What is the Role of a Third Party Logistics (3PL) Company?

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If logistics is not the main skill of your company, you can hire a subcontractor who specializes shipping and distribution to help with these tasks. It can be difficult to decide whether you want to outsource work. It can be difficult to find the right provider that will work with your schedule and budget, meet your needs, and keep your company running smoothly. It is important to understand the pros and cons associated with third-party logistics companies (3PL). This will help you make an informed decision and choose the right company for your business and inventory.

What is the role of a Third-Party Logistics Company (3PL?

Third-party logistics companies offer supply chain services for many industries. These companies are experts in transportation, procurement, and distribution functions. They can tailor their services to each client’s requirements. Third-party logistics companies relieve their customers of the responsibility of managing inventory and allow their clients to concentrate on their products and services.

You don’t have to worry about the cost of labor, storage, or technology required to receive and fulfill orders. Instead, you can outsource these tasks to a 3PL. By providing staff to handle inventory and shipping, a 3PL can help you save time and money. They also offer better pricing due to bulk discounts for packing and other logistics needs.

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What Does Third-Party Logistics Company Do?

To help their clients, logistics companies combine their expertise in supply chain processes and procedures with their network inventory and shipping contacts. These are the main services that third-party logistic companies offer:

  • Shipping – Your products and inventory will be shipped to the 3PL warehouse. They will store your goods and take care of all details regarding handling and organization.
  • Picking– Once you place an order, a third-party logistics company will pick up the items and arrange them for each customer.
  • Packing Once an order is “picked”, the 3PL will pack the items securely for shipment. You don’t need to pack your own boxes, bubble wrap, or packing tape. The logistics company will provide all necessary packing materials.
  • Shipping The third-party logistics firm will ship your orders to your customers. Your orders will be professionally labeled and shipped to your customers using a variety carriers.
  • Returns Many 3PLs offer return services. The third-party logistics company will handle the return process for customers who need to send back an item.

3PLs can also help business owners manage their supply chains by offering inventory management and quick shipping times.

Third Party Logistics Examples

You might be wondering how third-party logistics can really benefit me. These are just a few examples that show how third-party logistics can benefit businesses.

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Sara’s t-shirt company has seen great success in the past few months. Her sales have soared and she even gets overseas orders. It has become difficult for her to keep up with her inventory. Her small office doesn’t have enough space to store all the shirts she is creating with her employees. It’s also difficult for her to print shipping labels, get packages assembled and send orders to the right places. She needs help! Acme Logistics was recommended by Sara after she researched the advantages of third-party logistics companies. Acme Logistics can store Sara’s shirts and ship all her orders. Their network of contacts will ensure that she receives the best prices for both domestic and international distribution. Sara can now concentrate on building her business and putting her energy into making more great shirts.

Since Mike took over the candy business five years ago, Mike has seen it grow. It was just a handful of people that could run a small candy factory store. Delivery was limited to the local area. Mike has been having trouble keeping up with demand to ship candy across the country. He was thrilled to learn that Mega-Logistics offered refrigerated shipping and storage. Mega-Logistics helped Mike organize his inventory and kept the candy fresh through transport and delivery to customers.

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Third-Party Logistics Advantages & Disadvantages

Although there may be some drawbacks to outsourcing logistics for your company there are many benefits to using a 3PL to manage your supply chain.

Advantages

  • Time and cost savings
  • Flexibility and scalability
  • Get access to logistics experts
  • Low capital commitment
  • Logistical processes simplified
  • Focus on your business

Disadvantages

  • Control of logistics and delivery functions is not well managed
  • Contact with customers is not maintained
  • Higher up-front investments
  • Products can be separated
  • Disagreements about the quality of service

Which E-commerce businesses should hire a third-party logistics company?

Partnering with third-party logistics companies is a great way to make small to medium-sized ecommerce businesses more successful. These are the types e-commerce companies that should partner with third-party logistics providers and warehouses.

  • Companies who need to rapidly scale up their operations in order to meet increasing shipping and delivery demand
  • Small businesses may not be able to create and manage their own logistics infrastructure.
  • Businesses with variable needs throughout the year

Here are some questions to help you determine if your business can benefit from working with a 3PL service company.

Are you able to keep up with your orders?

Are you at a point in your business where there are too many orders? Are you having trouble managing your business’ sales, administration, and management because your energy and time are devoted to logistics? If the answer is yes to any of these questions it means you need to partner with a third party logistics provider.

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It can be very difficult to manage the logistics of your business. This could lead to angry customers, poor workmanship, missed delivery dates, and poor customer service. These can all lead to the demise of your business, rather than helping it grow.

Are you able to communicate well with customers?

Customers will be happy if they are kept informed about their order status and delivery progress. A positive customer experience will result in customers returning and resulting in increased business growth. Your customers will always know when their order will arrive and what time it will ship. This will help you keep them informed. You risk losing customers if you don’t communicate with them.

Are you making more mistakes with your orders?

Human error is almost inevitable when it comes to order fulfillment logistics. A 3PL is necessary if your company keeps missing delivery dates, ships to the wrong address, or delivers the wrong products. These errors can drive customers away and could cause irreversible damage to your company’s reputation.

Are your logistics too complicated?

Your company’s operations and logistics will get more complicated and complex as it grows. You and your team will burn out if you don’t have the skills, tools, or resources necessary to deal with the increasing complexity. Third-party logistics companies have the software, expertise, and programs to ensure that your business’ operations and logistics run smoothly as they grow.

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Are You able to access supply chain data?

Smart decisions are essential for your business’ growth and success. Without data about your supply chain, you can’t make logistic decisions. You need to know where your materials are, when they will arrive, which orders have been placed, and when they will be delivered. You can save time and money by outsourcing your logistics to a 3PL warehouse or logistics provider.

Are your shipping costs eating into your margins?

Shipping, labor and packing can all add up. You could be spending more money on order fulfillment if you handle your logistics yourself. Shipping costs will reduce your margins. A third-party logistics company may be able to save you money by offering discounted rates with carriers such as FedEx, UPS and USPS.

Are your employees always working overtime?

Employees need to be able to balance work and family in order to do their best. This will keep your employees happy. A 3PL company is necessary if the order volume is so high that employees have to work overtime.

Are You Having Enough Storage Space?

Are you able to store all your inventory in your warehouse? Third-party logistics providers can offer safe and convenient warehouse storage.

How to choose the best third-party logistics company for your business

It is obvious that you will need third-party logistics companies. But how can you choose the right one for you company? There are many types of 3PL providers.

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Types of Third Party Logistics Providers

  • Standard. These providers offer basic services such as storage, packing, delivery of goods, and transportation. Standard 3PL providers offer a broader range of services at lower prices than those offered by larger providers.
  • Service Developer. 3PL service developers offer more advanced shipping services, such as tracking and security, that guarantee the timely and accurate delivery of goods. These 3PL providers can be more costly and offer more services.
  • Customer Developer. These 3PL suppliers play an active part in the logistics department at a partner company. They participate in the hiring process and integrate into the existing logistics team. They are close to each business partner and can help shape the company partner.
  • Customer Adapter. Like customer developer 3PLs, custom adapter providers function as a business’ logistics department. However, customer adapter 3PLs don’t have the same control over a company’s logistics development.

Questions to ask potential logistics providers

  • How many are they located?
  • What is the delivery speed? What happens if the delivery date is missed?
  • Is their inventory management inclusive of custom packaging, item labels and kitting services?
  • Are they able to hire more staff for busy periods like holidays?
  • Is their inventory software compatible with your e-commerce platform
  • Are they able to offer other services, such as product photography and customer service?
  • Is the 3PL able to provide the services your company requires?
  • Is the company using the most recent technology?
  • Are their values and culture compatible with yours so that your business can grow?
  • Is it able to maintain a strong balance?
  • Do you have faith in them?
  • Is there a clear succession plan?
  • Which shipping stages are they available at what prices?
  • Is this 3PL in the same relationship as the one you had with the previous?
  • What impact will natural disasters have on the 3PL’s performance and financial health?
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3PL Providers Performance Requirements

These characteristics are important to remember when considering third-party logistics companies.

  • The 3PL company will work with your company to meet its specific logistics needs
  • They are able to work with big-box retailers as well as online marketplaces.
  • Reputation is a strength of the company
  • They are conveniently located near 3PL warehouses.
  • Financial stability is assured by the third-party logistics company
  • The company can scale with your business in your timeframe

How to evaluate prospective 3PL providers

It may take months to find the right third-party logistics company. Your company probably can’t afford to wait so long. These are the steps you need to take in order to quickly evaluate potential 3PL providers.

  • Concentrate Your Search. Limit your search to three to four 3PL companies. This will help you save valuable time.
  • Listen to and read customer reviews. Talk to and read online reviews from companies who have previously worked with a particular third-party logistics company. This will give you valuable information about the 3PL partner, such as its reliability and payment history, as well as the benefits it offers clients.
  • Build a Relationship and Communicate. A 3PL company that you choose will have access to your private business data and can handle important aspects of the company. Establish trust and communicate regularly. Talk to potential third-party logistics companies about your business needs.