Understanding Third-party Logistics aka 3PL
The first thing to know is its meaning. Third-party logistics, commonly abbreviated as 3pl, is the outsourcing of a branch of a company’s chain of commerce to an external firm agency. It means that an organization will bring an external group that will take control of an element of its warehousing, distribution, or fulfilment sector.
Third-party logistics agencies usually specialize in consolidated performance in storage and transit services that can be measured and modelled to the customers’ needs or market conditions.
When the agency’s functions extend beyond logistics, it usually entails them providing services that relate to the procurement or goods production, such as services that involve parts of the supply chain.
Types Of Third-party Logistics
Examples of 3pl are courier companies, freight forwarders, ocean carriers, transhipment providers, etc. These companies include and offer outsourced logistics and transit services.
According to Hertz and Alfredsson, there are four types of third-party logistics providers;
- The standard third-party logistics provider – is the simplest form of 3pl providers. They perform functions such as pick and pack, storage, and distribution.
These are the primary duties of 3pl agencies. Majority of the agencies that fall into this category, the 3pl function is not their job.
- The customer adapter – the firms that fall under this group come in at the customer’s behest and fundamentally take charge of all logistics activities.
The logistics are enhanced significantly by the third-party logistics provider without developing a new service.
- The service developer – services provided by 3pl firms under this group are enriched and could include; specific packaging, tracking and tracing, cross-docking, or even presenting a unique security system.
- The customer developer – this is the highest obtainable level for a third-party logistics provider regarding its operations.
It occurs when the 3pl provider involves the customer and takes over their logistics activities.
Subcontracting may include outsourcing a section of an operation’s logistics, leaving some sectors untouched because the internal logistics group can do the work better.
Doing it could be cheaper than using an external firm.
Advantages Of Third-party Logistics
Numerous advantages come with outsourcing a company’s logistics, some of which may include;
- Focus – outsourcing permits companies with finite logistics ability to focus on their primary job.
Spending resources in a field outside a company’s expertise can be considered a waste, which brings us to the need to outsource.
- Resource and time management – logistics is the primary expertise of 3pl firms.
They possess more excellent knowledge and experience than the hiring company, which might even include a global network, thereby reducing cost and time usage.
- Reduced capital investment – since functions like storage and transit are handled by a 3pl provider; it covers the cost of owning a warehouse and managing distribution.
It reduces the cost of running a business, thereby allocating more resources to other company areas.
With this simplified understanding of third-party logistics, you now know the benefits of outsourcing. Business is made more accessible with the use of third-party logistics. Both time and resources can now be allocated to areas with more pressing needs due to the employ of 3pl agencies.
Packaging, transport, and distribution are now easily managed, improving efficiency. Third-party logistics providers possess the potential to maximize business output and can even facilitate its growth.