3PL – A brief introduction, advantages, and disadvantages

INTRODUCTION

It all began in the 70’s and 80’s, a time of bell-bottoms, public protest movements, and the rise of ‘clubbing’ formally known as ‘disco’. While we saw the rise of pop culture icons and movies, companies also saw the opportunity to reduce business costs through outsourcing. Not only did outsourcing shape the way businesses operate drastically, but this transition changed the world of logistics forever.

SO, WHAT IS 3PL?

3PL stands for “Third Party Logistics”. As the words “third party” suggests, third party logistics is the process of outsourcing your logistics. Today, the 3PL market covers more than USD 1 trillion (2019) and this figure is still expected to grow. In the 1990s, ‘3PL’ was even once used as a trademark, although the term is no longer registered.

Over the years 3PL services evolved to cover not only warehousing and transportation but specific geographies, specialized commodities and professional advice. Some 3PL companies even specializes in specific industries such as retail logistics.

WHAT ARE THE BENEFITS OF ENGAGING 3PL SERVICE PROVIDER?

Using third-party logistics in Canada has numerous benefits. The most significant advantages of engaging a 3PL service provider would be time and money.

Precious resources they are, determining what saves time and money can be difficult. That’s what businesses are evaluated on aren’t they? Make more money by saving time (being efficient) so that we can make even more money (effective results).

Well you might say, isn’t engaging a third party more costly albeit the time savings? And that’s a good question. However, delving deeper allows us to understand the intricacies of 3PL logistics and why selecting a good 3PL company allows us much valued time and cost savings.

Here are the advantages of engaging 3PL companies:

  • REDUCTION IN COST

3PLs has more control with cargo companies than individual movers. Working with transporters on behalf of multiple clients, third party logistics can better negotiate pricing based on order frequency and volume of business. Using a 3PL also gives you the liberty to invest in other areas to grow and mature your business.

While the fees of 3PL services may vary, the fees charged are usually small compared to the benefits you will receive. 

  • EFFICIENCY

If your products are selling internationally, 3PL companies can take care of customs, related duties, documentation and other issues that come up across the border. In this way, your shipment won’t get delayed and will be delivered on time. Furthermore, you can save time as well as the risk of selling internationally.

  • EXPERTISE AND FIELD KNOWLEDGE

In case, you are just starting your business, who better to cater your logistics than an enterprise that specializes in them? It’s evident that warehousing, picking and packing, and order fulfilment come with significant challenges in shipment. So, handing it off to the professional of logistics can really make a difference that makes you focus on other overall business performance rather than just get stuck in the hassle of deliveries.

  • MITIGATE RISKS

When you are dealing with deliveries, then shipment delays can happen due to several reasons or unforeseen conditions. Hiring or outsourcing 3PL companies lessen your chance of shipment delays because of their advance order dispatching and distribution system. Furthermore, some 3PL companies also give damage or loss protection too.

You do not have to spend so much time looking at the order and worrying about what is wrong with it. You simply turn to the freight company, and they will take care of everything for you. They will even handle your taxes if they are applicable.

  • PENETRATE NEW MARKETS

By hiring a third-party logistics provider, you can grab new opportunities to test the markets for your products without having any additional commitments—no need to expand your warehousing facilities with your 3PL company’s warehousing facilities.  

  • REDUCE PAPERWORK

Great! More paper work. Another benefit is that you are able to rely on a single company to do most of the work for you. You will not have to worry about handling the paperwork or the taxes. The 3PL company will take care of all that for you. As a result, your business will be able to concentrate on selling your goods directly to the customer.

  • SERVICE IMPROVEMENT

Your perfect 3PL partner can help you improve on service. Afterall, it’s their KPI to ensure timely pickups and dispatches to minimize delivery discrepancy. Which naturally results in keeping clients happy. It also helps to prevent costly retail seller chargebacks and schedule disturbances, assuming that your 3PL service provider is effective.

Third party logistic companies are able to keep closer checks on transporters because it’s their main concern. In short, the goal of 3PL companies is to help brands to avoid any service disruptions and keep their customers happy through effective freight, delivery and warehousing management.

  • TECHNOLOGY ACCESS

By hiring a 3PL company, you don’t have to invest in smart technology in order to manage your deliveries. Most 3PLs provide a logistics management system, which you can integrate into your business in order for transparent and accurate tracking. For instance:

  • Freight management systems
    • Order tracking systems
    • Inventory management systems
    • Audit and payment solutions

WHAT ARE THE DISADVANTAGES OF USING 3PL SERVICE PROVIDER?

Hence, the disadvantages of using 3PL service are least as compared to its advantages. Some of its demerits are as follows:

  • LESS CONTROL OVER THE DELIVERY PROCESS

When you depend on third-party freight forwarding companies, you may have lesser control over the deliveries of your own products. You might face some challenges due to delays in shipment. Furthermore, you cannot upgrade your tracking system without their permission, or the upgrade may not be easily implemented since you don’t own it.

  • LARGER UPFRONT PAYMENT

Cost-saving is considered among the primary benefit of hiring a 3PL company. However, if you don’t have enough inventory or orders, you might have to fork out a larger upfront payment, depending on your service provider.

CONCLUSION

All in all, 3PL service providers are generally cost-effective. This explains the success and growth of 3PL companies globally. Otherwise, the 3PL industry would not have survived and thrived for half a century. Of course, the quality of service depends on who is providing it. My advice? choose wisely!

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Christophe Rude

Christophe Rude

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