What is a 3PL? A Beginner’s Guide to Third-Party Logistics

Many retail businesses often struggle to manage their supply chain and logistics operations. This usually happens due to the rising volume of orders that overwhelms their routine logistics processes. This eventually brings a big impact on their operations, as shipping and order fulfillment gets delayed due to it. The best way to solve this problem is by working with a third-party logistics provider that specializes in managing supply chain and logistics of retail companies. These 3PLs have plenty of experience in managing inventory and outbound logistics, so they can easily facilitate multiple clients without compromising the quality of shipping. 

During the last few years, the trend of partnering with third-party logistics has risen dramatically. Today, many companies are outsourcing their inventory and logistics management to 3PL companies, as they provide better efficiency in handling the end-to-end supply chain. These companies utilize specialized 3PL warehouse management systems to streamline every process, so that their management of multiple client orders becomes easy. 

In this article, we will take a detailed look at the business model of third-party logistics. We will try to understand how they work and what type of benefits they provide to the companies that struggle in warehouse management. Let’s start from the basics understanding what 3PL is and why it has started to become essential for retail companies in the industry. 

What is a 3PL?

A third-party logistics company specializes in managing a wide array of supply chain operations. They provide assistance to those businesses that do not have much experience of warehouse management or handling complex shipping processes. By utilizing a wide range of freight networks, 3PL providers ensure to simplify the logistics, so that businesses do not face delay in transporting goods from one place to another. They especially become useful in peak sales seasons, during which managing orders and shipping becomes a hassle for companies. 

Working with 3PL providers also helps in inventory management, as they take care of everything ranging from tracking and restocking effortlessly. Most of the third-party logistics use 3PL WMS systems to manage the inventory of multiple clients. They don’t rely on manual processes, as it has more chances of errors in counting and tracking the stock. By utilizing a warehouse management software for 3PL, 3PL’s make sure to automate every process, so that every client can be managed efficiently from a single platform.

It should be noted that not all 3PLs have the same business model. They provide different types of services related to the supply chain, so picking the right one according to the given requirements becomes important for companies. Generally, businesses partner up with 3PLs to outsource inventory management. It is the common challenge of every retail company in the market, which makes 3PLs a perfect choice to simplify every process. 

Read More: What is a 3PL Warehouse Management System (WMS)

Types of Services Offered by 3PL Providers

By taking advantage of advanced 3PL warehouse management systems, third-party logistics providers offer different types of services to streamline the supply chain of a business. They have a better understanding of the market which allows them to work with different clients efficiently. To better understand the areas in which 3PLs provide critical benefits to the companies, take a look at the list of services defined below. 

Warehousing Services

Many businesses choose to work with mid-market 3PL providers precisely due to warehouse management. It is the key area where third-party logistics provide plenty of benefits to those companies that struggle to maintain a physical warehouse. They choose 3PLs because of their capability to manage goods in an efficient manner, so that safety and security of each stock can be properly maintained. 

Another key reason why businesses prefer to work with 3PLs is because most of them offer regional fulfilment centers. Their warehouses in different areas allow retailers to fulfil orders quickly, making the overall shipping process very smooth and straightforward. It specifically works well for those companies that are based in separate states, so working with 3PLs help them to fulfill diverse regional orders quickly. 

Freight Management

Third-party logistics provide tailored transportation and freight management solutions, so that businesses can deliver their orders to the designated locations on time. This service comes in handy in peak sales seasons during which freight management becomes a big problem for the companies. It brings a direct impact on the shipping process, which then leads towards order cancellations and client frustration. 

By partnering up with 3PL providers, businesses get ease in transporting goods from one place to another. They don’t jump into the transportation process themselves, as everything is managed by the third-party logistics companies. This not only simplifies their shipping process, but also allows them to complete multiple client orders in a short span of time. 

Inventory Management

Managing inventory is not an easy job, as it often becomes quite complex due to rising customer orders. This creates difficulties for the businesses in keeping the correct record of their stock. They cannot rely on manual processes to maintain the inventory, as it has higher chances of errors. In this specific scenario, working with third-party logistics becomes the most suitable option, as they make inventory management easy by keeping track of everything.

Many third-party logistics companies use specialized 3PL WMS solutions to streamline inventory management. It is a cutting-edge tool that gives them real-time visibility of every item, enhancing their ability to make restocking and other key decisions in a timely manner. This helps businesses that are connected with 3PLs avoid stockout issues. Their inventories always remain updated, allowing them to see the correct status of every item available in the warehouse. 

Fulfillment Services

Fulfillment services offered by third-party logistics specifically focus on processing customer orders quickly. These services are quite beneficial for ecommerce businesses, as they often need a reliable partner to ship customer orders rapidly. Keeping this in view, the need for 3PL fulfilment services increases more during the key sales seasons, as businesses often struggle to manage hundreds of client orders during this period. 

Talking about the workflow, 3PLs provide full-scale order management, so that the fulfillment process remains perfect. Starting from picking products to finalizing shipping, everything is managed through a specialized 3PL warehouse management system that maintains accuracy throughout the order processing. That is how third-party logistics handle dozens of fulfillment orders at a single time, making sure that every client requirement is met properly.  

3PL vs 1PL, 2PL & 4PL: What’s the Difference?

Many businesses often remain confused in understanding the differences between 3PL and other logistics providers. It is one of those things that looks a bit similar, but have plenty of management-level differences. A 3PL model is undoubtedly the most followed method in the industry, however, understanding other logistics solutions is also important.

1PL – First-Party Logistics

First-party logistics (1PL) refers to those companies that manage their warehouse and logistics operations by themselves. It is a simple model in which relevant companies do not need any support from external logistics providers. Generally, companies with limited retail operations opt for this model, as their existing resources remain sufficient for them to manage both inbound and outbound processes. 

2PL – Second-Party Logistics

Second-party logistics (2PL) is a model in which you manage the in-house warehouse inventory while outsourcing the transportation process to external logistics companies. It is a convenient method that gives you control over your warehouse, so that you can manage different workflows as per the needed requirements. This method works well for those companies that are primarily focused towards managing warehouses, as their outbound processes are often handled by big logistics giants. 

3PL – Third-Party Logistics

Third-party logistics (3PL) is the most preferable method for retail companies because it manages both in-house and outbound processes efficiently. It is a method in which a company outsources its warehouse, as well as shipping operations to a third-party logistics provider. This is primarily done to streamline the overall supply chain, so that businesses can focus more on marketing and operate in the industry without any issues. 

4PL – Fourth-Party Logistics

Fourth-party logistics (4PL) acts as an administrative control tower for different 2PL and 3PL providers. They don’t own any physical fleet of trucks, and have no warehouses either to store the inventory of clients. Instead, they supervise every logistics provider that falls under their umbrella. This means that 4PLs have the administrative authority over 3PL providers, which makes them a central player to oversee the entire supply chain and make appropriate decisions to simplify different shipping processes. 

Read More: 2PL vs 3PL vs 4PL: Which is Best for You?

Industries That Benefit the Most From 3PL Services

Many businesses are taking advantage of 3PL services to streamline warehouse and shipping management processes. These companies come from diverse backgrounds and have unique requirements for 3PL services. From ecommerce to manufacturing, companies having a footprint in different areas are opting for 3PL providers, as they provide better efficiency in managing high volume of orders. Let’s take a look at the business categories below that benefit the most from 3PL services. 

Ecommerce

Ecommerce businesses prefer to work with 3PL providers because of their vast range of fulfillment centers. It allows them to fulfill orders quickly from those locations that are nearest to the customer destinations. This is one of the key advantages of 3PLs that makes them highly valuable for ecommerce businesses. Besides that, ecommerce stores also prefer them because of their ability to handle large inventories. They provide complete warehouse automation in stock management, making sure that businesses always remain full of supplies during the peak seasons. 

Healthcare & Pharmaceuticals

Healthcare businesses benefit a lot by working with 3PL providers. They need their warehousing services because of specialized storage conditions, as most of the sensitive stock like medicines require a precise environment for storage. Third-party logistics providers excel in this area, as they have a number of locations where the precise stock of healthcare can be managed efficiently by controlling the environment. This is one of the key reasons why healthcare centers also lean towards 3PL providers, as they provide tailored solutions to manage their stock. 

Manufacturing

Businesses that are working in the manufacturing industry need warehousing services to manage a large volume of inventory. They often struggle to manage such a big inventory by themselves, which is why they need 3PL services to keep track of everything. The advantage of working with third-party logistics providers is that they handle the complete supply chain with accuracy. It allows manufacturing businesses to keep their operations on track, so that they can fulfill customer orders without any issues. 

Food & Beverage

Companies that are related to the food and beverage industry find 3PL services highly beneficial. They get specialized storage environments for the perishable goods while working with 3PLs, which keeps their food stock fresh for a long period of time. Meanwhile, third-party logistics also help them to ship orders quickly, so that their outlets always remain active with full of supplies. These are the key advantages that make 3PLs a preferred choice for food companies, especially those that deal with large volumes of orders regularly. 

Common Misconceptions About Outsourcing Logistics to 3PLs

Many businesses often remain confused on whether to work with 3PL providers or not. They have some misconceptions in mind which often limits them to outsource their logistics to 3PL providers. Let’s take a quick look at some of these myths below. 

• Increase of Cost: Many businesses mistakenly believe that their expenditure will rise more by working with 3PL providers. This is certainly a wrong concept, because partnering up with 3PLs help businesses to lower down their operational cost.
• Mishandling of Inventory: Another common misconception about outsourcing logistics is that businesses think their products could be mishandled by 3PLs. This concern is also exaggerated, as working with reputed 3PLs does not let clients face this issue. 
• Loss of Control: Working with third-party logistics does not let you lose the control over your inventory. Many 3PLs regularly share stock reports to their respective clients, so that they always remain updated with the current status of their products.  
• Delay in Shipping: The concept that 3PL providers can delay your shipping due to various reasons is also false. Third-party logistics providers can be trusted in this regard, as they take advantage of their large freight network to ship customer orders on time.  

Final Words

Working with 3PL providers is becoming essential for businesses that struggle to manage inventory and shipping processes by themselves. These companies need a supportive hand to manage these complex issues, as they often lack the resources and skills to handle them properly. 

Third-party logistics are therefore a perfect option for them to stay on track with all types of operations, as these companies are specialized in providing warehousing and inventory management services. They take advantage of 3PL warehouse management software to handle multiple clients at once, making their logistics services a perfect fit for all types of retail companies. 

Frequently Asked Questions

What is a 3PL provider?

A third-party logistics (3PL) specializes in managing the end-to-end supply chain processes of retail companies. From warehousing to shipping management, they handle everything with ease, so that businesses can pay more attention towards their growth. 

Why working with 3PL providers is beneficial for companies?

Working with 3PL providers is beneficial for those companies that struggle to manage their in-house warehousing processes. They provide complete solutions to handle inventory, shipping and other processes by utilizing tailored 3PL WMS solutions. 

What is a 3PL warehouse management system?

A 3PL WMS is a cutting-edge tool that allows businesses to manage everything inside a warehouse efficiently. From real-time stock tracking to picking and shipping orders, a 3PL WMS handles everything to give administrators complete ease in warehouse automation. 

Which industries get most benefits from 3PL services?

Third-party logistics providers bring plenty of benefits for companies working in different sectors. From ecommerce to manufacturing, 3PL services comes in handy for different companies that struggle to manage large volumes of orders on a daily basis.