Sustainability isn’t a choice—it’s a necessity. Solar-powered warehouses and electric fleets become standard. E-commerce continues to rise, and 3PLs master the art of returns management. Blockchain ensures trust, and drones reshape deliveries. Small businesses ride the democratizing wave of 3PLs. The future isn’t just about moving goods—it’s about shaping the way goods move.

3PL systems are integral in today’s competitive environment, offering solutions that cater to a variety of needs, from procurement to freight forwarding. By understanding the different aspects, advantages, and potential disadvantages, businesses can make informed decisions that align with their goals, size, and industry requirements.

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What is 3PL Logistics and How Does it Work?

Darren DeMatas

June 5, 2024

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When you first start your ecommerce business , your order volume is low enough to handle your own fulfillment, so a 3PL is likely the last thing on your mind.

But as you grow, you may get so many orders that all your time is spent fulfilling customer orders. If you get overwhelmed with fulfillment, your day-to-day business operations may fall behind, leading to decreased customer satisfaction.

To keep things running smoothly, it’s ideal to pass off your order fulfillment to a third-party logistics (3PL) company . They’ll handle order fulfillment while you focus on the aspects of your business you know best. When you choose a fulfillment provider, you’re choosing a business partner, so it’s not a decision to take lightly.

3PL Logistics Defined

A third-party logistics provider handles logistics operations for other businesses . Many fulfill multiple roles, which you can pick from to suit your business needs. The three parties involved are:

• The business
• The logistics provider
• The shipping carrier

As your business scales, you can expand with inventory management, kitting, and assembly. (If you have a subscription box business, for instance, you may need a service that offers kitting.) 

Here is a list of leading third-party logistics companies:

• XPO Logistics
• C.H. Robinson
• Schneider National
• APL Logistics

You are probably familiar with many of these, like UPS and FedEx, but may not recognize others. This is because they handle different sectors of logistics. Some may only serve certain regions, others may handle top-level B2B needs, while the more familiar ones deliver packages to your doorstep. They are all part of a global supply chain.

Understanding Shipping and Logistics

Shipping is part of logistics. Shipping logistics can become quite complex. It involves:

• Keeping an eye on the entire supply chain, planning the warehousing, storage, and handling of items while monitoring inventory levels.
• Unitization and packaging
• Inventory control
• Transportation and shipping, including less-than-truckload (LTL) freight shipping (shipments over 150 pounds).
• Information and control

Types of 3PL Providers

Most 3PLs offer various services, but not all of them offer the same combinations. Some are more specialized than others – but most will focus on one of the following functional areas, which are often aligned with their core competencies.

3PLs can be categorized by service type, which can usually be broken down into three further subcategories: simple service, combined service, and value-added services.

Simple service is the most basic level, offering a single aspect of logistics or a single leg of the supply chain. For example, using USPS to deliver your products to customers.

Combined service offers two or more aspects of logistics or multiple supply chain segments. For example, Amazon fulfillment centers that warehouse and deliver your products.

Lastly, value-added services go beyond pure logistics to offer additional assistance. Common examples include product assembly, kitting, or product personalization in addition to logistics services.

Specific examples of services include:

• Warehousing
• Ocean Carriers
• Air Freight
• Freight brokerage
• Logistics Management
• Value-Added Services
• Logistics Consulting

Simple service providers generally offer only one of these services. Combined services offer multiple. Value-added services offer one or more in addition to services that do not fall under the traditional logistics umbrella and are not included in this list.

By Operations (or Industry)

Most 3PLs can also often be categorized by the type of operations or industries they service. For example, the needs of medical logistics can vary in significant ways compared to logistics for an automotive business. Here are six common 3PL categorizations by industry:

If you are looking for a 3PL, you can narrow down your options by selecting those that focus on your type of business.

By Contract Type

Every 3PL company can also be grouped by their contract type. You have common, contract, and exempt carriers among public carriers.

Common carriers are open to the public and transport freight for anyone. An example is walking into a FedEx to pay to have a package shipped.

Contract carriers serve only a limited number of clients by contract rather than being open to the public. An example would be a transportation business that exclusively transports medical supplies for a group of related hospitals.

Exempt carriers are unique cases where the goods being transported are exempt from one form of regulation or another. They may only be permitted to transport certain types of freight to qualify for exemption. An example would be livestock.

How 3PL Works

While 3PL services will vary from one to another, having a well-rounded understanding of what these companies tend to offer will help you better predict their value and what to look for. You don’t need to be a 3PL fulfillment expert, but it helps to understand how the pieces fit together when comparing your options for logistics services.

Before they can ship orders for you, the 3PL must receive your inventory. “Inbound receiving” is the process of accepting your inventory into the warehouse and storing it until a customer places an order. This also includes tracking inventory by adding it to the provider’s ERP software so they have an accurate stock count in their system. Some 3PL companies require you to manually upload orders into their system. This may mean using spreadsheets that include order details, customer details, and shipping details. This method is manageable if you don’t have a lot of orders, but quickly becomes inefficient and prone to errors as order volume grows.

Every 3PL has its own storage capacity and process for how inventory is received and stored. When you choose a partner, make sure you understand their process. ShipBob, for example, requires clients to fill out a Warehouse Receiving Order (WRO). This ensures they know exactly what products they’re receiving and how many units of each, to keep things organized.

3PL Warehouse Storage

After receiving inventory, it moves to storage, which may or may not be distributed across multiple fulfillment centers to allow for faster shipping and delivery. Warehousing, including a warehouse management system, may sound simple, but often requires careful planning and serious labor to stock and organize a variety of products and maintain optimal inventory levels. It may involve forklifts, high elevations, and a large amount of real estate.

With ShipBob, each SKU will have a dedicated storage location that may be on a pallet, on a shelf, or in a bin.

Since different operations will have their own storage capacity and warehouse space is not a one-size-fits-all industry, it’s crucial to work with a facility that has more than adequate storage space for your current inventory. As your business grows, in terms of product line and order volume, your 3PL must be able to scale with you.

A 3PL is not on-demand warehousing. That’s just a storage facility that meets your needs with extra space in miscellaneous warehouses.

After your customer hits “submit” on the order, the 3PL fulfillment process starts. Picking is the process of locating and acquiring your product(s) from the warehouse. Again, this can require mechanized labor or be as simple as pulling a small item off of a shelf by hand. Many orders include more than one product, meaning the 3PL warehouses have to “pick” multiple items to fill each order.

The ideal 3PL partner uses real-time technology that integrates with your ecommerce platform or online marketplace. Order information is automatically sent as orders are placed. This streamlined approach makes it easier to automate shipping by tracking orders, shipments, and inventory stock levels remotely using a warehouse management system in real-time.

Once your 3PL receives the order, it will be sent over to the warehouse picking team, where a picker receives the list of items, quantities, and storage locations. The picker will collect the ordered products from their locations, and then it moves to the next phase.

Items pulled straight off of the shelf or pallet usually aren’t ready to slap a label on and put in the mail. After picking the items, the 3PL has to package them sensibly. This is generally a balancing act between providing good customer service in the form of safe and cost-effective shipping and presentation upon arrival.

Oftentimes a 3PL provider will allow you to supply or decide on different packaging options so your products arrive to customers how you want them to. The packing materials used to pack and ship your orders will vary depending on your 3PL’s capabilities, the items being shipped, and your brand preferences.

Common standard packaging materials include:

• Plain, unbranded boxes
• Bubble mailers
• Dunnage and filler
• Packing tape

Depending on the logistics company you use, you may be charged for packing materials separately, while others include it as part of their fulfillment services.

Some 3PLs allow you to ship products to customers in your own branded packaging (see Packlane ). If having a branded unboxing experience is important to you, opt for a provider that allows for custom packaging and inserts.

After the items are packed, it’s time to ship. The majority of 3PLs will buy and print shipping labels for you to help you save on the cost of shipping . While some companies have preferred shipping partners, others utilize shipping software to compare prices from multiple carriers to provide the most affordable shipping option for shippers. Since 3PL freight companies tend to do a lot of less-than-truckload shipping, they often receive discounted rates and can pass those savings on to you.

Carriers such as UPS, USPS, FedEx, and DHL pick up orders from warehouses to ship to the customer, ensuring efficient shipping rates for shippers. The carrier and shipping speed will vary from one order to the next, based on the available shipping options, what the customer paid for, 3PL partnerships and policies, etc.

After the order ships, if you use a 3PL with integrated technology options, the tracking details will automatically be pushed back to your system and sent out to the customer.

Returns Processing

Some 3PL companies also offer returns processing, otherwise known as reverse logistics. If a customer returns an order (it’s the wrong product, doesn’t fit as expected, etc.) it goes back to your 3PL. Once received, the 3PL will process the return and either dispose of or restock the item according to your preferences and policies.

You’ll also have the option to have the 3PL provide return shipping labels on your behalf, which is convenient for you and your customers. You don’t have to handle returns in-house, and customers can easily track their return order status from various customer support channels with a well-integrated 3PL system.

In summary, here is the general process for how logistics processes in 3PL work for most retailers. While different 3PL businesses may operate slightly differently, the fundamental logistics processes of a 3PL are pretty universal.

The first step is partnering with a 3PL vendor and supplying them with your products for their warehouse. This can include a number of processes and system integrations to track and manage your inventory.

When customers order inventory from your website or other ecommerce platform, the order and customer information are sent directly to the 3PL fulfillment company, which helps streamline sales channels. Warehouse workers then pick, pack, and ship your orders from the 3PL warehousing directly to the customer. In other words, they “fulfill” the order on your behalf.

In some cases, 3PL warehouses can be directly involved in supply chain operations, meaning you can have the products you source sent directly to them. This essentially removes you from any actual product handling. Different 3PLs have different levels of supply chain involvement, so give some thought to your process before shopping for 3PLs.

When to Use a 3PL

While using a 3PL certainly sounded convenient for a number of reasons, the fact is that for many ecommerce merchants, it is more of a necessity. Particularly for startups and other growing enterprises, ensuring customer satisfaction and keeping up with all of the moving pieces of the fulfillment puzzle can be a real challenge.

More importantly, if your current processes are insufficient for your operation, they can stifle growth in a number of ways. If you are encountering any of the following scenarios, partnering with a good 3PL logistics company should be a serious consideration.

1. Your ecommerce fulfillment processes are holding you back

Especially for startups and small-sized companies experiencing rapid growth, a 3PL can be invaluable for keeping up with ever-increasing order volumes. It can be hard enough to design a process to meet your current needs, but repeatedly expanding warehouse space, shipping volume, and packing teams requires a lot of time and resources.

Partnering with a 3PL warehouse company that can keep pace with your growth can remove a lot of obstacles and accelerate your success. 

2. Your team is too small, overworked, or inexperienced

Managing a team to handle logistics and operate a warehouse is a feat of organization and planning. Especially as businesses grow and order volumes increase, your existing team may be stretched too thin to keep up. 

Rather than trying to hire and train new employees, letting a 3PL partner take that burden off of your hands is often a much easier and more effective move. This not only saves you a lot of cost-effective headaches but frees up resources and team members to focus on other important tasks. 

3. Errors are happening in inventory management and picking

Whether it’s because your team is stretched too thin, your warehouse isn’t well organized, or simple miscommunication, errors can be very costly in ecommerce. Not only can you lose valuable inventory or have to pay return shipping costs, but you are also creating bad customer experiences. 

3PLs can devote much more attention to these matters, reducing errors and increasing efficiency. 

4. You’re unfamiliar with a new market region

Whether you’re opening a new branch, moving locations, or just looking to expand your reach, getting your foot in the door isn’t always easy. For example, if you are trying to break into an international market, the shipping rules and processes may differ in another country.

Partnering with 3PL fulfillment services in a region offers a shortcut to a pre-established logistics network to save you time and hassle. 

5. It is too risky to invest in logistics infrastructure

It is easy to imagine the 3PL definition hypothetically and not fully appreciate the magnitude of logistics infrastructure. Massive warehouses, entire heavy equipment and labor departments, specialized software, and more go into an efficient fulfillment operation. For many prospective business ventures, the financial investment alone is a non-starter.

3PL partners already have the infrastructure, allowing you to acquire everything you need with minimal risk and investment.

3PL vs. 4PL

In researching 3PLs, you may also find the term 4PL, or fourth-party logistics. The difference here is that you add another party to the mix. It adds another degree of separation between you as the ecommerce merchant and the EDI asset carrier shipping your products.

If you contract a 4PL, they will manage the 3PL tasks for you as their client. You may also hear this called “double brokering.”

Fourth-party logistics typically provide end-to-end supply chain management for their clients, going beyond 3PL to offer inventory procurement, manufacturing, etc.

Benefits of 3PL

No matter what your company sells and the services your 3PL offers, the partnership has plenty of benefits. Though 3PLs all vary in capability, all of them will help with inventory management , packing and shipping, and your overall supply chain, which helps to increase productivity and maximize profitability.

Saves Your Business Time and Money

When you partner with a 3PL, you immediately reap cost savings since you don’t have to buy your own warehouse or rent warehouse space. The more your business grows, the more you’ll spend on in-house fulfillment. You’ll pay not only for the storage space, but for the forklifts and other heavy equipment, labor, warehouse management software , labor costs, etc. Those extra costs add up quickly.

For many small businesses, it makes sense to save those costs and the time you’d spend filling orders yourself by outsourcing your fulfillment to a 3PL. You can focus the time you’d spend filling boxes, printing shipping labels, and scheduling pickups to more strategic initiatives, like new product development and marketing campaigns. Many 3PL service providers operate with a network of sales channels and fulfillment centers, making it possible to spread your inventory around the country, so you can save money on shipping.

Pass Shipping and Logistics to Experts

Being an expert in your industry doesn’t mean you have the time to become an expert in logistics, too. When you work with an experienced third-party logistics company, you’ll be able to use their experience and technical resources to keep all parts of your business running smoothly. You’ll have full supply chain visibility, and you won’t have to take time away from other value-added activities to focus on order fulfillment.

Reach More Customers

Handling things on your own may limit your exposure to a single region. If you want to go nationwide or even internationally, partnering with a 3PL helps keep costs down since they have access to a network of carriers and distribution centers that you, as a small business owner, would struggle to achieve on your own.

Most 3PL companies have expanded networks with fulfillment centers throughout the country (and many across the globe as well), making it easier for you to get packages anywhere you need them to go, faster and more affordably.

What you’ll pay for 3PL services depends on the company’s pricing model, as well as what your business needs. Some costs to keep in mind as you choose your fulfillment company include:

• Onboarding Costs: Costs associated with bringing your business into the warehouse and getting your technology up and running
• Inventory Receiving Costs: Costs associated with accepting and storing your inventory. One type of 3PL may charge per unit, while other 3PLs may charge per pallet, per hour, or a flat rate.
• Inventory Storage Costs: Warehousing fees associated with inventory that sits in storage every month. These may be charged by per SKU, per unit, or fixed fees based on the warehouse space you take up.
• Pick and Pack Costs/Fulfillment Service Fees: Costs associated with picking and packing the orders; some companies include this in their costs. Some don’t charge at all for orders under a certain threshold. Others will charge a per-item fee based on order size.
• Packaging Costs: Some companies may charge for packaging materials like boxes and airfill as separate line item.
• Kitting Costs: Kitting, sometimes also referred to as assembly, references any specific ways items are packed or arranged before they’re shipped to customers. Because the service is unique for each client, fees vary depending on the complexity of the packing. Fees are usually based on the number of items to be packed, and how many units need to be assembled.
• Shipping Costs: This is the amount the company charges to get the package from their fulfillment center to the customer’s door, including printing the shipping label. The cost of shipping varies based on zones, shipping speed, dimensional weight, carrier, etc.

Is a 3PL Right for You?

A 3PL could be the answer for your ecommerce business if:

• You ship 100+ orders a month
• Your garage or spare room is no longer enough to store your inventory
• You want to compete with companies that offer 2-day shipping so you can meet (and exceed) customer expectations.
• You want more control over the total customer experience.
• You need help managing your supply chain.

Order Volume

There’s no magic order volume right for every business. For some, it may be more, but for others it may be less. The real deciding factor is an increase in order volume that you cannot keep up with. If you’re asking friends and family to help you, it’s time to outsource fulfillment to the experts.

Why? You’re spending time on low-value activities (picking, packing, shipping) when you could invest that time in value-added activities (onboarding new customers, marketing, etc.)

Inventory Storage Space

Whether it’s a garage, your dining room, or spare bedroom, if you’re finding that you no longer have the room to store all the inventory you need to pack and ship your orders, it’s time to reclaim the space and work with a 3PL.

Fast Shipping

Thanks to Amazon Prime and its 2-day shipping, that’s become the new standard for ecommerce. If you’re fulfilling orders yourself, that offering can really do a number on your profit margins. Leveraging a 3PL also means you’ll get their volume discounts and be able to ship from multiple zones, which makes it easier to get products to everyone within two days, no matter where they are in the U.S.

Considerations When Choosing a 3PL Provider

At this point, you’re convinced you need to find a 3PL provider – but now, you don’t know how to choose the right one for your business needs.

Here are some topics to consider as you decide whether a logistics provider is the right solution for your business:

• Details on logistics operation
• Impact on CS
• Area of service
• Changes to current procedures
• Impact of the transition period
• Discuss past experiences and difficulties
• Overall price
• Continued responsibilities
• New procedure requirements
• New technology requirements
• Overall Compatibility
• Faster fulfillment
• Lower carbon footprint
• Greatly reduced risk and investment
• Bulk labor and shipping discounts
• Value-added services

Here are some critical areas to evaluate as you meet with potential providers and negotiate a contract, focusing on their core competencies and expertise in EDI.

• Scalability
• Locked in pricing
• Annual negotiations
• Years in business
• Management experience
• Quality of workforce
• Growth strategy
• Leading accounts
• Lost accounts
• Data privacy
• Sufficient business insurance
• Transparency
• Recapture of excess profit
• Performance incentives

Consider these talking points when comparing providers and negotiating the terms of your contract. Some aspects may be more important to you than others, but it is important to have a complete understanding of how a company operates before partnering with them to represent your business.

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• Warehouse Management

A Comprehensive Guide to 3PL

Order fulfillment serves as the backbone of your eCommerce business. However, as order volume increases, managing fulfillment in-house may not always be the most productive option.

Businesses now outsource order fulfillment to third-party logistics (3PL) companies to scale their fulfillment strategy and avoid mismanagement. In this article, we’ll explore what 3PL is and how it can streamline supply chain and warehouse management software .

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What This Article Covers:

What Is 3PL?

How does 3pl work.

• The Evolution of 3PL

Primary Benefits

Key processes, value-added services, 3pl vs. 4pl, how to choose the best 3pl provider.

3PL is the process of outsourcing eCommerce order fulfillment processes like inventory management , warehousing, shipping and receiving to a third-party logistics service provider. Third-party logistics providers help streamline fulfillment, mitigate errors and reduce overhead costs. They also offer several value-added services such as kitting, returns processing and cross-docking.

The Council of Supply Chain Management Professionals (CSCMP) defines 3PL as:

A person who solely receives, holds or otherwise transports a consumer product in the ordinary course of business but does not take title to the product.”

A 3PL service provider can help you manage individual modules like warehousing, transportation or shipping. Some providers also offer a comprehensive suite of services to manage the entire supply chain .

In an interview with SelectHub, Jim McClellan, Co-founder of Fort Systems , explained:

3PL services are basically a solution for companies looking to outsource elements of their logistics and supply chain management functions to specialized firms. It’s an option that can make sense for small to medium-sized companies that lack the infrastructure for efficient fulfillment and WMS operations, but also for large companies looking to gain efficiencies and focus on core competencies.”

Imagine you own a local farm that delivers fresh vegetables to the market. You’ve hired staff to manage farming operations but lack the expertise to handle order management and logistics. So, you outsource these two functions to company A and company B.

Now, companies A and B have become 3PL providers. However, if there’s a company C that can handle both order management and logistics, it’s also a 3PL provider offering comprehensive services.

Unfolding the working process of 3PL providers, McClellan said:

• Once the business rules for a 3PL client have been put into place, clients will move all or some of their inventory to one or more of the 3PL’s facilities and work with the 3PL on the details for setting up inventory, receiving, shipping, notifications, etc.
• Once these details are in place and [the] product is warehoused, a multi-tenant 3PL platform will provide clients real time access to all relevant information, including inventory quantities, order statuses, tracking information, returns and client messaging.
• A 3PL provider regularly communicates with the client, providing updates on logistics activities, performance metrics and any issues or challenges encountered. They may also generate reports and insights to help the client make informed decisions and improve their overall logistics strategy.
• As a client becomes established in terms of overall structure, order volume and other factors, the 3PL provider may need to adapt the logistics solutions accordingly. This may involve scaling up or down resources, expanding into new markets, incorporating new technologies or adjusting processes to accommodate changing demand patterns or business requirements.

The Evolution of 3PLs

The rapid scaling of the logistics industry in the last 40 years resulted in the growth of the 3PL industry . Here are a few notable events that contributed significantly to this growth:

The Motor Carrier Act of 1980

The Motor Carrier Act of 1980 deregulated the traffic industry, significantly increasing the number of trucking companies in the U.S. Observing this growth, exclusive warehousing service providers expanded into trucking and supply chain management. With increased competition, these trucking carriers eventually became 3PL service providers.

Globalization and E-Commerce Boom

In the 1990s, emerging economies like China and India disrupted the logistics industry by opening up their markets globally. This led to a surge in demand for logistics management services, ultimately increasing the number of 3PL providers in the eCommerce landscape.

Technological Leaps of the 2000s

The rapid integration of technology in businesses since the 2000s empowered 3PL providers to increase supply chain efficiency and extend their reach to global markets. Using advanced platforms like radio frequency identification (RFID) , Internet of Things (IoT) , telematics and more, they improved resource and operational optimization.

The global 3PL market is predicted to reach $2.8 trillion by 2031, registering a CAGR of 8.8%.

Robert Khachatryan , CEO at Freight Right Global Logistics, said:

The 3PL sector has seen exponential growth, driven by the eCommerce boom and globalization. Businesses are increasingly relying on 3PL providers to navigate the complexities of international logistics, leading to a significant annual growth rate in the 3PL market.”

There are a variety of options, differentiated by location, industry and specialization. While most offer several services, they focus on one of these functional areas:

• Transportation: Partners focused on transportation services manage inventory shipments from manufacturers to warehouses or from a company to buyers. This type of service also includes transportation management, such as route optimization, carrier selection and shipment tracking. 3PL providers that offer these services have a network of carriers that they work with to ensure the timely and cost-effective delivery of goods.
• Warehousing and Distribution: The most common type of support provides basic storage and fulfillment services such as receiving, pick and pack , shipping and returns.
• Financial and Information: Suited for large-scale companies, these providers optimize their client’s logistics network by offering services such as inventory tracking, cost control, accounting, freight auditing and more.

Larger vendors offer a full suite of services and customization to meet specific business requirements.

As businesses expand, they can benefit immensely from outsourcing their logistics operations to 3PL companies. Here are some of the common advantages of working with a provider:

Save Time and Costs

Save time and money by eliminating the need to invest in multiple warehousing tasks such as transportation, workers and technology to execute supply chain operations. With a 3rd-party logistics provider, businesses don’t have to invest extra in renting out warehouse space.

They prevent costly shipping mistakes while optimizing paperwork, audits, billing, staffing and more.

Enhance Efficiency

Access to technology and infrastructure provides complete shipment visibility and helps manage inventory better. Businesses can communicate with carriers and navigate during obstacles like weather conditions, service constraints and traffic congestion.

It improves inefficiencies, blockages and supply chain issues by providing real-time inventory insights.

Mitigate Risks

Partnering with 3rd-party logistics provides warehousing solutions such as seamless order fulfillment processes . It procures and stores stock from eCommerce companies in different warehouses while fulfilling orders from the nearest warehouse.

It offers high-level logistics expertise and risk management solutions for companies that don’t have an in-house supply chain management department. It also identifies potential risks and provides solutions for immediate recovery.

Improve Inventory Management

Most eCommerce companies partner with 3pls due to their high inventory reliability. In inventory management, you can label items with SKUs and store them in bins, while 3PLs use order management or warehouse management software to update inventory. It automatically displays available and fresh stock on virtual marketplaces or the company’s eCommerce website.

Boost Customer Experience

Hassle-free delivery with customized packaging, safe order transit, timely status updates and more keeps customers happy. Partnering with third-party logistics provides delivery benefits such as same or next-day delivery.

They can scale transportation needs, inventory requirements, labor and warehouse space without hassle. Since 3PLs have an expanded network of interconnected routes, shipping is simple.

Despite the above benefits, there is a flip side to using third-party support for supply chain operations. The companies who opt for working with one should be ready for:

• Less control over inventory and delivery process
• Larger upfront investment

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Here are some core services third-party logistics provides.

1. Receiving and Warehousing

The first step of order fulfillment begins with accepting inventory into a warehouse or a fulfillment center for storage, known as receiving. Coordinate inbound shipments through a freight forwarder, manually or through software and store them in a bin, pallet or shelf for visibility.

Each provider has a different capacity and strategy for receiving and storing inventory.

The next step is assigning placed orders to the warehouse picking team. While some partners follow a manual procedure to upload orders, others use integrated technology to connect shipments, inventory levels and orders from a single interface.

On submitting the order and item locations, they identify item locations to ‘pick’ out of the warehouse based on suitable pick types.

After picking, organize the items and pack them based on the client’s preference. Providers offer several packing materials to ensure items are secure and presentable while maintaining optimal dimensions and weight.

4. Shipping

After packaging, shipping is up next. Some clients have preferred carriers, while others might require assistance to frame an ideal shipping strategy. 3PLs print shipping labels and assess partners to compare options for shipping cut-off times, costs and more. Once shipped, tracking is available to all parties involved.

5. Returns and Reverse Logistics

Many 3rd-party logistics providers offer order fulfillment, returns management and reverse logistics services. Whether item delivery takes place by mistake or is damaged during the shipping process, 3PL partners follow a standard procedure to receive products, document receipts and follow the client’s reverse logistics strategy.

The item returns to the warehouse for refurbishment, recycling or destruction.

In addition to order fulfillment and reverse logistics, 3rd-party logistics offers other core functionalities, such as:

6. Transportation

Third-party logistics partners can handle transportation functions by analyzing their shipping, demand cycle and supply chain. They offer real-time visibility into moving inventory.

They also audit freight performance, identify efficiencies, optimize loads and reduce transportation costs.

Beyond the core functionalities, there is a wide array of value-added services such as:

Inventory Management

Inventory management is a critical aspect of supply chains. These partners go beyond just storing products in a warehouse and provide real-time visibility into inventory. They sync digital storefronts with inventory at each warehouse location, track real-time records, order more inventory and push out-of-stock notifications to the end customer when required.

Kitting involves assembling multiple individual items into ready-to-ship sets and easy-to-track SKUs before order fulfillment. It streamlines the packing and shipping process and improves customer satisfaction by ensuring quick receipt of bundled products.

Distributed Inventory

Many vendors have multiple strategic locations for their warehouses and fulfillment centers to ensure time-and cost-efficient delivery solutions. Clients can have their products at numerous geographical locations and ship each order from the storage location closest to the customer. This model is known as distributed inventory.

This step involves attaching product information and shipping details to packages before dispatch. It ensures that products are correctly categorized, tracked and routed throughout the supply chain and remain compliant. Different markets have different labeling requirements, so re-labeling is also vital for international shipping cases.

Technology and Expertise

Logistics is a huge undertaking as it constantly evolves. An experienced provider imparts their knowledge and expertise to streamline each aspect of the supply chain. They provide technical solutions to simplify processes and deliver promising results.

A 4PL , also known as a lead logistics provider (LLP), is another type of logistics outsourcing service that offers the same services as 3PLs but comes with additional responsibilities and accountability. 4PL providers often deal with multiple 3PL companies and manage several supply chain modules like shipping and end-user support.

While 3PL providers offer a specific set of logistics services such as transportation, warehousing, freight forwarding and distribution, 4PL providers offer a broader range of services that extend beyond traditional logistics functions. These include supply chain strategy, network design, vendor management, procurement and overall supply chain optimization.

While outsourcing fulfillment operations to third-party logistics providers is no longer a no-brainer, you must not rush to make a decision. The first step in choosing the right 3PL provider is determining whether you need one.

Here are a few questions you can ask yourself while evaluating your requirements for 3PL outsourcing services:

• What are our key business goals, and how do our logistics operations align with them?
• How are our current logistics operations affecting overall business efficiency and customer satisfaction?
• Do we have the necessary technology and expertise to optimize our logistics operations?
• Can we scale our logistics operations efficiently to meet fluctuating demand?
• What’s the cost-benefit analysis of managing logistics in-house versus outsourcing to a 3PL?
• Can we effectively manage compliance, risk and international shipping challenges with our current resources?

Once you’ve evaluated your core requirements, proceed to evaluating 3PL providers.

Khachatryan advised:

When selecting a 3PL provider, consider their industry expertise, technology capabilities, network strength and customer service record. A successful partnership hinges on alignment with your business needs and the provider’s ability to adapt to changing market dynamics.”

McClellan suggested some other requirements that you must look for in a successful 3PL provider:

• In addition to assessing general experience and expertise, evaluate whether there are industry-specific requirements (there are many in beverage alcohol, for example) and whether the 3PL has a proven track record in those areas. Client references are always helpful as well.
• Evaluating technology capabilities is key in determining a 3PL’s success. Do they have a central system to manage the core business, or have they integrated several disparate systems? Do they have real-time tracking and visibility tools and integration capabilities with your existing systems?
• When important functional areas rely on other companies’ platforms, such as compliance or transportation management systems (TMS), assess how well these systems are delivering accurate and timely information to clients.
• Some other important factors to consider are geographic coverage, scalability (will the 3PL be able to manage your volume if you double in size?), provision of performance metrics and data analytics, the 3PL’s financial stability and the 3PL’s record of client support and overall communication record.

Why Is 3PL important?

To survive in the current and competitive marketplace with eCommerce giants like Amazon and eBay, you must offer fast and accurate shipping and order fulfillment to your customers. Managing every step of the process, from storage to shipping in-house, is prone to errors and results in higher costs. Outsourcing these services to a 3PL provider ensures streamlined and cost-effective fulfillment and order management.

What’s the difference between freight forwarding and a 3PL?

Freight forwarders specialize in arranging the transportation of goods across international borders, handling logistics, documentation and transportation carrier selection.

On the other hand, 3PLs offer a broader range of logistics services that extend beyond transportation. These include warehousing, inventory management, order fulfillment and sometimes even freight forwarding.

What are some examples of 3PL companies?

Some well-known 3PL companies are DHL, ShipBob, AFS Logistics, RedStag, FedEx and UPS.

Can Amazon be considered a 3PL company?

Amazon offers 3PL fulfillment services via two of its business entities: Amazon Multi-Channel Fulfillment (MCF) and Fulfillment by Amazon (FBA). While FBA handles fulfillment exclusively for orders on Amazon’s website, MCF extends fulfillment services to orders from various sales channels beyond Amazon’s platform.

What is a 3PL warehouse?

A 3PL warehouse is a facility operated by a third-party logistics provider that manages services like storage, inventory management, packaging and shipping. Companies typically build these warehouses in strategic places to ease warehouse management and shipping.

Businesses don’t always have the bandwidth to manage end-to-end logistics operations. Outsourcing to the right 3PL provider can streamline supply chains and bring focus to core operations while leveraging their partner’s experience to expand into new territories, mitigate risks and handle supply chain disruptions.

Choosing the right 3PL provider requires thorough software requirements evaluation and analysis. Our free requirements template can be a valuable tool for identifying specific needs and evaluating potential providers based on their capabilities

Which 3PL capabilities do you find most useful — and why? Drop your thoughts in the comments!

SME Contributors

A veteran of classical brand management and business development, Jim has over 25 years of experience building brands. He’s the co-founder of Fort Systems, which offers fulfillment services.

Jim began his career at Kao Corporation, a multinational consumer products company. He focused on brand management and business development throughout Japan and Asia, with an emphasis on implementing multinational ECR-based initiatives with major retailers. Jim received his BA from Haverford College and a Master’s degree in international affairs and Japanese studies from Columbia University.

Robert Khachatryan is the CEO and founder of Freight Right Global Logistics. He has more than 20 years of experience in logistics and expertise in supply chain design, eCommerce shipping, freight marketplaces and booking automation. With a background in rates and supply chain dynamics, he offers insights into current industry trends and challenges.

Lily Bridgers - July 18, 2023 reply

Hi, so my dad’s business is booming every month which makes us all very proud of him. So here we all are, helping him find the best 3PL that can make transporting his goods more efficient. We’ll keep in mind that after selecting, arranging, and boxing the products in accordance with the client’s preferences. In order to keep things safe and aesthetically pleasing while keeping ideal dimensions and weight, you said that providers provide a variety of packaging materials. Thanks.

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Third-Party Logistics (3PL): A Comprehensive Guide

• March 19, 2024
• General Procurement

By The oboloo Team

Introduction to 3PL

Welcome to the world of logistics, where efficiency is king and timely delivery reigns supreme! In today’s fast-paced business landscape, companies are constantly seeking innovative ways to streamline their operations and gain a competitive edge. That’s where Third-Party Logistics (3PL) providers step in, offering a comprehensive range of services that enable businesses to optimize their supply chains and focus on core competencies.

Picture this: your company produces high-quality products that customers love. However, managing the intricate web of transportation, warehousing, and distribution can be overwhelming. This is precisely why many organizations turn to 3PL providers – experts who specialize in handling the intricacies of procurement so you don’t have to.

In this comprehensive guide, we will delve into the world of 3PL services, exploring its evolution over time and uncovering why companies rely on these external partners for support. We’ll also explore different types of 3PL providers available in the market and discuss both the benefits they bring as well as potential challenges faced along the way.

The Evolution of Third-Party Logistics

The world of logistics has come a long way since its inception. In the early days, companies would handle all aspects of their supply chain in-house, from procurement to shipping and distribution. However, as businesses grew more complex and globalized, it became clear that managing every aspect of the supply chain was not only difficult but also costly.

Enter third-party logistics (3PL) providers. These companies specialize in handling various aspects of the supply chain on behalf of other businesses. They offer services such as transportation management, warehousing, inventory management , and order fulfillment.

The evolution of 3PL can be traced back to the late 1970s when companies realized they could outsource certain functions to external experts who had specialized knowledge and resources. This allowed businesses to focus on their core competencies while leaving logistics operations in capable hands.

Over time, 3PL providers have evolved to meet the changing needs of businesses. With advancements in technology, they now offer sophisticated solutions like real-time tracking systems and data analytics tools that provide valuable insights into supply chain performance.

One key driver behind the evolution of 3PL is globalization . As companies expanded their operations across borders, they needed partners who could navigate international regulations and customs requirements efficiently.

Additionally, customer expectations have played a significant role in shaping the evolution of 3PL services. Today’s consumers demand faster delivery times and seamless order fulfillment experiences. To meet these demands effectively, companies rely on 3PL providers with extensive networks and expertise in last-mile delivery.

Another factor contributing to the growth of 3PL services is e-commerce boom . The rise in online shopping has created a need for efficient warehouse management systems and streamlined fulfillment processes – areas where many retailers often lack expertise.

As technology continues to advance rapidly with concepts like artificial intelligence (AI) and blockchain gaining traction within the industry, it is likely that we will witness further transformations in how third-party logistics operate.

Why Companies Use 3PL Services

Companies today face numerous challenges when it comes to managing their supply chains. From inventory management and warehousing to transportation and distribution, the logistics aspect of business operations can be complex and time-consuming. That’s where third-party logistics (3PL) providers come in.

One of the main reasons companies use 3PL services is to streamline their supply chain processes . By outsourcing these tasks to a specialized provider, businesses can focus on their core competencies and leave the logistics expertise to professionals who excel in this field.

Moreover, partnering with a 3PL provider offers companies access to advanced technology systems that enhance efficiency and visibility throughout the entire supply chain. These technologies include real-time tracking capabilities , automated order processing, data analytics tools, and more. With such resources at hand, businesses can make informed decisions based on accurate information regarding inventory levels, delivery times, and customer demand.

Another significant advantage of using 3PL services is cost savings . Logistics operations require substantial investments in infrastructure like warehouses or transportation fleets. By leveraging the existing infrastructure of a reputable 3PL provider instead of building their own from scratch, companies can avoid hefty capital expenditures while still benefiting from efficient logistics solutions.

Additionally, utilizing a 3PL provider allows businesses to tap into a vast network of carriers or shipping agents worldwide. This enables them to offer customers faster delivery times as well as access new markets without having to establish physical presence everywhere themselves.

Lastly but crucially for many companies is risk reduction . A reliable 3PL partner takes on much of the liability associated with logistics operations such as compliance with regulations or handling unforeseen events like natural disasters or labor strikes. This helps protect businesses from potential disruptions that could negatively impact customer satisfaction and overall reputation.

Types of 3PL Providers

When it comes to third-party logistics (3PL) providers, there is no one-size-fits-all solution. The industry has evolved over the years, giving rise to different types of providers that cater to specific needs and requirements.

One type of 3PL provider is the transportation-based provider. These companies specialize in managing transportation operations such as freight forwarding , shipping, and delivery services. They have extensive networks and expertise in optimizing routes, reducing costs, and ensuring timely deliveries.

Another type is the warehouse/distribution-centered provider. These providers focus on warehousing and distribution management. They offer services like inventory management, order fulfillment, packaging, labeling, and even returns processing. With their advanced technology systems and efficient processes, they help businesses streamline their supply chain activities.

Some 3PL providers offer value-added services beyond transportation and warehousing. These include customs brokerage for international shipments or handling complex regulatory requirements. They may also provide additional services like product assembly or customization to meet specific customer demands.

There are also niche-specific 3PL providers that cater to particular industries or verticals such as healthcare/pharmaceuticals or e-commerce fulfillment. By specializing in these sectors’ unique challenges and regulations, these providers can offer tailored solutions that address specific requirements effectively.

Lastly are the IT-based service providers who focus on providing technology-driven solutions for supply chain management. These companies develop software platforms that enable real-time visibility into inventory levels across multiple locations while streamlining communication between suppliers, manufacturers,

Each type of 3PL provider brings its own set of advantages depending on your business’s needs – whether it be cost savings through optimized transportation networks or improved efficiency through advanced warehouse management systems.

Benefits and Challenges of Using a 3PL Provide

When it comes to managing your supply chain, partnering with a third-party logistics (3PL) provider can offer numerous benefits. Let’s explore some of the advantages that come with outsourcing your logistics operations.

First and foremost, one of the key benefits is cost savings . By utilizing the expertise and infrastructure of a 3PL provider, you can eliminate the need for investing in expensive warehousing facilities, transportation vehicles, and technology systems. This enables you to reduce overhead costs significantly.

Another advantage is increased efficiency and scalability. A reputable 3PL provider has extensive experience in managing complex logistics operations efficiently. They have established processes and resources in place to handle peak seasons or sudden spikes in demand seamlessly. This allows you to scale your business without worrying about logistical constraints.

Moreover, partnering with a 3PL provider grants you access to their network of carriers and suppliers. This ensures better freight rates due to their purchasing power and established relationships within the industry. Additionally, they have advanced tracking systems that provide real-time visibility into inventory levels, shipments, and delivery status.

Despite these benefits, using a 3PL provider also poses certain challenges that businesses should be aware of. One such challenge is relinquishing control over certain aspects of your supply chain management process . While this may alleviate operational burdens on your end, it requires trust in the capabilities of your chosen partner.

Furthermore, communication becomes critical when working with an external entity for logistics management. It is essential to maintain strong lines of communication with your chosen 3PL provider to ensure efficient coordination throughout the entire supply chain process.

Selecting the right 3PL partner can be challenging as there are various providers available offering different services at different price points. It requires thorough research on each potential candidate’s track record, reputation within the industry, customer reviews or testimonials before making a decision that aligns best with your business needs.

How to Choose the Right 3PL Provider for Your Business

Choosing the right 3PL provider for your business can be a critical decision that can impact your operations and overall success. With so many options available, it’s important to approach this process with careful consideration. Here are some key factors to keep in mind when selecting a 3PL provider:

1. Evaluate their expertise: Look for providers who specialize in your industry or have experience managing similar supply chain needs. This ensures they understand the unique challenges you may face.

2. Assess technology capabilities: In today’s digital age, having advanced technology systems is crucial for efficient logistics management. Ensure that the 3PL provider has robust software solutions and real-time tracking capabilities.

3. Consider scalability: As your business grows, you’ll need a 3PL partner who can scale their services accordingly without compromising quality or efficiency. Look for providers who have flexible solutions and a track record of handling growth.

4. Analyze cost structures: While cost is an important factor , it shouldn’t be the sole determining factor in choosing a 3PL provider. Compare pricing models and understand what is included in their fees to ensure you’re getting value for money.

5. Check references and reputation: Don’t just rely on marketing materials; reach out to existing clients or industry contacts for feedback on potential providers’ performance and reliability.

6. Have open communication lines : Selecting a 3PL partner means entering into a long-term relationship where effective communication is vital . Opting for someone who aligns with your company culture will result better outcomes.

7. Plan site visits before finalizing : Before making any final decisions,schedule site visits at prospective facilities.

Future Trends in the 3PL Industry

The world of logistics is constantly evolving, and the 3PL industry is no exception. As technology continues to advance at a rapid pace, there are several key trends that are shaping the future of third-party logistics.

One major trend is the increased use of automation and robotics in warehouses and distribution centers . With advancements in artificial intelligence and machine learning, robots can now perform tasks such as picking, packing, and sorting with greater efficiency and accuracy. This not only speeds up operations but also reduces costs for 3PL providers.

Another emerging trend is the integration of big data analytics into supply chain management. By leveraging data from various sources such as sensors, GPS trackers, and social media platforms, companies can gain valuable insights into consumer behavior, market trends, and demand patterns. This allows them to optimize their inventory management processes and make more informed decisions about sourcing , transportation routes, and warehouse locations.

In addition to automation and data analytics, sustainability is becoming an increasingly important focus for the 3PL industry. With growing awareness of environmental issues such as climate change and carbon emissions , customers are placing greater importance on working with environmentally responsible partners. As a result, many 3PL providers are investing in green initiatives such as electric vehicles for transportation or implementing renewable energy sources in their facilities.

E-commerce continues to be a driving force behind the growth of the 3PL industry. The rise of online shopping has led to increased demand for fast delivery times and flexible fulfillment options like drop-shipping or same-day delivery. To meet these expectations while maintaining cost-effectiveness,

The world of logistics is constantly evolving, and third-party logistics (3PL) providers have become an integral part of many businesses’ supply chain management strategies . From warehousing and transportation to inventory management and order fulfillment, 3PL companies offer a wide range of services that can help businesses streamline their operations and reduce costs .

In this comprehensive guide, we’ve explored the evolution of 3PL, the reasons why companies choose to use these services, the different types of providers available, as well as the benefits and challenges associated with outsourcing logistics. We also discussed how to choose the right 3PL provider for your business by considering factors such as industry expertise, technology capabilities, and customer service.

Looking ahead, it’s clear that the future holds exciting opportunities for the 3PL industry. With advancements in technology such as automation and artificial intelligence revolutionizing supply chain processes, businesses can expect even greater efficiencies in their logistics operations. Additionally, sustainability will continue to be a key focus area for both 3PL providers and their clients as they work towards reducing carbon footprints and adopting eco-friendly practices.

3PL vs. 4PL Logistics: Definition and Comparison

Written by: Megan Marsh

We’re laying down the law on the often confused — and sometimes debated — “PL” terminology. What is a 3PL, how does it differ from a 4PL, and which one is right for your company?

It can be tough to decide whether you need a 3PL versus a 4PL logistics provider to optimize your supply chain. Making the wrong choice can cost millions of dollars and negatively impact your customer service levels — so you’ll want to get it right.

In this article, I’ll share my best definitions, compare the differences between 3PL and 4PL, and explain how these solutions can support your unique supply chain strategy.

1PL, 2PL, 3PL, 4PL, 5PL Definitions

1PL – First-Party Logistics

An enterprise that sends goods or products from one location to another is a 1PL. For example, a local farm that transports eggs directly to a grocery store for sale is a 1PL.

2PL – Second-Party Logistics

An enterprise that owns assets such as vehicles or planes to transport products from one location to another is a 2PL. That same local farm might hire a 2PL to transport their eggs from the farm to the grocery store.

3PL – Third-Party Logistics

In a 3PL model, an enterprise maintains management oversight, but outsources operations of transportation and logistics to a provider who may subcontract out some or all of the execution. Additional services may be performed such as crating, boxing and packaging to add value to the supply chain. In our farm-to-grocery store example, a 3PL may be responsible for packing the eggs in cartons in addition to moving the eggs from the farm to the grocery store.

4PL – Fourth-Party Logistics

In a 4PL model, an enterprise outsources management of logistics activities as well as the execution across the supply chain. The 4PL provider typically offers more strategic insight and management over the enterprise’s supply chain. A manufacturer will use a 4PL to essentially outsource its entire logistics operations. In this case, the 4PL may manage the communication with the farmer to produce more eggs as the grocery store’s inventory decreases.

5PL – Fifth-Party Logistics

A 5PL provider supplies innovative logistics solutions and develops an optimum supply chain network. 5PL providers seek to gain efficiencies and increased value from the beginning of the supply chain to the end through the use of technology like blockchain, robotics, automation, Bluetooth beacons and Radio Frequency Identification (RFID) devices.

As we progress through the spectrum of logistics models from 1PL to 5PL, it’s clear that more and more of the logistics function is in the hands of the provider rather than the enterprise itself. The most common models now are 3PL and 4PL and we’ll look at how each one can help solve supply chain challenges.

What is a Third-Party Logistics Provider?

The term “third-party logistics provider,” or 3PL, has been around since the 1970s. It simply means that a third party is involved in a company’s logistics operations, in addition to the shipper/receiver and the carrier.

A 3PL does not take ownership of (or title to) the products being shipped. This third party comes into play as an intermediary or manager between the other two parties.

The first 3PLs were intermodal marketing companies that accepted loads from shippers and tendered them to railroads, becoming a third party in the contract between shippers and carriers, according to the  Council of Supply Chain Management Professionals (CSCMP)  glossary. Today, any company that offers some form of logistics services for hire is known as a 3PL. This includes facilitating the movement of parts and materials from suppliers to manufacturers, as well as finished products from manufacturers to distributors and retailers.

A 3PL may or may not have its own assets, such as trucks and warehouses. In some cases, the role of 3PL and broker overlap, but typically a broker is used to engage trucking capacity for a specific shipment. A 3PL may act as a broker or use brokers to move clients’ freight.

Most 3PLs offer a bundle of integrated supply chain services, including:

• Transportation
• Warehousing
• Cross-docking
• Inventory management
• Freight forwarding

A 3PL can scale and customize services to meet customers’ needs based on their strategic requirements to move, store, and fulfill products and materials. Companies turn to 3PLs when their supply chain becomes too complex to manage internally. For example, a company may grow through mergers and acquisitions, so a supply chain that was manageable at one time outgrows the in-house capability.

The 3PL offers experience gained from working for multiple clients across many different industries. They also offer technology solutions — in some cases, proprietary tools — such as transportation and warehouse management systems beyond what the shipper could afford to invest in independently. Long-term relationships with carriers can result in better pricing and service during periods when capacity may come at a premium. The economy of scale can lower prices on everything from packing tape to ocean shipping rates.

Advantages of 3PL

A 3PL will offer innovative strategies to transform your supply chain into a cost-effective, responsive model. Consider what we’re doing at Warehouse Anywhere as an example. In contrast to the traditional single distribution center (DC) model, we have pioneered and perfected forward-deployed inventory management. The common hub-and-spoke DC model is not able to keep up with the pace of business, with large inventories and infrequent truck service. We’ve developed the forward-deployed model for warehousing and distribution that uses a larger number of smaller locations to move products closer to the customer. This decentralized, hyper-connected model provides the responsiveness needed to meet customers’ expectations for timely delivery.

No matter if you’re direct-to-consumer or in a service-level agreement situation, customers expect overnight delivery, or as close to it as possible. The Warehouse Anywhere system can optimize your inventory per location to ensure stock is on hand in areas of highest demand. You will save on transportation and logistics expenses while improving customer service.

Disadvantages of 3PL

While the 3PL model has been successful for decades, there are some things to consider. Perhaps the most significant caveat is the lack of direct oversight and control. After all, a 3PL is an outsourced service provider. That means some activities will take place outside of your direct supervision. Ensuring quality control and customer service requires an extra level of diligence. If a 3PL fails to deliver on a customer’s expectation, the customer will blame your company, not the 3PL.

Another issue is the degree of dependency a 3PL can create. When you outsource a significant segment of your business, it can be difficult to switch providers or take the operations in-house if pricing or service levels no longer meet expectations.

3PL by Industry

3pls for medical devices.

For industries with complex supply chain requirements, 3PLs deliver solutions that turn challenges into competitive advantages.

For the medical device industry, visibility and value-added delivery processes are top priorities. To meet regulatory requirements, devices must be tracked throughout every step of the process with a verifiable chain of custody. This capability requires complex technology solutions that can track inventory across multiple locations and carriers to ensure individual devices can be tracked and traced at a moment’s notice.

Medical device shippers rely on 3PLs for services that go well beyond dropping off boxes on the dock. Clients are looking for delivery to the end-user department, on-site inventorying, returns and repairs and other small but vital steps in serving customers.

A 3PL can help a medical device company develop systems to optimize delivery from a distribution hub to individual locations. Rather than delivering half a dozen items in many shipments, the 3PL can develop the visibility to consolidate deliveries to reduce costs significantly. 3PLs can manage expedited shipments to fulfill just-in-time delivery for high-value items, such as knee implants. Greater visibility into inventories and reverse logistics improves ease of auditing, reducing the need for physical auditing.

3PLs for Field Services

Companies with extensive field service operations, no matter if they’re strictly internal or offer services to clients, will benefit from 3PL partnerships. A field service environment is different than a manufacturing situation and requires unique solutions. Meeting service level agreement (SLA) expectation is crucial to customer satisfaction, and a well-managed forward deployment program can ensure standards are met or exceeded.

To meet these high expectations, a 3PL can forward deploy commonly used items in smaller distribution hubs for rapid, lower cost response. The 3PL can develop a database of the most often ordered items and ensure inventory is managed to meet ongoing demand. Having the right part available when the service technician makes the initial call will contribute to a high level of customer satisfaction. The service tech can stop at the hub to pick up parts or place an order for expedited delivery to the job site.

3PLs for Retail

Thanks to the “ Amazon effect ,” customers have come to expect merchandise to be readily available online or in-store. After all, if you can receive practically anything from Amazon in two days or less, customers don’t understand why they can’t receive goods from other shippers in the same time frame. A 3PL can develop a strategy to improve supply chain discipline to better compete with Amazon on shipping times and fulfillment accuracy.

What is a Fourth-Party Logistics Provider?

A fourth-party logistics provider, or 4PL, represents a higher level of supply chain management for the customer. The 4PL gives its clients a “control tower” view of their supply chains, overseeing the mix of warehouses, shipping companies, freight forwarders and agents.

The goal is to have the 4PL act as the single interface between all aspects of the supply chain and the client organization. Consulting firm Accenture originally copyrighted the term in the mid-1990s, but it has since fallen into generic use.

In some cases, a 4PL may be established as a joint venture or long-term contract between a primary client and multiple partners, often to manage logistics for specific locations or lines of business. The structure of a 4PL can vary, as there may be a 4PL component within a larger 3PL relationship. A 4PL is a form of business process outsourcing, similar to contracting out human resources or financial functions.

What’s the Difference Between 3PL and 4PL Logistics?

Typically, the 4PL does not own transportation or warehouse assets. Instead, it coordinates those aspects of the supply chain with vendors. The 4PL may coordinate activities of other 3PLs that handle various aspects of the supply chain. The 4PL functions at the integration and optimization level, while a 3PL may be more focused on day-to-day operations. A 4PL also may be known as a Lead Logistics Partner (LLP), according to the CSCMP.

The primary advantage of a 4PL relationship is that it is a strategic relationship focused on providing the highest level of services for the best value, as opposed to a 3PL that may be more transaction focused. A 4PL provides a single point of contact for your supply chain. With a 3PL, there may be some aspects that you still have to manage. The 4PL should take over those processes for you, acting as the intermediary for 3PLs, carriers, warehouse vendors and other participants in your supply chain.

The 4PL relationship simplifies and streamlines the logistics function using technology for greater visibility and imposing operational discipline across many partners and suppliers. The enterprise can focus on its core competencies and rely on the 4PL partner to manage the supply chain function for maximum value. Basically, the 4PL acts as the enterprise would if the supply chain functions were managed in-house.

As companies transition their supply chain model to forward deployment or decentralized distribution, a 4PL partner can step in and manage that complexity. Retailers, in particular, are shifting toward a more nimble model to support e-commerce and omnichannel services. A 4PL can manage the multiplying number of resources that it takes to compete at that level. The days of the million-square-foot super regional DC may be over, as companies opt for shared warehouse space near major customer centers to speed up responsiveness. The 4PL can manage those relationships, as well as optimize the network to use parcel carriers or couriers to support e-commerce, rather than LTL or truckload services.

Fourth-Party Logistics Advantages

Choosing a 3PL vs. a 4PL can be a complicated decision that depends on the complexity of your supply chain and your company’s strategic goals.

A 3PL relationship works well when the organization has a solid, high-performance supply chain strategy in place and requires support to execute the plan. Working with a 3PL will typically require a high level of internal management commitment and oversight to ensure performance meets your standards. However, many day-to-day decisions are out of your hands as you count on the providers selected by the 3PL to meet your service commitments. An asset-based 3PL may focus too much on ensuring that its own assets are fully utilized at the expense of lower rates or better services from other providers. For smaller companies, a 3PL can provide an immediate level of scale that would otherwise be cost prohibitive.

A non-asset based 4PL is agnostic in choosing suppliers, concentrating on finding the best combination of value and service. Typically, a 4PL will have integrated technology offerings that deliver a high level of visibility into the supply chain for tactical and strategic analysis. Of course, internal resources are still necessary to manage the 4PL performance, but it should be a higher level of oversight than a 3PL.

Warehouse Anywhere has performed as both a 3PL and 4PL for our clients. Recently, we’ve seen great success in acting as a 4PL in managing forward-deployed inventories in a variety of vertical markets. We can localize your inventory in hundreds of U.S. cities in a very short period of time.

4PL by Industry

4pls for medical devices.

Did you know that sometimes surgeons order a medical device such as a knee replacement only after the patient has started the anesthesia process? Talk about just-in-time delivery. Surgeons may order several sizes of a product because they don’t know precisely which one they’ll need at the start of the procedure.  A 4PL can manage the complex chain of custody requirements and delivery schedules to meet physician’s requirements and reduce inventory costs.

For one medical-device manufacturer Warehouse Anywhere developed a network of inventory centers to service hospitals and surgery centers. We maintain their inventory, relieving field reps of that burden and eliminating consignment costs. Since we guarantee delivery of items up to one hour prior to surgery, physicians can preschedule surgeries as well. We handle all reverse logistics and restocking of unused items.

We found in many cases physicians typically  ordered more than $3.5 million worth of devices in a year, but used only about $300,000 worth . The extra cost of shipping these items to and from the hospital and DC were excessive, and consumed by the medical device company. Our solution helped eliminate inventory write-off costs while improving service to the medical facilities. Now, this medical device company sees their supply chain as a competitive advantage rather than a cost center.

4PLs for Field Service

To serve field service and repair organizations a 4PL takes control of the supply chain including warehousing, fulfillment, transportation and technology.

The Warehouse Anywhere forward-deployed 4PL model is perfect for field service businesses because we manage all the moving parts to meet your service expectations. The process begins with a detailed analysis of parts usage based on historical data and installed customer base to determine the individual parts, quantities and locations necessary to meet anticipated demands.

The field techs don’t have to function as warehouse operators anymore. Parts location and inventories are visible to all the techs in the region, reducing the need for trunk stock.

For one field service organization supporting retail and financial services technology, Warehouse Anywhere established a decentralized warehousing model, and developed a fulfillment system to provide parts in 30 minutes or less, meeting or exceeding service level agreements. Its real-time inventory tracking and visibility support full chain of custody, 24/7 inventory availability and ERP/IT integration.

4PLs for Retail/E-Commerce

The largest e-commerce companies, like Amazon, act as their own 4PLs by owning and managing the entire supply chain. Few other companies have the resources to match that, so they turn to 4PLs for strategic management.

Over the years, many retailers have used 3PLs for transportation, warehousing and fulfillment. As e-commerce boomed, retailers often bolted on those capabilities to existing systems, creating parallel supply chains to meet in-store and online demand. As e-commerce logistics matures, it’s become apparent that an omnichannel approach is a sustainable direction to support customers, regardless of the channel from which they purpose.

A 4PL offers the strategic vision to create a new supply chain network that efficiently manages the flow of product across all platforms. A single view of inventory gives the retailer the power to allocate inventory and meet customer demand regardless of the status or location of the inventory.

Forward-deployed inventory can serve both physical locations and e-commerce fulfillment. For brick-and-mortar locations, the forward deployment supports same-day inventory replenishment as well as online order fulfillment from the same location.

With smaller store footprints, there’s no room “in the back” anymore. For a retail apparel customer, we forward deployed inventory within a five-mile radius of stores to replenish popular items within one hour.

3PL vs. 4PL – What’s Best for Your Company?

If your company is dealing with an increasingly complex supply chain and struggling to meet customer expectation for faster response, then an innovative 3PL or 4PL may be the best solution for you.

In partnering with an innovative leader, your supply chain solutions can be optimized for maximum customer value with a competitive advantage. The most successful logistics partnerships seamlessly blend the flow of products and information flow, and that’s where  our technology  truly enables supply chain excellence.

Whether you’re direct-to-consumer or offering service-level agreements to business-to-business partners, you know that overnight delivery (or close to it) is what your customers expect. That’s why Warehouse Anywhere is on a different level than other 3PL companies. If you are servicing a large national market, you can place fast-moving parts, materials or products in multiple fulfillment warehouse locations that are closest to your points of highest demand. This forward-deployed inventory model allows us to store your resources everywhere that you need them to be.

In addition to a distribution or fulfillment service, you’ll also have a layer of technology and expertise that a traditional  3PL warehouse  doesn’t have. You will save on your transportation and logistics while also achieving excellent customer service.

To find out more about positioning your assets where you need them most, please don’t hesitate to  connect with me on LinkedIn  or  contact us  online today.

Related Resources

Centralized vs. Decentralized Logistics: Which is Better?

Retaining Field Service Engineers (FSE): How Inventory Management Can Help

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Third-party Logistics - PowerPoint PPT Presentation

Third-party Logistics

By cap gemini. users' concerns about 3pls. growth of 3pl industry in china ... evolving 3pl relationships. what is 4th party logistics (4pl) 3pl 2004 9th ... – powerpoint ppt presentation.

• Third-party logistics (3PL) service providers are companies who provide a range of logistics activities for their clients. These are companies independent from the buyers and sellers but takes over some of their logistics function.
• Concerns? Challenges?
• Basic Service Providers
• warehouse management
• order processing
• order fulfilment
• transportation carrier selection
• Value-added Service Providers
• shipment/order consolidation
• import/export customs
• logistics information systems (EDI, reporting)
• fleet management/operations (e.g. cross-docking)
• product assembly/installation
• Logistics Integrators
• full responsibility for key supply chain operations
• replenishment/order-filling policies
• product returns
• customer spare parts inventory replenishment
• rate negotiation
• Labor supervision
• Receiving, storage, shipping
• Value Added Services
• Traffic/transportation
• Lower capital investment
• Lower fixed/variable cost ratio
• Focus to the core
• Professional service
• Same as contract warehouse
• Customs clearance
• Freight consolidation
• Shipment visibility
• Inventory ownership
• Order fulfillment
• Delayed payment of duties and taxes
• Pay (for material) on production
• Visibility of pipeline inventory
• Transport arrangement
• Carrier mgmt / rate mgmt
• Merge in transit
• Shorter cycle time
• Lower freight costs
• Inventory consolidation
• Testing / screening
• Warranty program mgmt
• Warehousing and inv mgmt
• Fulfillment
• Depot repair mgmt
• Centralization of inventory
• Reduced reverse logistics costs
• Speedy response to customers
• Failed parts replacement
• Warehousing
• Visibility and TrackTrace
• Lower transportation cost
• Improved visibility of inventory
• Better after-sales service support
• Inventory finance (factoring, LOC)
• Distribution finance (asset based
• lending, receivable finance)
• Payment solutions (COD)
• Reduced cost of capital
• Improved cash flow
• Reduced capital investment
• Logistics planning
• Network optimization
• 3rd vendor mgmt
• Information technology
• Supply chain visibility
• Reduced total logistics costs
• Global visibility
• Single logistics solution and contact
• Reduced investment in logistics
• improve company focus
• allows firm to focus on core functions and core competencies
• cash infusion
• selling assets to 3PL provider
• access to world-class capabilities and new logistics technology
• free-up resources
• no capital investments in logistics
• resource not available internally
• accelerated reengineering benefits
• reduce and control operating costs
• eliminate labor problems
• pushes risk to 3PL provider
• risk pooling
• cost of technology investment by 3PL provider shared among clients
• achieves economies of scale and provides better service
• Co-ordination costs
• Loss of internal logistics management capabilities
• Biased choice of service providers
• Leakage of sensitive data and information
• Service degradation
• Less reliable? Longer order cycle time?
• Emergency response?
• Loss of control and representation
• Reduced contact with final customer
• 3PL for outbound logistics interact with your customers, you become less visible to your customers
• Consolidation is the key!
• Transactional model
• Carriers per shipment, per container unit, per weight / volume unit
• Freight forwarders per shipment, per weight / volume unit
• Public warehouse operators per weight / space area unit
• Contract logistics model
• Activity-based costing, i.e., Fixed management fee variable charges based on volume
• Or, cost plus
• Or, gain sharing model
• Total logistics management
• As for contract logistics
• Risk/reward sharing
• Partnership
• Cost/gain measurement?
• Savings distribution?
• Industrys most significant revenue generators (ranked in order)
• Transportation management/services
• Warehousing management/operations
• Value added services
• Dedicated contract carriage
• Fleet management/operations
• Logistics information services
• Challenges for 3PL users
• Setting up internal benchmarks and performance measures before finding a 3PL partner
• Development of appropriate and sustainable pricing systems
• Developing an interactive and collaborative partner relationship
• Challenges for 3PL service providers
• Finding qualified people
• Development of systems which are flexible, adoptable and user-friendly
• Development of a global logistics infrastructure
• Carefully develop internal costs
• Develop key performance indicators
• Seek broad company inputs at the Request for Proposal (RFP) stage
• Solicit multiple RFPs
• Only select the services you really need
• Make sure that you understand the technology issues before you sign a contract
• Prepare to change your assumptions after the start-up
• Avoid cost-plus contracts
• Find out if the cultures are similar
• Dont give up complete control of your supply chain
• 936 billion
• 8.5 of GDP (lowest in 15 years)
• Inventory-to-sales ratio decline to 1.32 months
• Transportation
• Trucking services increase by 20 billion
• 7.5 increase for intercity
• 3 for local
• Size of 3PL Industry (USA, 2003)
• Companies spend 76.9 billion on logistics outsourcing
• 8 of the total logistics expenditures
• Up 8.2 from 2002
• Key revenue growth areas dedicated contract carriage, domestic transportation management, warehouse-based services
• APL Logistics
• Burnham Services Corp.
• Caterpillar Logistics Services
• Circle International
• DSC Logistics
• Eagle Global Logistics
• EXEL Logistics, Inc.
• Federal Express Logistics Services
• Fritz Companies
• J.B. Hunt Logistics, Inc.
• HUB Group Logistics Services
• Leaseway Logistics Services, Inc.
• Maersk Logistics
• Menlo Logistics
• North American Logistics
• Penske Logistics
• Roadway Logistics Systems
• C.H. Robinson Company
• Ryder Dedicated Logistics
• Schneider Logistics
• Tibbett Britten
• TNT Contract Logistics, Inc.
• UPS Logistics
• USF Logistics
• USCO Distribution Services
• Yellow Logistics Services, Inc.
• 657 companies
• Automotive, Consumer products, Food beverage, Hi-Tech electronics, Pharmaceutical Medical, Retail apparel
• with sales revenues over 1 billion
• 58 in North America, 57 in Western Europe, 33 in Asia-Pacific, 11 in Latin America
• US Logistics Expenditures
• Transportation 55
• Distribution 32
• Value-added services 13
• In Europe, Asia-Pacific and Latin America, companies spend less percentage on transportation and more on the other two categories.
• Transport and logistics expenditure is US230 billion (20 of GDP) in 2001,
• with only 4.7 billion on outsourcing.
• Key factors for stimulating growth
• Increased operations of multi-national firms in China
• Cost pressures
• Government support in establishing national logistics centres
• Reduced regulations Chinas entry to WTO
• 20 logistics providers and 50 shippers in 8 sectors
• 85 of providers revenue comes from basic services such as transportation, management and warehousing
• Nearly 70 of providers believe clients are not ready for outsourcing, while almost half of the shippers surveyed cite obstacles for outsourcing, especially 3PL service quality
• The market is very fragmented No 3PL provider interviewed has a market share over 2. About 80 of providers revenues come from the Yangtse River and Pearl River Delta regions
• MNC shippers prefer MNC providers for their IT systems, industry/operational expertise, and standardized operations
• Chinese shippers prefer Chinese providers for their lower prices, local knowledge and national network coverage
• Container throughput in 2004 22 million TEUs
• Air cargo throughput in 2004 3.1 million tonnes
• Major Local 3PL Players
• OOCL and Cargo Systems
• Kerry Logistics
• Jardine Logistics
• IDS Logistics (Li Fung)
• SUN Logistics
• Power Logistics
• Some Major Chinese 3PL Players
• China Shipping
• China Merchant
• In US, the growth rate for 3PL market is estimated around 15-20 annually.
• In Asia and the rest of the world, the growth rate is estimated to be even higher in the range of 20-30 annually.
• Future Trends?
• Keys to Success?
• According to the 3PL 2004 9th Annual Study, users
• Expect 3PL can execute on a set of core capabilities
• Selection based on more unique value-added services
• Customer service/order entry
• Industry expertise
• Regional coverage
• Postponement
• Information management
• Global capabilities
• Strategic management skills
• We expect our 3PL provider to be able to provide the right technology solution for our needs.
• State of Logistics Report
• In 2003, world merchandise trade was 4.5 above that of 2002, global GDP rose by 2.5
• Eastbound Pacific cargo increased by 6, straining ocean shipping capacity, prices for Pacific (US-bound) container service increased by 40, another increase of 20 expected for 2004.
• China imports expanded by 40 and exports grew by 35 in value shipments to and from China account for more than one-quarter of all containerised cargo worldwide.
• World Trade Organisation predicts growth of world trade of 7.5, and world GDP to increase by 3.7
• 3PL 2004 9th Annual Study
• Q Is 4PL terminology confusing and ambiguous?
• 70 respondents yes or somewhat !
• Fourth Party Logistics supply chain co-ordination and management by an entity that does not supply (operate) underlying logistical services.
• Accenture Modern supply networks are global and complex, there is a need for an independent organisation, who has the knowledge of supply chains and specialist 3-party service providers, to manage and integrate the complete end-to-end supply chain.
• The ability to respond faster to changing customer need, combined with the flexibility to adjust manufacturing and delivery cycles, will provide the competitive edge in todays global environment
• Rosalyn A. Wilson, State of Logistics Report
• The 3PL providers that are going to win at the end game are those that have the ability to connect seamlessly, rapidly, and at low cost.
• - Focus group participant for 3PL 2004 9th Annual Study
• Third-party Logistics 2004 9th Annual Study, C. J. Langley, G.R. Allen and T.A. Dale, Georgia Institute of Technology, 2004.
• The two faces of Globalization, J. A. Cooke, Logistics Management, July, 2004.
• Third-party Logistics in China Still a Tough Market, D. Huang and M. Kadar, Mercer on Travel and Transport, Fall 2002.
• Third-Party Relationships. Third-Party Solutions, Modern Materials Handling, November, 2003.

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Webinar: 2024 SmartWay Online Logistics Tool Demonstration

2024 SmartWay Logistics Tool Demonstration

This webinar is for third-party logistics companies and Partners who want to learn how to use SmartWay’s ONLINE Logistics Tool. During the webinar, SmartWay staff review how Logistics Partners can use the 2024 Tool to obtain an emissions profile for their clients, carriers, and their own operations. This webinar begins with some background on SmartWay, walks you through the tool in a live demonstration, and provides insights on how you can use tool outputs to evaluate where performance can be improved. Key takeaways from this webinar include:

Key takeaways from this webinar include:

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