What is 3pl? Understanding 3PL: The Role of Third-Party Logistics in 2024
What is the purpose and role of third party service providers in the supply chain?
warehousing, inventory management, and order fulfillment centers, third-party logistics (3PL) processes are at the heart of the supply chain. For brands or sellers that rely on these logistics businesses, the receiving, storing, and shipping of inventory are crucial components to their growth—especially when supply chain management
logistics functions becoming a necessity for many organizations, especially with the rise of ecommerce and omnichannel fulfillment networks, the outsourcing of these specific responsibilities has fallen to third-party warehouse businesses called 3PLs, or third-party logistics warehouses.
What is a 3PL Warehouse?
A Third-Party Logistics Warehouse, or 3PL, is an outsourced logistics partner for warehousing, inventory management, and order fulfillment. They store and ship inventory for multiple businesses, providing seamless integration of supply chain operations. The rise of online retail has driven 3PL growth, with specializations in areas like B2B, ecommerce, retail, and more. 3PLs allow brands and sellers to focus on their core needs by managing warehousing operations and transportation services. Essentially, 3PLs are the linchpin of the supply chain, enhancing efficiency and enabling automation of order fulfillment.
What a 3PL is Not:
Private warehouses, or warehouses that only fulfill orders of their own products, are not considered 3PLs. These types of warehouses are usually owned and managed by manufacturers or retail stores. They use specific accounting, billing, and shipping software that often does not allow for the flexibility needed to manage inventory and billing for multiple customers.
1PL, 2PL, 4PL, and 5PL Explained
1PL: A 1PL, or first-party logistics provider, is a business that manages the entire fulfillment process for its own products, including strategy, storage, and shipping. They operate their own warehouses and fulfillment centers where they store inventory and handle shipping to retailers and clients. These are often referred to as private warehouses.
2PL: A 2PL, or second-party logistics provider, is an asset-based carrier. This typically includes shipping lines, airlines, and hauling companies with their own fleet of vehicles. A 2PL, also known as a forwarder or freight forwarder, focuses primarily on transportation.
4PL: Fourth-party logistics (4PL) involves outsourcing nearly all logistics operations to an external partner. The 4PL acts as a single point of contact between the business and various logistics providers, making decisions on every aspect of the supply chain. Often, a 4PL will collaborate with a third-party logistics provider (3PL) to manage logistics services or may even develop a 4PL network through partnerships with other 3PLs.
5PL: Fifth-party logistics (5PL) is a more recent concept that involves comprehensive logistics integration using multiple outsourced providers. A 5PL offers fully integrated solutions that cover the entire supply chain from start to finish, leveraging a variety of outsourced services. 5PLs utilize advanced technology and IT systems to ensure visibility and control across the supply chain, even when different suppliers are involved.
Responsibilities of a 3PL?
Third-party logistics warehouses take on important supply chainoperations to help their customers focus on growing their own businesses. This means everything along the supply chain and includes logistics operations like:
Scheduling and executing the receiving of inventory to the warehouse
Sorting, managing, and accounting for all inventory
Maintaining inventory in proper conditions
Negotiating discounted shipping rates
Picking, packing, and shipping products
Kitting and assembling products if necessary
Managing recurring subscription boxes
Value-added services (e.g., optimizing the unboxing experience)
Returns or reverse logistics
Who Benefits from 3PL Services?
3PL services function as outsourced businesses that meet a company’s coordination and supply chain needs. Retailers, brands, and merchants are regularly turning to 3PLs to outsource their supply chain needs such as distribution and warehousing. Nowadays, many kinds of businesses are regularly partnering with 3PLs. They range from small ecommerceretailers all the way to Fortune 500 businesses. Each one sells a wide range of products. 3PLs provide necessary services that help a business grow.
Small Ecommerce Businesses:
mall ecommerce business might be able to manage and self-fulfill their orders initially. However, once a business starts to grow and orders increase, they will start to spend an excessive amount of time packing orders and shipping in-house. So much extra work prevents a company from scaling.
Although a small business can hire warehouse workers to keep up with demand, they will eventually run out of room and be faced with renting a warehouse to increase their space which becomes a costly endeavor. Additionally, they may want external expertise to help drive efficiency and automation in their ecommerce fulfillment processes.
As a result, small businesses get locked in a catch-22, they need to expand to grow their business, but the costs and space become extreme and gouge out their bottom dollar. They can face overspending on storage and shipping costs and employee salaries needed to fulfill orders and manage inventory. The answer to the dilemma is to outsourcefulfillment to a 3PL so the business can start to focus on other necessities and save money. A 3PL will tackle order fulfillment and provide necessary services while reducing shipping rates, driving operational efficiency, and keeping up with best practice workflows.
Medium-Sized Companies:
Medium-sized companies can also benefit from a 3PL. A fast-growing company needs a 3PL for strategic fulfillment operations to meet its level of growth. If a company has outgrown its current warehouse location, then reaching out to a supportive 3PL can help meet the demand and scale up once the order volume increases. In some situations, they may strategically split inventory throughout several distributed fulfillment centers to ensure that items reach customers faster and at more affordable rates to help increase a company’s profitability. Leveraging a 3PL can also help these companies handle seasonal peaks without sacrificing the consumer experience.
What Types of Companies Use 3PLs in 2024
Many companies rely on 3PL providers for various products, including:
Nutraceuticals
Wine and spirits
Bulk goods
Raw materials
Electronics
Pet accessories
Apparel
Cosmetics
General merchandise
Cold storage
3PL Services To Use for Your Growing Ecommerce Brand
ransportation: Many 3PLs specialize in transportation services, facilitating the movement of shipments between manufacturers, warehouses, companies, and buyers. Freight forwarders handle large shipments across countries, while smaller carriers such as USPS, UPS, DHL, and FedEx manage smaller parcels.
Warehousing, Fulfillment, and Distribution: Some 3PLs focus on warehousing, fulfillment, and inventory management, along with shipping and returns. These providers handle all aspects of fulfillment and warehousing needs and often offer distribution services, including transportation, shipper selection, shipping rates, and optimized shipping strategies.
Financial 3PLs: Large e-commerce companies frequently use financial 3PLs for accounting and cost control services. These 3PLs help manage freight forwarding costs, inventory tracking, and overall cost management. They typically cater to larger companies with more complex logistics needs.
Receiving: A crucial function of 3PL warehouses is receiving inventory. They store products before shipping them to consumers and coordinate inbound shipments with the company. This may involve managing bulk shipments from manufacturers to distribution centers. Advanced 3PLs use integrated management software to track inventory locations and streamline the fulfillment process.
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