Are third party logistics provider right for your business? How much will it cost you? Let’s find out.
Third-party logistics refers to outsourcing all or much of a company’s logistics operations to a specialized company. For instance, assume your business makes a product and then delivers it straight to the customer that would essentially be a 1PL. Once you start involving shippers like UPS or FedEx, that’s considered 2PL. Now, let’s suppose you supply a warehouse with your product which ships it to the end customer on your behalf. This would mean you’ve entered into a contract with a 3PL.
A third-party logistics is a physical warehouse that helps you with things like freight, warehousing and distribution. They can even be industry-specific like cold storage for food businesses. However, in case you’re an e-commerce, you might prefer a 2PL that specialises in inventory management, fulfilment and returns. If you find yourself asking whether you’re big enough to start working with a 3PL that is not the best question. First, figure out whether 3PL is the right fit for your business. It all comes down to the bottom line so let’s jump into how 3 PL is charged.
3PL usually has 4 base sheets – storage, picking, packaging and postage
1. Storage– 3PL charges you for how much space your inventory takes up in their facility.
2. Picking– It’s what you pay for having a human being collect your goods and put them in a box.
3. Packaging– Any packaging you haven’t already prepaid for or sent to them will be charged.
4. Postage– It’s what you pay a fraction for shipping your product to your customer.
Partnership with third-party logistics is not complicated as it may appear. It’s almost like having fractional ownership of a warehouse, instead of you having to own a big facility and pallet racking. If they also have incredible software systems, it will help your business run smoothly.
The term 3PL was initially used in the early 1970s to identify intermodal marketing companies or IMC’s in transportation contracts. Up to that point, contracts for transportation had featured only two parties essentially, the shipper and the carrier. When IMC’s entered the picture as intermediaries that accepted shipments from the shippers and tendered them to the rear rail carriers they became the third party to the contract.
Selecting the right 3PL for your business
Four criteria can help you determine the right 3PL for your business. Let’s discuss them in brief. First, Location – The warehouses must be located near the manufacturing unit or are geographically optimized according to their shipping destination. Second, Price – includes the fees charged for storage, picking, packaging and postages. Third, packaging- many 3PL don’t work with custom packaging so make sure to plan out exactly how you want your product to look before selecting a partner. And Fourth, scalability – you must know exactly how many facilities your 3PL has.
Choosing the right 3PL for your organisation can be tough. They have all your inventory and you will be working with them constantly to maintain customer satisfaction. The decision requires careful consideration as it affects the long term viability of your business. If a 3PL meets these criteria, determine whether they fit in with your growth plans or not.
However, it’s worth the efforts as 3PLs can add to the button line. There is a multitude of advantages that businesses can realize by outsourcing their supply chain management and logistics needs to a value-added third-party logistics provider.
Benefits of using 3PL
1. Resource Network
3PL’s can leverage relationships and volume discounts which leads to lower overhead and faster service. Choosing a 3pl provider allows your company to benefit from resources that are unavailable in house.
2. Save time and money
Outsourcing logistics will save your company both time and money. Using a 3PL provider eliminates the need to invest in warehouse space, technology, transportation and staff to execute the logistics process. 3PL providers save their clients from costly mistakes and allow your business to build a logistical network with lower risk and higher return.
3. Ongoing industry expertise
Outsourcing logistics allows your company to focus on your core competencies and leave the rest to the experts. 3 PL services will allow you to have peace of mind knowing your logistics are being handled by reliable seasoned professionals.
4. Scalability and flexibility
Using a 3PL allows your business to grow into new regions without barriers. Furthermore, as you grow, a 3PL provider can help you scale as they have the resources to support growth into new markets.
5. Continuous optimization
3PL professionals ensure that your needs are met by using the fastest, most efficient and cost-effective methods. A third-party logistics provider has the tools to restructure the supply chain and use technology that ensures the proper amount of goods arrive as and when required. Sophisticated management software can analyze and monitor practices to eliminate inefficiencies and streamline the supply chain.
How does 4PL differ from 3PL?
A 4PL organization is often a separate entity established as a joint venture or long-term contract between a primary client and one or more partners. It acts as a single interface between the client and multiple logistic service providers. All aspects of the client supply chain are managed by the 4PL organization and a major third-party logistics provider can form a 4PL organization within its existing structure. 4 PL is sometimes described as a non-asset owning service provider. Their role is to provide broader scope managing the entire supply chain.
The essential difference between 3PL and 4PL is that while third-party logistics handles only the logistical process, a fourth party logistics provider handles the entire supply chain.