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Third-Party Logistics (3PL): What Is It?

Third-Party Logistics, the magic 3-character acronym whose size overwhelms so many other industries. Just how big is the 3PL industry? Well, it’s currently valued at over $1 trillion, and it’s only expected to grow.

So what are 3PL companies? Well, third-party logistics are an excellent way for businesses to manage their supply chains in an efficient way. So, are they for you and your business? Well, let’s talk about third-party logistics and what they can do for your company.

What Is Third-Party Logistics?

In a nutshell, a third-party logistics (3PL) provider will offer you and your business everything you need when it comes to your supply chain management. They may offer a warehouse, trucks, vans, freights, and a wide variety of other services.

Even though they are a Third-Party Logistics, 3PLs become very integrated with their client’s businesses and almost act as if they are an internal operation. They are only one step removed from the company they serve, but they manage their entire supply chain, making them an integral part of the company.

This is an attractive offer to most businesses, as they may not have the cash or the expertise to buy and manage a warehouse, modes of mass transportation, and more. Well, outsourcing can do it all for them.

However, because they’re such an integral part of a company, they come with some risks if they aren’t chosen wisely. There are a lot of third and even fourth-party logistics services to choose from, so businesses can’t choose lightly.

3PL vs. 4PL

Fourth-party logistics, more commonly known as 4PL, is when a company uses a third-party outsource that acts as an integrator for a separate logistics team, leaving them one step further removed from the logistics company.

Both services are purchased outsourced logistics services that help businesses plan and execute their logistics needs. The primary difference is that a 4PL will typically focus on the design and execution aspects of business processes, and they will often oversee the moving parts of a business’s supply chain.

4PLs will usually be collaborating or working in tandem with multiple 3PLs, asset-based carriers, and warehouses that are utilized by or associated with the business. As an underlying service provider, 3PLs tend to focus on discrete functions of supply chain operations.

Because a 4PL may involve so many other 3rd parties, they may offer manufacturing or other services. However, that extra degree of separation will almost certainly involve more risk, more communication errors, and more money. 

What 3PL Can Offer Your Business

3PLs offer a few key services for a business that puts them ahead of 4PLs or internal supply chain management. Here are a few services to look for.

Transportation

Transportation is what’s most commonly associated with logistics, and it’s one of the biggest hassles for small and medium-sized businesses to handle. Well, the right Third-Party Logistics company will offer a wide variety of freight, vans, trucks, and containers for your transportation needs, and handle it in a smooth, safe, and efficient fashion.

Not only do they offer such services on the ground, they even offer the proper documentation in a timely manner. You’ll receive insurance documentation and real-time visibility of your inventory when it’s en route.

Believe it or not, companies spend $1.5 trillion a year on transportation alone, so efficiency is really important to reducing costs and getting the most out of transportation services.

Global Shipping

There are so many moving parts in global shipping that many companies lose business to avoid the hassle. This is because there is a lot of extra paperwork involved, many different applicable laws and customs to familiarize with, and so many more logistical nightmares.

With the right 3PL services(Third-Party Logistics), this burden will be taken off your company’s back completely. Since they are representing your business, they will ensure that all customs, requirements, and payments are met on time along with the proper transportation services.

Information Technology

This is the important one in the digital age. Any logistics company can put equipment into the back of a truck and drive it away, but if they can’t offer you the right technology, there’s no point in seeking their services.

The right 3PL(Third-Party Logistics) company should offer information technology to give you real-time updates, have all documentation in one easily accessible location and have a cloud-based system with some of the most trusted logistics tools of the age. This is to provide increased visibility, accountability, and trust between you and your logistics provider.

Advantages Of Hiring A 3PL Company

Hiring a 3PL company is a big decision for a business leader and one that could help determine the future of the company. Making the decision to do so will offer you several advantages for the future of your business, assuming you hire the right company! Here are just some of the advantages to look forward to!

Questions Answered

3PL(Third-Party Logistics) services are known for offering the best information technology that provides up-to-date, detail-oriented, and organized information. Supply chain logistics involve complex networks and information with a lot of moving parts, and 3PLs can give you all of that information in an easy-to-read, easily accessible manner.

This will include insight into global shipping issues, including changing regulations, weather delays, documentation, and customs controls. This will relieve the stress of trying to figure out a whole network of international laws and customs within your own business.

Save Money

With 3PL(Third-Party Logistics), you won’t have to pay the upfront or maintenance costs associated with a new warehouse, new shipping equipment, technology, or new employees. Everything will be right there for you and ready to go, with the cost being shared among other clients of the 3PL company.

3PL companies can also familiarize you with wasteful practices within your business’s supply chain, and take steps toward efficiency, which will save you money over the long haul (pun intended). They’ll handle your entire fulfillment needs!

Save Time

As we said, logistics are a complicated mess. There are so many moving parts, and if you don’t have a lot of experience, a lot of time can be thrown down the drain. Experienced 3PL teams know how to manage supply chains in the most efficient ways possible, reducing the time it takes to deliver or return your supply.

Scale

One of the biggest challenges in growing a business is the ability to scale your services. That’s hard to do if you’re buying trucks and warehouses yourself and trying to take on new employees. 

The right 3PL will offer you the exact scale, space, and labor that you need to get the job done efficiently and at a higher capacity. This allows you to focus on growing your business in other ways without having to worry about getting new equipment. You should look for a 3PL(Third-Party Logistics) with enough scale to take on new quantities when you tap into new markets or regions.

Peace Of Mind

Logistics is easily one of the most stressful parts of day-to-day business operations, making peace of mind one of the biggest benefits of hiring outside. When you hire the right team, you’re ensuring that the job is done as efficiently and transparently as possible, without the need to lift a finger beyond checking for updates

Third-Party Logistics

What To Look For In A 3PL Company

You don’t want to mess around with your decision over who will manage your entire supply chain. That’s simply too big of a decision to just go with the first result you find on Google without asking any questions. Here are a few factors you will want to consider when making that decision.

Business Size

As we said, scale is important for the growth potential of your business. You want to know the company’s capacity as well as their current business volume. If the company has too many clients, that may take away from individual attention. However, some companies will have management for certain regions or handfuls of companies, which can eliminate that concern.

On the other hand, you want to know that they won’t drop you if your business volume starts to decrease or if any changes are made to the company. All in all, you want to be confident that if your own business volume fluctuates in any direction, they will be able to handle that change and accommodate you for the right price.

References And Reviews

Checking references is important for such a major decision with such large impacts on your company. You probably check references for your individual employees, so why wouldn’t you check them for an entire team that will be handling your business’s supply chains?

Be thorough with these references and ask about any concerns you may have to see if your needs will truly be met. Some management teams are really good salespeople, so it’s great to get extra opinions when you can.

You can also check reviews with the Better Business Bureau or your local Chamber of Commerce to see reviews from previous clients. Don’t just look at the ratings to get the information. Read the whole review.

Some people may have been unhappy with a circumstance that was out of the company’s control and dropped a horrible rating out of frustration. On the other hand, many of their best reviews may have come from their friends or family. Take the extra time to read them.

Communication

Logistics will likely never be perfect, and that doesn’t fall on each individual company. For example, you can’t expect a logistics company to be able to get everything perfectly on time, every time. There are just too many factors in play that are completely out of the control of the logistics team.

A rainy day, a roadblock, a power outage, a busy freight dock, and so much more can interrupt the supply chain process. Because of this, understand what’s actually important in a logistics company; communication.

You want a team with communicative management that is upfront and honest with you about their operations, pay rates, delays, and more. Ask their references about this before jumping in and see how communicative the team is during the vetting and onboarding process. Also, let the team know about your expectations when it comes to communication.

Industries They Cover

Are you in the medical, food, or agriculture industry? Well, you know better than anyone how specialized your logistics processes are, so we don’t have to tell you. Make sure that if you require specialized transportation or storage solutions, the Third-Party Logistics company will be able to accommodate your needs.

Hiring Practices

Another great thing to look at is the company’s hiring practices. If you’re taking on a 3PL (Third-Party Logistics)company, they will be representing your business and may even act as the face of your company to certain people and organizations.

Because of this, you want them to live up to your company’s standards. If they are engaged in shady hiring practices, it may be best to avoid the company. Remember, their crew will be responsible for your supply chain, so don’t take this decision lightly.

Solutions Offered

You’ll also want to know if the prospective company offers your transportation needs. Whether that be air freighting, refrigerated transportation, or expedited shipping, make sure they offer the logistics services you need!

Get The Right Services For Your Business

Every business is different, and every business will have different needs when it comes to third-party logistics. However, the one thing that is constant is that it’s a big decision with serious consequences for your company. Shop around, stay up to date with our latest updates, and learn about our company’s mission and values to see if we can help with your needs!

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