Third-Party Logistics or 3PL (or TPL) as it is commonly known is a provider of integrated outsourced logistics service. It could either be a single service such as transportation or warehousing, or it could be a set of services that would encompass management of the entire supply chain of the client. Third-party logistics providers include freight forwarders, courier companies along with those that provide an integrated logistics and transportation services. Indeed, third party logistics provide a fully integrated logistics solution, but it is important for you to first understand your need and current concerns before approaching a 3PL service. And hence it is required to know the four broad categories as described by Hertz and Alfredsson (2003) namely Standard 3PL Provider, Service Developer, Customer Adapter, and Customer Developer.

  • Standard 3PL Provider -This involves the most basic functions of logistics such as picking and packing, warehousing, and distribution.
  • Service Developer -This category of 3PL offers advanced value-added services to their customers such as specific or customized packaging, tracking and tracing of consignment, cross-docking, or safeguarding consignment with a unique security system. This type of 3PL service is managed by concrete IT solutions.
  • The Customer Adapter – This category of the 3PL service controls the complete logistics of a company at the request of the customer. However, the 3PL provider does not develop a new service, rather improves the existing logistics.
  • The Customer Developer – This category is the highest level in the hierarchy of 3PL providers with regards to processes and activities. Here the 3PL provider works with the customer in an integrated manner and manages their entire logistics function. Though the client base for such 3PLs is limited yet they perform extensive and end-to-end logistics tasks for the clients.

In cognizance that outsourcing any segment of the business will incur a cost to the company, here are few reasons why you must outsource your logistics to a 3PL provider.

  • Cost and time saving – Logistics being the core competency, a 3PL provider will have better knowledge, expertise, global networking, and IT systems and tools compared to a non-logistics company. 3PLs are a good option during the trial and error phase of your business expansion into new markets because it saves you the cost of having your own warehousing or distribution centres. Also, if your business is seasonal then you can maximize a 3PL provider with end-to-end logistics including warehousing space, labour, and transportation during the peak months while cutting back during slower months. If a company outsources most or all logistics related functions to a 3PL provider, then the customer need not have its own warehouse or transport facilities, lowering the amount of capital required for the client’s business. Thus, it saves cost and time in managing logistics related nitty-gritty
  • Greater flexibility – With the advantage of having a well-connected global network, 3PL providers can provide higher flexibility for multiple geographical distributions. They are also better equipped to provide a variety of services than customers could provide for themselves.
  • Enhanced customer service – Outsourcing logistics to a 3PL provider will help you build multi-location distribution network faster with lower risk. Additionally, it will save you from making significant capital investment associated with building out a network based on internal efforts. The well-laid processes and updated technologies of 3PL providers assure on-time performance, be it pick-up, delivery, or transportation. Hence, with a multi-location distribution network and on-time service, it is needless to say that the customer service of your business will definitely receive a boost.

While a 3PL system has much to offer to benefit your business, one common disadvantage faced by clients while working with 3PLs is a loss of control. With regards to outbound logistics, the 3PL provider becomes the medium of communications or interactions with your clients. To mitigate this, some 3PLs attempt to brand themselves by using their client’s logos or uniforms. It is also required to maintain utmost transparency between the 3PL provider and you. Thus the IT systems of both parties must be interoperable so that you receive continuous status updates via Dispatch Management Software and Electronic Data Interchange. This will avoid you paying penalties for delays and subsequent financial losses.

Paying heed to all the advantages and disadvantages, it should be kept in mind that engaging a 3PL provider means it is an outsourced segment of your business. And hence you must work smart to keep your control over it to ensure that your business does not suffer any logistics-related losses.