An organization has to handle several functions related to the management of its supply chain. For small organizations, it is easy to manage all processes and functions in-house but as the business of an organization grows, management of all processes related to the supply chain management becomes difficult. At a certain point, the management decides to outsource some of its supply chain processes to other agencies having specialization and expertise in their respective domains. The functions considered for outsourcing may be transportation, warehousing, etc.
These external specialized agencies which manage various functions of supply chain for an organization are called ‘the Third Party Logistics (3PL) Providers’. In this post we will learn about the 3PL service provider, the functions it can handle and the benefits of employing 3PL service provider.
What is Third Party Logistics?
Third party logistics providers are the companies which offer logistics services to other organizations. The service may include transportation, warehousing, procurement, inventory management, handling custom clearance, order fulfillment, packaging and freight forwarding, etc. In other words, you can say that, a 3PL service provider handles all aspects of flow of goods form manufacturers to distributors to retailers and finally to the end consumers.
3PL vs 4PL
The main difference between 3PL and 4PL is that, the 4PL handles the entire operations of a supply chain, while the 3PL handles only the logistics management processes.
Below are given the key differences between 3PL and 4PL:
- 3PL is mainly suitable for small to medium businesses while the 4PL is suitable for medium to large businesses.
- 3PL is mainly concerned with day to day operations while the 4PL works on optimization and integration level.
- 3PL do not have assets like warehouses, trucks, etc. while the 4PL owns these kind of assets.
Main Functions of 3PL Service Provider
3PL service providers manage actual transportation of goods or services from manufacturer to the customer.
(2) Warehouse Management
All the functions related to the warehouse management like storage, transportation, distribution, etc. are managed by the 3PL service providers. The 3PL service provider integrates its services with company’s warehouse operations and manage all the processes.
Distribution of products and services is a challenging task for small companies for which they take help of 3PL service providers. The 3PL service providers provide services like order fulfillment, picking, packaging, transportation and distribution of goods & services.
(4) Management of Shipping Processes
3PL service providers manage the shipping processes for the products and services. Shipping processes have a lot of activities involved like transportation, packaging, custom clearance, loading- unloading, documentation, etc. which gets very complicated for small businesses which do not have enough expertise on it. Therefore, it is always better to outsource the shipping operations to 3PL service providers, which can handle it efficiently.
Advantages of Third Party Logistics (3PL)
There are several advantages of 3PL ranging from time saving to cost saving and many more. Some of the key advantages of 3PL service provides are as follows:
- Time & cost saving, since the transportation, warehousing and distribution, etc. are handled efficiently by the agencies having expertise in it, therefore time as well as cost is saved.
- Suitable for small business which do not have enough expertise and set up for transportation and distribution of goods & services.
- Risk transfer and risk reduction, since the warehousing, transportation and distribution processes are handled by other specialized companies.
Disadvantages of Third Party Logistics (3PL)
As the 3PL service providers have several advantages, there are some disadvantage to employing 3PL service providers also, which are given below:
- Less control over inventory
- Not cost effective for less orders
- Suitable for small and medium businesses only
- Limited control over customer service experience
When the 3PL should be Employed?
If your firm is small to medium in size and the firm do not have enough internal resources to handle the logistics operations, then it will always be better to outsource these operations to 3PL service providers. The 3PL service providers can save you a lot of cost and time by efficiently operating the logistics operations. As the 3PL service providers may bring latest technology for their operations, your will get benefitted by it.
Third party logistics providers are the companies which offer logistics services to other organizations. 3 PL services are suitable for small to medium enterprises, which do not have internal resources and expertise to handle these operations. 3PL service providers can save you cost and time, therefore a firm can think to employing 3PL service providers.