Most industries have their fair share of acronyms and insider terminology, and logistics is no exception. Case in point: the term 3PL can leave someone new to the world of supply chain management scratching their head.
In this post, we’ll outline just what the term means and the many ways the use of a 3PL can benefit a company.
What is a 3PL?
To begin with, the term 3PL refers to “third party logistics” — the use of a third-party business to outsource elements of a company’s distribution or fulfillment services. These third-party providers generally specialize in one of three basic categories: operations, warehousing, and transportation.
The move toward globalization has been a key factor in the rise of 3PLs over the last quarter-century. As companies grew, they were forced to reconsider both the speed and cost of how their products reached the market. Companies without the necessary resources to manage these increasingly complicated logistics services sought outsourced partners.
And the trend continues to grow exponentially. According to market research specialists Armstrong & Associates, the use of 3PL providers by Fortune 1,000 companies in 2019 amounted to revenues of $166.8 billion — comprising nearly 80% of the total domestic third-party logistics market.
Types of 3PLs
3PL companies are generally categorized as one of four different types, based on the needs of their clients:
Standard – These providers perform the essential logistical functions, including warehousing, packaging, transportation, and distribution.
Service Developer – In addition to the basic logistics services offered at the standard level, the service developer offers IT, security, and product tracking support.
Customer Adapter – These service providers essentially take complete control of all a company’s logistical activities.
Customer Developer – At this level, the 3PL not only takes on the logistics operation of their partner company, but they will also utilize their own systems — in effect becoming the logistics department instead of merely offering services.
Basic services offered by 3PLs
While not all 3PLs offer the same services, most focus on one or more of these four functional areas — with each service customized to the needs of their client:
Transportation and Freight: These providers are responsible for transporting goods or services between locations — handling inventory shipments between manufacturers and the warehouse or between the company and their buyers.
Warehousing: Among the most common type of 3PLs that companies use, these providers handle functions such as storage, fulfillment, pick and pack, shipping, and returns.
Shipping and Distribution: These providers are focused on managing the shipping process from start to finish. Often, these companies employ a transportation management system (TMS) and provide a range of distribution and wholesale services.
Financial and Information Services: Typically used by larger companies, these providers help optimize your network through services ranging from accounting and cost control to freight auditing, inventory tracking and management, and more.
Benefits of working with a 3PL
There are many benefits to outsourcing fulfillment to a 3PL. While different companies have different capabilities, all 3PLs offer solutions for helping a company maximize its profitability.
Save time and money
When partnering with a 3PL, you eliminate many of the costs of in-house fulfillment, such as the need to buy or rent the warehouse space, logistics operations, labor, and technology.
Benefit from a wide range of capabilities
Investing in a 3PL relationship allows you to leverage the expertise of experienced professionals in the nuances of shipping and logistics. From current trends and complexities to the latest technology, they’re constantly finding ways to optimize your supply chain’s efficiency — which frees you up to focus on your business.
Expand your reach
By working with various suppliers, 3PL companies provide access to an extensive network of fulfillment resources that most in-house options lack. For instance, partnering with a 3PL with fulfillment centers across the country can help you demonstrably reduce both the shipping cost and transit time for orders.
At Gorgo Logistics, we provide a range of supply chain services tailored to your company’s unique needs. From warehouse storage options, asset management, and distribution to customized reporting, and more, we’re experts at helping clients streamline their operations. If you’d like to discuss your company’s 3PL needs or explore other ways your company can reduce your supply chain costs, contact our highly experienced team today.
We’ll help find the right solution for you.