In this article, we will talk about what third-party logistics (3PL) providers are and how a 3PL can push your business to new heights. Keep on reading to find out more!
What is third-party logistics?
Third-party logistics, also known as 3PL, refers to the outsourcing of a business’ storage, distribution, and fulfillment needs. In business, logistics is a vital part of the all-encompassing supply chain umbrella that focuses on how products are acquired, stored, and delivered to the end consumer. The main role of a third-party logistics partner is to provide structure to the entire logistics operation while also saving the company money on storage and shipping fees. But how exactly does 3PL work?
How does 3PL work?
Put simply, 3PL mainly deals with distribution and fulfillment. It essentially functions as a bridge between the business and the supply chain to make sure that the right amount of products are delivered to the right customer. Here’s a quick rundown on how a 3PL service works:
- Receiving – Receiving refers to third-party logistics providers receiving a business’s inventory in order to process customer orders. This step involves auditing and recording an accurate log of your inventory to avoid overstocking or stockouts. Receiving is an important part of the 3PL fulfillment process as it enables your 3PL provider to satisfy consumer demand.
- Picking and packing – When a customer places an order, your 3PL logistics provider should be able to pick the ordered items from the inventory that you sent and update your inventory management software or other fulfillment software to keep an accurate record of your inventory levels. After picking all ordered items, it’s now time to pack! Before going on the road, an order goes through the packing process where a 3PL’s associates would perform quality assurance measures to ensure that only the highest quality of products are picked. Once this step is complete, the 3PL can now arrange for shipment.
- Shipping – To be a third-party logistics provider, you must have an extensive network of shipping partners that you can rely on. Usually, 3PL providers have the capability to negotiate shipping costs depending on the volume of a client’s orders. The larger the quantity, the bigger the discount.
Why do companies use 3PL providers?
The great thing about 3PL providers is how scalable their services are. Businesses are able to pick and choose which supply chain process they want to outsource as they experience growth. While it’s true that 3PL firms specialize in logistics, the benefits that these firms bring can be felt throughout a company’s operations. Check out some of them below:
- Cost savings – Perhaps the most common advantage of hiring a 3PL logistics provider is the cost savings. Hiring a 3PL logistics partner eliminates the expenses associated with a company’s procurement and distribution channels. Some of these cost savings include recruiting a logistics manager, handling storage/warehouse fees, and implementing in-house logistics technology. However, for a 3PL partnership to work, businesses must find quality 3PL providers that will continuously find ways to enhance important operations.
- Access to experienced professionals – If you are just starting out, logistics can be a confusing and tedious operation. What sets outsourcing apart is that it allows businesses to access knowledgeable and seasoned professionals without the need to hire in-house staff. When looking for a 3PL provider, it would be wise to ask about their compliance practices, management systems, data reporting tools, order tracking, and fulfillment network to get a better feel of their capabilities.
- Allows businesses to focus on core expertise – Outsourcing your logistics needs frees up valuable time that could be spent on growing your network or expanding your business. Knowing that your logistics operations are being handled by seasoned professionals enables you to have peace of mind and allows you to focus on your core competencies.
- Boost customer satisfaction – Ultimately, hiring a 3PL fulfillment partner means better services and timely deliveries that boost customer satisfaction. Now that customers expect their purchases to arrive as quickly as possible, partnering with a 3PL allows businesses to offer faster order fulfillment to all of their customers.
How much does it cost to hire a 3PL provider?
The simple answer is: it depends. When considering a 3PL partner, it is important to note that not all businesses are the same. In fact, one huge consideration in 3PL warehouse logistics is the type of product that a business offers and how much it would cost for a 3PL provider to handle it. From receiving and storing to packing and shipping, a 3PL partner is in charge of the entire distribution process so expect to pay for the full service.
However, as mentioned above, the great thing about a 3PL partner is how scalable they are. When you use a third-party logistics company, you can select the type of services that you need most and only pay for those services. This works especially well for startups and other small to medium-sized businesses operating in a distribution-focused industry.
Tips on How to Choose the Best 3PL Provider for Your Business
Outsourcing your logistics needs to a 3PL logistics partner offers a myriad of benefits for a rapidly expanding business. Not only are these providers experts in their field, but 3PL logistics partners are also seasoned veterans that can precisely navigate the ins and outs of the logistics space. If you think hiring a 3PL warehouse logistics partner is right for your business, check out some of the tips we’ve compiled below to help you in your decision-making process.
Understand your supply chain
Having an understanding of your supply chain enables you to find a 3PL partner that’s capable enough to meet your business’s unique needs. As a business owner, it is imperative for you to clearly set expectations based on the metrics you are monitoring and the goals that you are hoping to achieve in the short, medium, and long term. Remember, having an understanding of your supply chain practices allow you to develop coherent strategies and make informed decisions to improve your overall operation.
Ask what services they provide
Can your potential 3PL keep up with your growth? Do they offer services that match your logistical needs? Do they have sound inventory management practices? Do they have an extensive carrier network? How about industry specializations? These are just some of the questions that you should ask your potential 3PL provider to ensure that you have a clear understanding of their capabilities. Every 3PL has its own set of core competencies and can service one industry better than another. It’s about finding a match that can support your operations and scale with you when needed.
Know your technology requirements
Another significant factor to consider, when choosing the best 3PL provider for your business, is to make sure that they have robust technology solutions that can integrate into your software systems. Depending on your technology requirements, a 3PL fulfillment partner should have adequate technological sophistication and know-how to keep up with the changing customer demand. Consider factors such as:
- Integrations and other relevant software
- Warehouse/inventory management systems
- Shipment tracking and order fulfillment systems
- Data analytics and reporting
Services should align with your metrics
Again, looking for a 3PL partner requires an understanding of your company and what you are planning to achieve. Before you can gauge the success of your partnership, you must first find a 3PL partner that offers services that align with your company’s metrics. Can they improve your delivery rates? Can they keep an accurate real-time record of your inventory? It’s important to keep in mind that an excellent 3PL fulfillment partner should have the necessary technology in place to support industry best practices as well as meet your business’ needs.
Prioritize omnichannel expertise
Now that there are a plethora of retail channels out there, it is certainly ideal for businesses to look for a 3PL partner with omnichannel expertise. For customers, an omnichannel experience refers to the seamless consumption of goods across various channels and choosing a delivery method that ensures maximum customer convenience. This enables businesses to become more agile and personalize how products are presented, whether in-store or online, and distributed to the end consumer.
While partnering with a 3PL logistics partner is a popular option for small to medium-sized businesses, it still depends on what you need. If you’re focused on reducing logistics costs, a 3PL provider can help consolidate shipments depending on the volume of freight. It also puts focus on continuously improving your logistics processes and finding more cost-efficient distribution methods to make shipping quicker and less expensive.
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