Understanding 3PL: How Third-Party Logistics Works
Enhancing your logistics is key to optimising your supply chain.
However, maintaining a logistics network of your own might be too expensive and time-consuming. Third-party logistics (3PL) may be a way out.
But what is 3PL and how does 3PL work? We’ll discuss those and other 3PL-related concepts here. Read on to understand the ins and outs of the elusive 3PL meaning.
Unravelling the 3PL Meaning – What Is 3PL?
The first thing we need to do when discussing third-party logistics is to break down the 3PL meaning. In a nutshell, 3PL is logistics provided by an entity that doesn’t belong to your company. Instead, you hire them to receive products, store your stock, pick wares, ship them to customers, and receive returns. It’s a cost efficient way to stay on top of the supply chain without setting up your own logistics network.
How Does 3PL Work?
The 3PL meaning might have been enigmatic, but that’s no longer the case. However, you’ve only scratched the surface of third-party logistics. Besides asking “what is 3PL,” the following aspect is probably a mystery, too: “how does 3PL work?”
Here’s what this type of logistics usually involves.
Step 1 – Integration With Your Platform
Gone are the days when eCommerce business owners and third-party logistics providers had to phone each other multiple times a day for simple tasks. This role now belongs to your eCommerce platform. It should be compatible with the provider’s warehousing solution, so they know what to do with your products.
Robust eCommerce-3PL integration should have the following features:
- Inventory tracking
- Order fulfilment
- Storage requirements (optional in some cases)
Keep in mind that your app might not work with your partner’s platform out of the box. You might need some API tweaks to make the most of your collaboration.
Step 2 – Receiving Products Based on Your Input
The primary duty of your 3PL provider is to store your products. But here’s the key – they store your products, not those offered by other companies they work with. This means you need to source the warehouse with your commodities, whether you buy them online or manufacture them in a specialised facility.
Whatever the case may be, storage requirements aren’t your concern after rolling out the product. That’s where your third-party logistics provider steps in. You lease their warehouse for a certain period, eliminating the need to keep stock in your private property.
Step 3 – Inventory Management
Inventory management can be a real nightmare, especially if you have lots of products. But guess what – you can lift this burden off your shoulders by partnering with a third-party logistics enterprise.
Once they receive your stock, they do most (if not all) of the inventory management on your behalf. For example, your provider can determine the ideal level of stock for your particular season. This way, they lower your manufacturing needs and save space in their warehouse.
Step 4 – Selection and Packing
The 3PL company has organised your stock according to the highest standards, but what happens when your customers place an order? Do you need to show up at the warehouse and pick the products yourself?
There’s no need to do so because your provider has got you covered. Don’t forget – your eCommerce solution and their proprietary platform are already linked at this point. As a result, your partner receives a notification as soon as someone requests your merchandise.
From there, they find the item in their warehouse and prepare it for shipping. A number of packing materials are used here, including labelled boxes, pallets, bubble wrap, and duct tape. And don’t worry – chances are, your provider has packed thousands of products, meaning your wares are more likely to reach their destination unharmed.
Step 5 – Shipping
After preparing products for transit, all that remains is to load the boxes onto trucks and send them to your customers. 3PL providers either employ drivers of their own or hire third-party professionals for the job. They receive your shipment and haul it to your consumers directly or distribution centres, where another driver takes over.
Step 6 – Reverse Logistics
Reverse logistics includes various processes that take place if your customers return a product. Thankfully, there’s no need to hire a separate provider for this procedure. Your 3PL partner has the skills and tools to return wares to their facility, so you can figure out the next step.
What Services Do 3PL Providers Offer?
We’ve already mentioned a few services you can outsource to your third-party logistics organisation. Here’s a comprehensive overview of these services.
A 3PL company can:
- Receive full truckload and less-than-truckload shipments
- Store your products on various shelving solutions all year long
- Choose products for shipping according to your eCommerce software
- Pack and load wares safely
- Calculate your freight
- Deliver products to your customers
- Handle returns
- Assembly and kitting
- Expedited delivery
- Inventory distribution
- Postponement packages and product removal
Since your portfolio can be so broad, you may think there are no differences between 3PL and larger-scale systems, such as 4PL. Nonetheless, there is a major difference between 3PL & 4PL – the scope of operations.
Namely, a 4PL provider manages the entire supply chain, not just storage and shipping. If you hire a 4PL partner, they’ll hire a 3PL organisation on your behalf, resulting in even less work on your part. The only downside is the higher price.
What Are the Advantages of 3PL?
Here are the key advantages of 3PL:
- Outsourcing key business processes (e.g., storage and transportation)
- Expediting your shipping
- Reducing your capital investment
What Are the Disadvantages of 3PL?
Although third-party logistics is beneficial, you need to understand the main disadvantages of 3PL to make an informed decision:
- Giving up control over your inventory
- Increasing transportation costs due to tariffs and bad weather
- Putting your reputation at risk in case of mistakes and not the provider’s
You Now Understand the 3PL Meaning. What’s Next?
How you organise your logistics can make or break your chances of success. With the basics of 3PL laid bare, you should now figure out whether this system fits your enterprise. It’s convenient, but it also puts your provider in the driving seat. If the arrangement sounds fine, look for a trusted provider. If not, consider running your own logistics operations.
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