Unlike 1 & 2 PL which belong to the seller/buyer’s own supply chain, 3PL is the third-party logistics that does not affiliate with any side. With the rapid development of E-commerce, 3PL is more widely known and used since the pandemic burst out. However, there are still confusion and concerns regarding this fast-growing industry.
Here’s a Q&A about the mostly asked questions about this important aspect in the whole supply chain.
1. What is 3PL?
3PL stands for third-party logistics. It is a provider that offers outsourced logistics services that cover all the activities management in procurement and fulfillment. To put it in a simpler way in everyday practice, 3PL services talk about service contracts involving shipping or storing cargo/items of all kinds, sizes, and weights.
2. What does 3PL do?
As mentioned above, 3PL refers to the outsourcing of logistics processes to a third-party business. It includes inventory management, warehousing, and fulfillment.
Generally speaking, as part of the supply chain, 3PL’s work includes the following: receiving, warehousing, picking, packing, shipping, and returns. Many include value-added services such as labeling, custom packaging, and customized solutions. This can be categorized by the commodity’s genre, requirements, storage/fulfillment conditions, etc. into many niche kinds of 3PLs. For example, container drayage, trucking, warehousing, project logistics, bonded warehousing, etc. It covers all aspects of our modern commercial industry whenever it needs distribution and storage.
3. What are the benefits of using 3PL service?
1) Helps lower the cost per order
Professionals in the logistics industry with assets/sources provide better solutions designed for different items’ storage and shipping requirements. Through investment in warehouse/inventory management software, conveyance systems, and even system automation, 3PL reduces costs and improves order fulfillment efficiency much better than what a single company could do internally.
More intuitively, using carriers taking massive volumes of different kinds of goods at the same time means the shipping cost per order is reduced significantly.
2) Lowers investment/expenses
Companies won’t need to invest in their own warehouse/fulfillment system. The construction of a warehouse or building up a fulfillment system usually takes a long time and massive money that is challenging for most business operations.
Leaving these burdens to 3PL enables companies to focus on their own production/operations. Cutting off unnecessary outlays means more profits and success.
3) Turning fixed costs into flexible costs
Using internal fulfillment means a business has a fixed cost on the management, labor (usually takes 50%), facilities, and so on. Using a 3PL means you only pay for the storage the products use and services for orders/returns.
4) Handling peak times fulfillment
There can be 10 times more orders during peak times for a business than non-peak times (e.g. semi-year sales, holiday seasons, black Friday, etc.). Internal fulfillment, during peak times, reveals serious issues: labor shortages, hard to recruit, no time to train newly hired staff, and more underlying problems that lead to lower efficiency in transporting goods to consumers.
By using 3PL, businesses can easily handle holiday peaks and expand their distribution map to have their goods delivered to more homes.
