Meaning and Definition of Third-Party Logistics

Meaning and Definition of Third-Party Logistics

It’s now obvious that COVID-19 accelerated the expansion of e-commerce. If you too, like many others had to transfer your retail business online and in addition, had to learn how to pivot to e-commerce – you know how difficult it was to do all this in just a short time.

By now, you’ve probably learned all the ups and downs of the e-commerce business. You are aware that the main part of your business includes fulfilling a sales order to all your customers. You have also noticed that as your business grows, so does the order fulfillment.

It goes without saying that with the expansion of your business, you’ll need to expand the order fulfillment strategies as well. When expanding order fulfillment strategies, you’ll need to find the right third-party logistic company or better yet companies.

And this leads us to third-party logistic companies and their meaning.

What is third-party logistics?

Third-party logistics (3PL in further text) is a service or a third-party business that outsources logistic services such as warehousing, inventory management, order fulfillment, product distribution, and so on. 3PL services include everything you would need to conduct your e-commerce business – you take the orders and they fulfill them.

3PL service has become indispensable to many businesses in recent years, especially in 2020 during the coronavirus outbreak. These businesses usually provide both domestic and international transportation and even though 3PL services have also been negatively affected by the pandemic, it’s predicted that the 3LP market will reach US$ 1,329.4 billion by 2027.

As an e-commerce business owner, it’s important that you select the right logistics partner. Even better would be selecting several 3LP partners to avoid being associated with a sole source provider.

Types of 3PL providers

Before enlisting a 3PL provider, you need to be aware of all the types of 3PL providers – standard third-party logistics provider, service developer, customer adapter, and customer developer.

The standard 3PL provider gives only basic logistics that involve storing, packing, transporting, and sometimes even delivery of products.

3PL service developer, in addition to basic logistics mentioned above, offers IT support, security, product tracking, and cross-docking as well. 3PL service developers are ideal for companies that have larger batches because they’ll have better cost advantages. On top of that, companies that hire service developers are guaranteed the safety and reliability of their products.

3PL customer adapters have complete control of a company’s logistics. They take over and manage the logistics operations of the company that hires them. Unlike standard 3PL and service developers which offer services only, customer adapters will run the whole logistics department at the request of the client. Of course, 3PL customer adapters cost much more than other providers because of their involvement in the company.

3PL customer developers not only run the company’s logistics but also integrate themselves into the said company and adapt their own systems.

Basically, by integrating themselves into the logistics of a company, the customer developers try to change the current supply chain process to enhance the effectiveness and efficiency or add new solutions to it. When hiring customer developers, you must be willing to give complete control of your logistics to a 3PL company.

Choosing the right 3PL providers

When it comes to choosing the right 3PL providers for your company, there are many things that you need to take into account. First, there are a large number of all kinds of 3PL providers, choosing the best one might take some time and it can be overwhelming.

So, let’s see all the things that you should consider when choosing the 3PL provider.

Stock volume is the number one thing that you should take into consideration. A 3PL provider should be able to handle your current stock volume as well as potential or future increases in stock volume. Ideally, you should choose a 3PL provider that can handle your current business and your business as it grows and expands.

References are always important. A good 3PL provider is the one that has good references from customers and that is willing to give you their business performance report over the last couple of years. Customer reviews are always a good indication of how well the provider operates and what kind of relationships it has with its clients.

Choosing the right 3PL provider can either make or break your business. You are looking to hire someone who will handle your sales, inventory, and many other sensitive and important information.

What are the advantages of working with a 3PL provider?

Some of the biggest advantages include saving time and money. When you hire a 3PL provider you won’t have to worry about buying or renting warehouse space or fleet management. A 3PL provider has connections and it knows how to run this business without problems. Also, when you hire 3PL services, you don’t have to spend time packing boxes and taking trips to the post office. Instead, you can focus on product development and marketing.

3PL providers have all the necessary technical recourses and networks that help them improve and optimize chain supply efficiency. This means that 3PL providers can help you expand your reach, reduce the costs of shipping and reduce the transit time for orders, amongst other things.

All in all, hiring the right 3PL company can help you a great deal. Not only will you be able to save time and money, but you’ll also be able to focus more on product development and marketing.

However, don’t rush when choosing a 3PL company. Do your research, read references, and performance reports – you’ll be putting the future of your business in someone’s hands, so it’s important to be well informed and aware of everything.

Hannah Montana