As defined by the ASCM Supply Chain Dictionary, third-party logistics, or 3PL, is a buyer and supplier team with a third party that provides product delivery services. These fulfillment services are critically important to getting product to your customers in a timely, accurate manner and may include:
Third-party logistics (3PL) services should be able to support all your sales channels including ecommerce, and these days, online shoppers have grown to expect product delivery with the push of a keyboard button. Outsourcing this element of supply chain management allows companies to receive orders and promptly deliver products even when they don’t have the necessary staff, or the inventory storage facilities required to handle the order processing. Here is a traditional workflow of a 3PL business model:
While supply chain management includes the entire effort and process structure required in sourcing, manufacturing, and delivering your product to your customer, logistics is the portion of the supply chain that specifically refers to the movement, storage, and flow of goods, services, and information.
Utilizing a 3PL business model takes the burden of logistics out of the equation and allows your company to focus on other growth areas, such as manufacturing innovation, marketing strategies and customer satisfaction. Other benefits of 3PL include:
PROS: Outsourcing your logistics drastically reduces your HR costs––no need to hire, train, and employ the staff necessary to orchestrate product stocking and delivery. It also negates the need to pay for additional inventory space and allows you to purchase products in bulk, lowering your cost per item, while raising your profit margins.
CONS: You will need a considerable amount of money upfront to purchase inventory and set up your 3PL services. Initial set up will take a time investment and require proper coordination.
PROS: Logistics companies bring a specialized expertise into your supply chain management––it’s the sole focus of their business. By offloading this piece of the process, you ensure your customers are receiving prioritized service with faster fulfillment than you could provide on your own, while you enjoy peace of mind knowing your products will be delivered on time.
CONS: It’s important to carefully select your 3PL providers. If you choose a company that delivers poor customer service, your customers will feel it and it will reflect poorly on you, possibly damaging your reputation and your business.
PROS: The same third-party logistics warehouse that stored and shipped your products can seamlessly orchestrate the return process, enhancing customer service and allowing you to quickly put returned products back into inventory circulation.
CONS: Once again, you are entirely dependent on the level of service your 3PL companies provide, which may reflect negatively on you if the service is poor.
Based on the needs of your company, you can design a 3PL solution that offers exactly what you need to maintain successful supply chain management. Here are some service options:
This is the most common 3PL option and offers a storage facility owned by the 3PL company that offers fast delivery services to your customers––usually one-day or two-day shipping.
These 3PL providers will transport your products between your factory/source and your warehouses, and include trucking, ocean freight, and air freight.
If you sell internationally and require more comprehensive logistics services, choosing a full-service provider will give you a web of strategically located warehouse facilities around the world that will store and ship your product.
If you rely heavily on ecommerce and your business is significantly growing in revenue, your supply chain operation needs will be more complex. A Financial & Information-Based 3PL will offer consulting and industry-specific insights, as well as cost control, freight auditing, and technologically advanced inventory management systems.
The logistics element of your supply chain management is crucial to maintaining a smooth flow of products to your customers. Outsourcing these services to a third-party provider will help you streamline your operations and reduce costs, while becoming more agile in responding to ever-changing customer demands. 3PL providers offer a range of options, making it possible to tailor your logistics services to your company’s needs and goals.
The following links provide more in-depth information on other supply chain topics:
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