Third-Party Logistics (3PL) – Definition and its Dynamics

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challenges faced by transportation company

Third-Party Logistics (3PL) – Its Definition and Dynamics

Third-Party Logistics (3PL Service ) is a powerful service handle that frees the Business Company, and enables it to focus on other aspects of the business, by managing the outsourcing of operational logistics, from warehousing to delivery, for the Business Company.

A number of services pertaining to the logistics of supply chain are provided by Third-Party Logistics Providers. These services include transportation, warehousing, picking and packing, inventory forecasting, order fulfilment, packaging and freight forwarding.

Considering all of the above, there is no doubt that a 3PL (Third-Party Logistics) provider is important for the smooth functioning of a business.

Third-Party Logistics

challenges faced by transportation company

challenges faced by transportation company

3PL Provider and Its Advantages

There are multiple advantages to working with a Third-Party Logistics provider. All the segments of operational logistics regarding movement of freight, from warehouse to delivery, is tedious and requires keen monitoring.

The biggest advantage offered by a 3PL provider is that it completely manages these operational logistics, thereby taking a load off your hands. This enables the Brand to focus on other aspects of the business, like sales, marketing, product development etc., with freedom. Hence, outsourcing operational logistics to 3PL provider empowers the business with precious time and resource that can be engaged in other crucial parts of business growth.

Third-Party Logistics

However, this is not all. There are many more advantages and benefits of working with 3PL services. Some of these important benefits and advantages are as follows –

  • Reducing Running Costs

3PLs are a specialized set of service providers and as such they have their own established network. This naturally allows Third-Party Logistics to have a much greater leverage with freight companies than individual shippers have. Since 3PL provider work with carriers on behalf of multiple customers, it enables them to successfully negotiate pricing, based on a much higher volume and order frequency. This helps in reducing the costing of freight movement logistics dramatically.

This cost reduction allows the business to save on resource that can be used in other segments of business growth. Hence, using a Third-Party Logistics to manage the operational logistics of the supply chain gives the company freedom to invest in other key areas of business development.

  • Manage Demand Fluctuations Effectively

Demand is a variable constant. Fluctuation in Demand is something that all businesses are faced with all through the year. A 3PL service allows the company to effectively handle these peaks and troughs in demand fluctuation, without being pressured to commit to capital investment when not required.

  • A Profitable and Better Customer Experience

Customers expect an immediate shipping format as the norm. A next-day or same-day shipping is the standard they want. Since Third-Party Logistics service is a specialized segment of the Logistics sector, third-party providers enjoy, and have access to a wide range of distribution network. Hence, a 3PLs (third-party logistics provider) allows the company to offer fast shipping, irrespective of the delivery destination. Thereby, empowering the company with a better customer experience, which is a key factor in any business growth.

  • Testing New Markets

 An international 3PL offers flexibility to test the waters and explore the arena in new markets, without pressuring the company to commit to any major investments like committing to offering personal warehousing space or staff. This is so because all Third-Party Logistics providers have their own warehousing space and staff.

  • Mitigation of Risk factors

Unprecedented and unexpected delays in shipping industry are an unavoidable factor that negatively impacts the operational logistics and customer experience. The reasons may be many but the impact is singular, a blow to the brand image. Here a 3PL service comes to rescue. When unforeseen circumstances pop up, a Third-Party Logistics service provider is responsible for making alternate arrangements to fulfil the shipping orders as quickly as possible, within the scheduled time format. Also, a 3PL service provider is committed to provide protection in the event of damage or loss of goods.

  • Provides Expertise and Knowledge in The Field of Operational Logistics

 The operational logistics of fulfillment of orders, warehousing and shipping, they come with major challenges. Hence, allowing experts of the field to manage the logistics of the supply chain, makes a great difference in the company functions and gains. This is specially true in case of a company that is starting fresh and still in the process of establishing itself. For a young company, it is better to allow a specialized Third-Party Logisticsprovider to take care of the logistics of shipping. This not only guarantees success but also enables the company to learn the logistics dynamics, while working with companies that specialize in the field. This allows the brand to focus on increasing its overall value to the customers.

  • Provides a Handle For International Logistics

International shipping and transactions require expert handling of documentation, customs, duties and other issues that come up at the borders, which can delay the shipments and result in high costs if not done right. Also, it requires its own key network, for smooth operations. A 3PLs provider takes care of all these details efficiently. And helps the company to save time trying to work through complicated rules and regulations pertaining to international relations and country specific rules and regulations.

  • Generating Cost Savings

 Maintenance of warehouses, logistics supply staff etc. is an expensive, high cost segment that is not a wise investment for an individual company dealing with only their merchandise or with relatively low volumes of shipment. 3PL provider have their own established network of warehouses and skilled manpower. Hence, not having to maintain personal space and staff is definitely a big cost-saving measure. Added to this, certain Third-Party Logistics companies provide a good inventory forecasting that helps optimize the brand’s inventory levels and thus save money on inventory holding costs.

Third-Party Logistics

Some Minor Challenges of Working With 3PL Provider

There are two sides to every coin. The other side of the story is that a Third-Party Logistics is not cut out for every business profile. Here are a few challenges that need to be considered when working with 3PL provider, along with their impact on business.

Third-Party Logistics
  • Lowered Control over the Delivery Process

Since a 3PL provider is managing all the delivery logistics, the primary control on delivery is in the hand of 3PL provider. This naturally lowers the brand’s control over their own merchandise and shipping logistics. This creates a challenging situation in case of shipping delay. In the event of a delayed delivery, the customer will be look at the Business Brand for the resolution of the problem, not at the 3PL provider. And this gets tricky because the 3PL provider has the primary control on the shipping logistics.

  • Large Initial Upfront Investment:

 In the long run, 3PL service is cost effective and pays for itself. However, the initial investment can still be huge and be a heavy investment for the business in the beginning stages. If the merchandise sale + order + shipment volume is not huge, and a big warehouse is not needed, the cost of hiring a Third-Party Logistics provider becomes prohibitive.

  • Increased Physical Distance between the Business and its Product

 The 3PL provider may have a warehouse at a considerable physical distance from the company offices. This positions the business far away from their products. As a result it creates an inconvenience for the brand to handle quality control issues, or in case there is need to physically inspect the stock for any reason.

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