If your company handles or is adjacent to physical logistics, order fulfillment, and customer delivery, you’ve almost certainly encountered the term 3PL. Given the complexities, cost, and resources involved with managing supply chains and executing order fulfillment, many companies choose to outsource these responsibilities to third-party logistics providers (3PL).
But should you?
In this article, we’ll provide an overview of everything you need to know when considering whether to start relying on 3PL outsourcing and how to begin evaluating potential partners.
What Is a Third-Party Logistics Provider?
To understand if outsourced logistics is right for you, we must answer: why do businesses use third party logistics providers? A third-party logistics provider (3PL) is a business that facilitates supply chain management and order fulfillment. It generally does so by providing:
- Warehouse facilities for storage
- Inventory management
- Packaging and shipment labeling
- Logistics and shipping technology solutions
- Freight accounting and invoicing
- Carrier contracts and negotiation
3PL partners enable you to fully outsource these business processes and responsibilities, streamlining your remaining internal operations and significantly reducing costs.
Over the last decade, 3PLs have become increasingly essential to many companies’ order fulfillment and supply chain management. The 3PL market’s generated revenue has more than doubled since 2010—from $127.5 billion to $297.2 billion. Industries like eCommerce, technology (e.g., hardware), and automotive parts have all become major adopters.1
What Are the Four Types of 3PL?
Like other outsourcing solutions, whether you choose to partner with a 3PL provider for your logistics depends on the available services they offer and how those seamlessly mesh with or improve your existing processes.
Most 3PL partners can be categorized across four different types you’ll want to evaluate:
#1 Standard providers – These 3PL partners provide limited inventory storage and transportation, making them more common for operations like eCommerce order fulfillment and regional distribution centers. Some may only provide transportation, requiring you to operate your own warehouse facility.
#2 Service developers – An upgraded version of standard providers, these 3PLs also offer IT solution outsourcing (e.g., sophisticated shipment tracking and compliance) and transportation security. Because of their elevated IT capabilities, they can better ensure safe and on-time delivery, along with options like cross-docking (unloading from one truck and immediately loading into another).
Some service developers will also offer package selection, allowing you to choose custom boxes and the other materials used.
#3 Customer adapters – These 3PLs operate like personnel outsourcing, taking over the management of an existing logistics operation. Businesses still retain full access to all technology solutions and can adjust processes and specific shipment details as needed.
#4 Customer developers – As a complete outsourcing solution, customer developers take on all aspects involved with supply chain management and order fulfillment.
However, when evaluating potential 3PL partners, don’t expect them all to fit neatly into these categories. Many will offer services you might only expect to see from a different type of 3PL. You’ll want to assess every 3PL company you consider partnering with based on their specific services offered and the value they can provide to your business.
Other Types of 3PLs
Not every third party logistics service provider is directly involved in supply chain and order fulfillment, managing warehouses, truck fleets, or cargo handling. Many related logistics tasks can be individually outsourced to dedicated service providers, reinforcing how loose these categories can be.
Other 3PLs include:
- Finance-based 3PLs – These providers function as an expanded logistics accounting department, offering services like:
- Invoice auditing and payment
- Cost optimization
- Contract negotiation
- Technology solutions for managing transportation scheduling
- Information-based 3PLs – Leveraging the power of data, these 3PLs tend to operate in more of a consultancy role. They’ll analyze your processes and data to help you realize new efficiencies and cost savings.
What Are the Pros and Cons of 3PL Outsourcing?
Whether you choose to partner with a 3PL provider or not, it’s important to know both sides of outsourced logistics. The pros and cons of outsourcing third party logistics are often double-sided. For example, outsourcing your entire supply chain management and order fulfillment processes can reclaim significant internal bandwidth and reduce costs. However, you may also lose direct control over these processes.
Consider your existing operations, costs, goods, and services in comparison to the pros and cons below to help determine if outsourcing third-party logistics service is right for you:
- You may reclaim bandwidth, but lose some control – Partnering with a 3PL outsourcer will take those responsibilities off your business’ plate. But with someone else handling them, you’ll lose the ability to influence every part of supply chain management and order fulfillment—including customer service and satisfaction based on direct interactions.
- You gain dedicated expertise, but partner trust is crucial – Ideally, the 3PL partner you outsource to will employ knowledgeable professionals who leverage their expertise to create even more efficiencies and cost savings. Many 3PLs provide precisely that, but this isn’t a guarantee. You’ll need to take the time to evaluate potential partners and find one you can trust.
- You’ll access more resources, but may gain more complex processes – 3PL partners providing their own facility and resources can substantially expand those you currently have at your disposal. Whereas it would likely take months to find a facility in a new region (or years to build one), 3PLs already have that sorted out. At the same time, working with more complex logistics networks means there are more potential instances where things can go wrong.
- You’ll benefit from economies of scale, but this may depend on other 3PL clients – Most 3PLs—aside from the “customer developers”—partner with multiple businesses. This provides expanded opportunities for consolidated freight, achieving high-volume rate reductions, shared destinations, and similar economies of scale. However, your logistics being successful may now depend on variables introduced by those other companies.
As with any outsourcing consideration, there are always trade-offs. But given the steadily increasing adoption of 3PL services, it’s safe to assume most companies consider them worth it.
Of course, you should strongly evaluate how your business can benefit from outsourcing third-party logistics depending on your current operational factors—but despite any drawbacks, you’ll likely still realize numerous advantages.
Shipware: The Only Finance-Based 3PL You’ll Ever Need
Ready to learn more about 3PL contracts and outsourcing the service? At Shipware, we provide logistics outsourcing services that generally fall into the finance-based category covered above. Between contract negotiations, technology platforms, consulting, and more, we can help you achieve parcel and less than truckload (LTL) shipping cost reductions between 10-30% without disrupting your operations—guaranteed.
Additionally, we can help you find trusted, reliable partners for other 3PL services through our extensive network.
Contact us today to start saving on your logistics and supply chain management.
- Statista. Revenue generated in the U.S. third-party logistics (3PL) market from 2010 to 2023. https://www.statista.com/statistics/638368/us-third-party-logistics-market/