What is a 3PL?: The Best Guide to Third Party Logistics in 2024
Modern supply chains in 2024 and beyond are an intricate dance. Efficiency is paramount, timelines are crucial, and communication between players (or dancers) is key. The role of Third-Party Logistics Providers (3PLs) emerges as a pivotal force amongst all of it.
Outsourcing fulfillment of your business to a 3PL ensures that you are linked up with the best in the business, with those that know any and everything about getting goods from point A to point B.
Not Using a 3PL? That's a Missed Opportunity
Almost every shipper in 2024, and at least 90% of Fortune 500 companies, relies on some mix of third-party logistics suppliers to help them manage inventory, transfer fulfillment, or if in E-commerce, fulfill orders.
Fulfillment is critical to your business and now that you have that taken care of, you can focus on other aspects of the business like branding, growth and sales, and customer satisfaction. What’s best is that in the end, most businesses have found that partnering with a 3PL not only saves them time but money.
Here’s a tangible example to further explain how 3PLs operate and integrate.
Picture this: you navigate the aisles of your preferred grocery store (Whole Foods or Food Lion, the choice is yours!), captivated by the array of products lining the shelves. This seamless presentation is no accident but the result of a carefully orchestrated process by 3PLs. These unsung heroes handle the intricate choreography of transportation, warehousing, and distribution, ensuring goods traverse from point A to B with precision.
Understanding the expansive capabilities of a 3PL is indispensable in navigating the complexities of global commerce. And if you are not currently using a 3PL, you may be missing out on opportunities.
Table of Contents
What is a 3PL?
Third-Party Logistics (abbreviated tor 3PL) is a service provider that is in charge of a variety of different supply chain functions for a given business. For a visual, think of the 3PL as the umbrella service, and the functions that they offer as the ribs of the umbrella. A lot of 3PLs have different business models which makes them unique and able to focus on different aspects of the supply chain process depending on what the business needs.
The functions that a 3PL offers can be some or all of the below:
Reverse Logistics
Warehousing & Storing
Kitting
Brokering
Inventory Management
Picking & Packing
FTL & LTL Freight Shipping
Businesses usually outsource either all or some of their supply chain management to 3PLs if it is evident that doing so can increase efficiency, expertise, or cost savings when compared to doing it all under one roof. Essentially, 3PLs are helping hands have the expertise and logistic network access needed to handle the scales of supply chains and logistics required.
3PLs or Third-Party Logistics have been around for a while but have been quickly on the rise due to the growth of e-commerce.
There are a lot of reasons for outsourcing your logistics functions as 3PL firms can negotiate better rates with carriers and suppliers, encouraging small, mid-sized, and even large-scale firms to utilize 3PL firm distribution and logistics services to get volume discounts. More on that later.
Third-party Logistics (abbreviated tor 3PL) is a service provider that is in charge of a variety of different supply chain functions for a given business. For a visual, think of the 3PL as the umbrella service, and the functions that they offer as the ribs of the umbrella. A lot of 3PLs have different business models which makes them unique and able to focus on different aspects of the supply chain process depending on what the business needs.
What Do 3PL Companies Do?
A third-party logistics company outsources shipping, storing, and distributing through a vast network of shippers and owner-operators. A third-party logistics company has access to different resources most companies cannot access, and their goal is to streamline shipping processes to minimize costs. Companies that provide 3PL services offer many services like order fulfillment companies.
These services include:
- FTL and LTL freight shipping
- Picking and packing
- Warehousing
- Inventory management
- Shipping and receiving
- Kitting and customization
- Reverse logistics
- Kitting and customization
Asset-Based vs.Non-Asset Logistics Companies
Once you’ve decided that a 3PL might be what your business needs, the next decision comes into play. Should I go with an asset-based or non-asset based third-party logistics company? Asset-based and non-asset based are two types of 3PL companies with key differentiating distinctions.
Asset-based 3PLs own some or all of the supply chain they’re involved in. It could be carriers, trucks, warehouses, or distribution centers. Their name and branding is going to be on these assets.
Non-asset based carriers don’t own any assets and rely on relationships and building a network of partners they can secure. They’re intermediaries between the shipper and carrier.
3PL vs 4PL: What are the Differences?
If you have chosen to use an outside provider for your logistics needs, you must now decide if a 3PL or a 4PL is the route you should choose for your supply chain. To make an informed decision, it’s important to know how these two models differ. Third-party logistics (3PL) and fourth-party logistics (4PL) are distinct models in the realm of supply chain management.
A 3PL provider offers specialized logistics services, such as transportation, warehousing, and distribution, to streamline a company’s supply chain.
In contrast, a 4PL provider operates at a higher level, serving as a strategic partner that manages and optimizes the entire supply chain on behalf of the client. While a 3PL focuses on specific functions, a 4PL takes a more comprehensive approach, integrating various 3PL services, coordinating logistics processes, and often utilizing advanced technologies to enhance efficiency. Essentially, 4PL involves a higher degree of supply chain orchestration and strategic planning.
But does your business need that level of involvement and orchestration? The logistics model you choose ultimately depends on what works best for your business growth needs.
Essential Differences: 3PL vs 4PL
The essential difference between the two is that 3PLs oversee outsourced services while 4PLs (like Maersk) look after supply chains.
The degree of complexity in the supply chain and the greater control in 4PLs separates the two. If you want to surrender all control and have a specialist firm manage your supply chain, 4PL might be the better option.
3PLs are seen as transactional, as collaborative measures with the client and can be good options for firms who can still handle their customer base and have simpler supply chains.
Another crucial difference is that 3PLs are more popular in the supply chain market. Let’s consider the market for each of them. The market value for 3PL exceeded 1 trillion dollars in 2019.
86% of shippers have declared that the 3PL method helps businesses by creating better customer service relations.
Conversely, the world 4PL market value was recorded as 56,472.1 million dollars in 2019 and is predicted to rise to 78,981.5 million dollars in the coming decade. This means that the 3PL market is booming while the 4PL market is still in its initial stages.
How 3PLs Offer An Advantage
1. Reduce Overhead Costs
Third-Party Logistics companies are the best at what they do, plain and simple. They are the experts in their field and thus have more knowledge than their supply chain function. They will often have already established relationships in the industry, which positions them ahead of the game. They will be better at negotiations and better at securing discounts for their particular clients. The short of it – they will save you money. A 3PL can do it all.
2. Open the Door to More Know-How
The current global market is both complicated and complex. It’s hard to get a handle on everything occurring and anticipate what will happen next. However, with a 3PL provider, you can do those things plus more. They are familiar with transport documentation, import and export, international compliance and economic regulations, and beyond. Businesses looking to expand into global markets can benefit from the logistics support and know-how their 3PL partner can provide, thereby reducing costly delays, cutting down the cycle time, and making entry into a new region or delivery area trouble-free.
3. Streamline Your Skills
Looking externally for a logistics provider will leave your company with more time on its hands to focus on getting the job done. Outsourcing is the way to go – your business has one non-core but essential element taken off their plate and has the reassurance that their logistics operations are taken care of by a professional. It’s a win-win and will enhance both your company and your partnering logistics company.
4. Acquire Increased Scalability and Flexibility
Third-party logistics in supply chain management offers enterprises the flexibility and scalability to utilize supply and distribution resources based on current business needs. Redistributed resources prevent redundant investments and under-utilized resources when sales are down. Enterprises can quickly upscale when demand surges.
5. Enable Business Growth and Market Expansion
The primary purpose of third-party logistics in supply chain management is to enable business growth by allowing companies access to new markets. Managing inventory in a new market without spending money on warehousing, equipment, and labor can save dollars. Most small businesses cannot invest in large-scale shipping operations because they lack the resources required to fuel, maintain and operate a fleet. Outsourcing transport needs to a third party enables the business to grow but stay within budget.
6. Increase Client Contentment
Combining all advantages above makes it easy to see why outsourcing logistics to a 3PL provider will increase overall client satisfaction. Response times within your company will be both better and more reliable leading to more satisfied clients – the ultimate goal of all businesses.
Who Uses 3PL?
The short answer is everyone. From small eCommerce stores to medium-sized firms to large-scale companies, all kinds of firms utilize 3PL.
Small e-commerce shops on Etsy use 3PL distributors and carriers to get their products from their production locations to customers.
Getting a silver charm bracelet from Dallas, TX, to New York, NY, will be expensive if a small business creates a supply network.
Using 3PL networks, they can get the products packaged, distributed, and delivered quickly and cheaply. The same is true for medium-sized firms like a chain of beauty stores that need 3PL firms to distribute and preserve their shampoo products.
According to a Reuters report, even retail giants like Walmart are taking advantage of 3PL distributors to manage some of their 23 distribution centers and the 6.3 billion annual packages processed there.
Firms like Walmart use third-party firms because it is easier to manage the volume of the products for their 260 million customers, particularly when the customer trends have begun to shift towards e-commerce sales instead of in-house buying.
Top Industries That Can Benefit From 3PLs
Why Should I Use a 3PL for My Business?
Your 3PL will manage shipping problems that shouldn’t cross your mind. As if producing quality products, worrying about employee satisfaction, client happiness, and budget management were not enough, imagine throwing inventory storage, shipping (along with making sure orders are on time, undamaged, etc.), and distribution on top of this nightmare.
Your 3PL company establishes supply and distribution chains from multiple sources. For most clients, outsourcing this work is more efficient than spending hours of research and thousands of dollars in staffing to end up with supply lines that siphon your revenue.
What Are the Advantages of 3PL?
Companies from all industries and a range of sizes use 3PL techniques for several reasons.
3PL Reduces Costs
If the company chooses 3PL methods, they can save a lot of money on transportation, warehouse infrastructure, labor costs, and technical expertise and resources. A 3PL company can handle these functions, so it does not have to invest itself. The 3PL company can negotiate lower logistics and supply volumes rates and open new markets and industrial networks. A company on its own cannot extend these factors as effectively.
3PL Allows Growth
In any company, 3PL allows for business and market expansion. The 3PL firms can handle market logistics and inventory for the growth of a new company.
If a preserved fruit company wants to expand its business and enter new markets, the 3PL firm can handle its entry. They will help manage supply chains by organizing warehousing tactics and labor expansion.
3PL Allows Scaling
Companies often do not have the luxury to increase or decrease their production scales quickly. However, 3PL companies can allow the company to scale its supply up and down based on the business requirements and market forces. The 3PL company will keep an eye out for demand increases and surges to optimally utilize investments and firm resources and increase production when required. Because the 3PL firm works with core functions, strategic logistic processes are optimal.
3PL Small Business Benefits
Successful companies of all sizes understand the value of partnering with an experienced third-party logistics provider. Working with a 3PL can provide your business with the benefits of modern warehousing and distribution facilities without adding unnecessary costs. 3PLs have the infrastructure and expertise to lower the overall costs of your supply chain operations.
Today’s 3PLs provide many services like quality checks, packaging, labeling, bulk breaking, and last-mile distribution. Most small and medium businesses face operational challenges when managing multiple departments in one professional space; these companies may not have the required infrastructure to address a multi-functional facility’s complexities.
3PLs offer flexible storage capacity, with multiple customers to even out seasonal demand variations within the same facility. Working with a 3PL can pay for what you need and protect yourself from changing warehousing requirements and costs.
Regularly reviewing your operational processes ensures your business constantly improves. Analytics offers insight into your efficiencies and overall warehouse management, revealing the number of units you move and highlighting areas that need attention. Embed analytics in your warehouse IT infrastructure capture accurate data.
A quality 3PL provider has robust analytics tools already in place with the experience of providing their customers accurate reports of their products and detailed information on each SKU and its performance.
A third-party logistics provider has the equipment, space, labor force, and industry expertise to provide value-added services – and with the skill to ensure a smooth flow of operations. Bundling all the services offers their customers savings in cost and time and improves the overall warehousing experience.
A quality 3PL provider has the experience and long-standing relationships to fit all these pieces efficiently. By delegating the logistics puzzle, you are free from managing multiple partners; plus, your 3PL provides a single-point solution for all logistics needs. With your 3PL handling the many supply chain third parties they work with, they will be able to see the overall picture of your entire supply chain and provide a strategy to help your business achieve long-term goals.
How to Find a Reliable 3PL in 2024
Order fulfillment is a large part of many businesses in 2024 but proper logistics management and execution can be difficult. There are a variety of factors to consider when you’re tasked with getting a package from Point A to Point B. For this reason, many businesses, both big and small, choose to use third-party logistics (3PL).
Yet with so many 3PL options, it can be hard to know which company will be the most dependable and appropriate for your needs. So how can you do it? Use these tips to find out what your business should look for to find a reliable 3PL in 2024 and beyond.
What to Look for in a Reliable 3PL
In a way, 3PL firms like R2 Logistics keep the world running. They get products to the store and your doorstep. Although the 3PL industry faces significant climate and economic challenges, researchers predict 3PLs will continue their pivotal role in the global economy.
Not every 3PL will work for your business needs. However, there are several, significant factors you should consider when searching for a reliable 3PL company.
1. Technology
One of the easiest ways to determine whether a 3PL is reliable is to see if they keep up with the latest logistics technologies. Better and newer technologies help 3PL companies do their jobs well and streamline their operations. This ultimately helps your business and your customers operate more efficiently and effectively.
2. Financial Stability
As a potential partner, you will want to ensure that any 3PL you work with is financially stable. Some signs of financial stability from a 3PL are a consistent cash flow, acceptable profit and loss data for the past few years, and investments in resources to protect and optimize your operations. A stable partner makes for a stable working relationship.
3. Flexibility and Scalability
Flexibility and scalability are also key to a long-term relationship with a 3PL. You want a 3PL company to be able to handle your current logistics needs, as well as your projected needs as your business grows. A reliable 3PL should be able to accommodate the growth of your business and help you to expand into new markets.
4. Reputation
While researching 3PL companies, you should consider how many long-term clients they have, what those clients’ opinions of the company are, and how long they have worked with their clients.
A good reputation goes a long way in establishing a 3PL as a reliable business partner.
5. Communication
The last factor in reliability is communication. It is perhaps the ultimate factor in a relationship between a business and a 3PL. They are your partner, and as your partner, they need to communicate with you regularly.
A reliable 3PL should be able to provide insight, metrics, and reports on the logistics of your business to ensure your operations are running smoothly.
Working With R2 Logistics
In a way, 3PL firms like R2 Logistics keep the world running. They get products to the store and your doorstep. Although the 3PL industry faces significant climate and economic challenges, researchers predict 3PLs will continue their pivotal role in the global economy.
Industries R2 Logistics Serves:
- Electronics Manufacturers & Distributors
- Cosmetics Makers
- Pharmaceutical Companies
- Large and Small Retailers
- Trade Show Transportation
- Industrial Machinery
- Manufacturers
- Restaurant Equipment & Supplies
- Aerospace Industry