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3PL (Third Party Logistics)

In logistics and supply chain management, 3PL, also known as third-party logistics (and sometimes called a TPL), is when an organization utilizes third-party businesses to outsource aspects of its distribution, warehousing, and fulfillment services.
3PL (Third-Party Logistics)

The Rise of 3PLs

The use of third-party logistics providers has boomed over the last ten years with the increase of offline and online retail brands. It has been reported that an estimated 86% of Fortune 500 companies and 96% of Fortune 100 use the services of a 3PL provider to handle elements of distribution, warehousing, and or fulfillment.

When Should You Engage a 3PL?

A merchant or business may want to consider a third-party logistics partner to expand beyond an already consistent order fulfillment stream. There are often additional powerful benefits to partnering with a 3PL company, such as inventory warehousing, real-time inventory monitoring technology, distribution networks, custom packaging, and fast shipping capabilities.

Outsourcing all or some aspects of a company’s logistics operations to a 3PL provider depends on many factors. For example, some in-house logistics may be preferred due to existing operation resources and processes, while handing off other logistics activities to a 3PL like order fulfillment and packaging, for example, may be the most effective choice for the company to acquire cost savings, increase sales, and expand customer reach.

Types of 3PLs

3PL providers can include freight forwarders, courier companies, and other companies who offer subcontracted services related to logistics and transportation. Third-party logistics providers can be split into four categories:

Standard 3PL Provider

This type of 3PL provides a partner company with basic forms of logistics and supply chain activities, including pick and pack, fulfillment, warehousing, distribution, and shipping.

Service Developer 3PL

A service developer 3PL provider generally offers additional solutions or support to a partner company in regards to IT, security, product and order tracking to improve accuracy and package deliverability.

Customer Adapter 3PL

Upon request, a customer adapter 3PL take over and adapt to the logistics activities of the partner company in question. The goal of the customer adapter 3PL provider is to substantially improve the partner company’s logistics operations without developing a new service.

Customer Developer 3PL

This type of 3PL provider will not only adapt to the partner company’s logistics operations, but apply their own systems to various processes and situations. This is an all-encompassing 3PL provider that becomes the entire logistics operation for the partner company, compared to providing the company with specific 3PL-based services.

3PL Activities

While third-party logistics providers vary in logistics activities performed, 3PLs commonly provide some form of the following activities:

Warehousing & Distribution

3PLs commonly have warehouses and fulfillment centers for storing, fulfilling, and distributing products. These facilities are often optimized with technology and designed to serve growing clients in specific industries.

Shipping & Receiving

Third-party logistics providers may offer different shipping methods, including national vs. global shipping options and drop shipping. 3PL partners may also manage package receiving differently according to specific requirements, and may offer guidelines and options such as white labeling.

Transportation

A 3PL may provide various transportation and shipping options between locations. This could be inventory shipment between a factory and warehouse, or directly to a buyer.

Advantages of a 3PL

Time Savings

Limit overhead and save time automating fulfillment and product shipping. Using a 3PL eliminates the need to invest in an in-house logistics and fulfillment process. With a 3PL, companies don’t have to worry about warehouse space, technology, transportation, staff, and other elements. A 3PL also makes sure products are accurately and efficiently delivered to customers.

Cost Savings

Along with saving companies time and limiting overhead, there’s a low capital commitment when a company contracts with a 3PL, since the company doesn’t need its own warehouse facilities, transportation and shipping assets. A 3PL’s logistics and supply chain solutions are also optimized to reduce costs, while aiming to goal of providing a higher return for companies as they expand their logistics operations.

Global Fulfillment

Some 3PLs such as Dotcom Distribution offer global logistics solutions, where customers have access to a network of experienced supply chain experts to assist with international freight movement and customs services.

More Focus

Outsourcing logistics activities to an experienced third-party logistics provider allows companies to focus more on their core business. This allows companies to remain as competitive as possible, getting products to market faster, at scale, and for less.

Expertise

3PL providers often have years of logistics expertise, with an experienced staff at the ready and a vast resource network, providing valuable advantages to companies who contract with a 3PL over attempting to perform all logistics activities in-house.

Disadvantages of a 3PL

Responsibilities

3PLs don’t usually interact directly with customers. Companies will have to plan and prepare for possible increases in customer service demands, such as for any product issues that may arise.

Additional Fees

Generally, there are fees involved when working with a 3PL, including set-up and integration fees. Examples may include eCommerce software integrations, or access to specific distribution and shipping capabilities.

Accessibility

While this depends on the 3PL, there may be various stages of the supply chain and fulfillment that are not visible or accessible by a company that’s looking to ensure quality control.

Partnering with a 3PL

3PLs help companies achieve on-time and cost-effective product delivery to their customers. However, not all 3PLs are suited for all companies. Research is critical to choosing a 3PL. For example, here at Dotcom Distribution, we specialize as a third-party logistics provider and strategic growth partner for eCommerce brands.

If you manage an eCommerce business, contact Dotcom Distribution to learn how we can help you delight your customers with market-inspired packaging, fast fulfillment, and freight management services that extend the excitement of your brand into your customer’s home or office.