As modern businesses expand beyond borders and consumers grow accustomed to rapid order fulfillment, third-party logistics becomes essential in streamlining supply chains. Third-party logistics help implement cost-saving measures and free up company resources to focus on other aspects of their operation.
This guide addresses what 3PL entails, its benefits and how to choose the right 3PL partner for your company.
Put simply, 3PL refers to outsourcing most or all of a company's distribution and fulfillment services to another company for management. Third-party logistics companies are independent providers that offer specific logistic services.
While 3PL logistics exploded with the rise of the internet and e-commerce, it dates back to the 1980s. The Motor Carrier Act of 1980 deregulated the trucking industry, increasing the number of trucking carriers from around 20,000 in 1980 to over 1.2 million today.
Part of this growth emerged when warehousing companies expanded to include transportation. The mainstreaming of information technology, the internet and emerging technologies, such as AI, also played a critical role in the increasing prevalence of 3PL.
Today, 3PL offers a cost-effective solution for manufacturers, providing flexibility and access to cutting-edge technological tools that help companies thrive. They often oversee various stages of the supply chain and manage inventory to reduce inefficiencies. Some may provide last-mile delivery services, while others handle packaging and kitting.
Logistics can be described in several ways, such as 1PL to 5PL, depending on how it's handled and whether it's outsourced. While they all refer to the same general processes of transportation and supply chain management, how those occur varies based on the level.
When a company handles logistics internally, from storing its goods to transporting them to a customer, it engages in first-party logistics. These companies remain self-sufficient in logistics because nothing is outsourced. For that reason, 1PL is typically limited to smaller production companies that focus on local distribution.
Second-party logistics refers to outsourcing one part of a supply chain. A 2PL operator may manage the storage and transportation of goods during one part of the process. Usually, 2PL carriers or providers operate within the company's country.
Companies utilizing 3PL outsource most or all of the logistics process to an external operator. This may include organizing transportation and storage, filling orders, managing inventory and handling return logistics. Essentially, 3PL providers act as intermediaries between companies and their customers.
Fourth-party logistics providers handle general supply chain management. They may oversee the consulting, planning, management and warehousing components, although they typically outsource the physical transportation of goods to 3PL companies.
Essentially, 4PL providers operate nonphysical logistics to optimize a company's supply chain. A 4PL provider is more of a strategic partner than a service provider.
Fifth-party logistics is a relatively new concept in the logistics industry. Typically, a 5PL is an operator that provides a combination of 3PL and 4PL services to manage an entire network of supply chains.
Third-party logistics providers offer an array of services, allowing companies to outsource various aspects of their supply chain. The most common services they provide include:
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A 3LP provider offers significant benefits to companies looking to optimize their supply chain and logistics, including:
Before signing a contract with a 3PL partner, you need to evaluate whether they're right for the job. Most importantly, you must assess your needs. This can look vastly different for a small local business compared to international e-commerce.
From there, start evaluating potential 3PL providers based on factors such as:
Outsourcing logistics means relinquishing some company control to a third party. This can come with some challenges and considerations, including:
As global e-commerce sales increase, so does the 3PL industry. As it grows, emerging technologies, such as AI, IoT and blockchain integration, are expected to follow. AI and IoT integration already allow for real-time tracking of products through the supply chain.
A growing focus on green logistics and sustainability also dictates future trends. From reverse logistics emphasizing recovery, repair and recycling of products when possible to electric vehicle fleets, companies are adopting eco-friendly solutions. These practices can reduce costs and boost customer loyalty, especially when minimizing packaging to fit more products in transportation or storage.
Third-party logistics can be a real game-changer for businesses, offering services and speed that may not be attainable for companies that operate supply chains in-house. By providing access to cutting-edge technologies and extensive experience, a 3PL partner revolutionizes and streamlines companies' supply chains.
Atlas International has stepped into the 3PL scene, offering extensive project, supply chain, warehouse and transportation management solutions for companies to outsource their logistics. As a full-service logistics provider with access to over 1,000 warehouses in North America, we're ready to help your business thrive. Reach out for a free consultation or assessment by requesting a quote online, calling 800-446-2079 or emailing supplychain@atlaslogistics.com.
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