What is Third-Party Logistics? Third-Party Logistics (3PL), abbreviated as 3PL, is a service that allows organizations to outsource or utilize third-party businesses to conduct end-to-end operations in their supply chain.
Business supply chains benefit from the services of third-party logistics companies, which provide comprehensive and one-stop solutions for distribution, warehousing, transportation, and order fulfillment. These companies can identify and rectify vulnerabilities in the supply chain, saving your capital and optimizing your supply chain. By leveraging their expertise, best practices, and technology, you can integrate logistics management into your business processes to address the most challenging issues in logistics management, making your supply chain more agile and responsive, a requirement in today’s uncertain market environment.
Core Functions of Third-Party Logistics
1. Warehousing
Warehousing in 3PL involves the process of receiving goods and storing them in a secure location. 3PL arranges to transport your products and inventory to their warehouses.
They will store your goods and handle all technical details of managing and organizing the goods on your behalf. Each 3PL has its own set of methods and capabilities for receiving and storing inventory, making them unique.
Once your inventory reaches the 3PL warehouse, warehouse staff will place your goods in the appropriate fulfillment location.
Each inventory unit or SKU has a dedicated storage location, which can be on shelves, in containers, or on pallets, depending on the product.
3PL providers support the company’s warehousing procedures and are experts in securely storing items. Some third-party logistics companies offer various storage options that can be customized according to specific needs.
Different 3PL companies have different storage capacities. The 3PL partner you choose should have enough storage space to accommodate your current inventory, and as your product range and order volume expand, your 3PL storage space must be able to expand accordingly.
2. Distribution
Many 3PL companies also provide a range of distribution and wholesale services, such as order fulfillment, custom labeling, picking and packing, and manufacturing.
When you receive an order, your third-party logistics partner picks the items in the order and arranges them for each customer. Some 3PL providers may require you to manually upload orders to their system.
Sometimes, creating a spreadsheet containing order details, customer delivery information, and other relevant data may also be required. This can be a time-consuming and inefficient order management method.
Other third-party logistics providers seamlessly integrate with your e-commerce platform or marketplace using advanced technology.
These 3PL warehouse management systems integrate orders, shipments, inventory tracking, inventory levels, and other information, simplifying the fulfillment process and allowing for more automated shipping to customers.
When an order is sent to your 3PL company, it is assigned to warehouse pickers for processing. Picking lists, including items, quantities, and storage locations in the warehouse, are provided to pickers. They are responsible for picking the products needed for the order from the specified storage locations.
Once all products in the order are picked, packaging work can begin for the next step of shipping. The choice of packaging materials depends on the capabilities of the 3PL provider, customer brand preferences, and the needs of the goods.
Typically, with their extensive experience, 3PL providers choose the most suitable packaging materials, achieving the packaging purpose while maximizing cost savings.
In addition, they optimize your packages so that you don’t have to split shipments.
3. Transportation
The next step after packaging goods is to transport your orders.
3PL providers have stable and reliable carrier partnerships that ensure your orders are labeled correctly and delivered to customers in the way they choose.
3PLs compare transportation prices from many different carriers and can provide you with the most competitive prices based on the delivery speed you choose.
The carrier and delivery speed used for each order depend on the 3PL’s partner relationships, policies, and factors such as shipping options provided by the end customer.
After shipping, the 3PL provider immediately provides tracking information to you through integrated technology, saving you time.
4. Returns
Many third-party logistics companies also offer return processing services or reverse logistics (What is Return Management – Updated September 23, 2023). If a customer returns an order by sending it back to the 3PL, the 3PL will handle returns, replenishment, or disposal of goods based on its policy and your choice.
You can choose to have your 3PL partner issue return shipping labels for your customers.
This ensures convenience for you and your customers; you don’t have to handle returns internally, and your customers will be able to track the status of their return orders immediately through the website.
5. Consolidation
Consolidation is one of the many functions performed by third-party logistics providers. Typically, e-commerce suppliers ship multiple small items to the same location. If all small parcels are integrated into one shipment, transportation costs will be significantly reduced.
Service providers that ship various small packages as a single larger package are called consolidation service providers. It is also called cargo consolidation or freight consolidation.
Conclusion Third-party logistics providers are experts in supply chain management. They help businesses simplify shipping processes to save costs and improve logistics efficiency while increasing productivity. 3PLs perform functions such as warehousing, distribution, transportation, return management, and consolidation by leveraging their expertise. In the long run, excellent 3PL partners have the potential to propel your company to incredible heights.
