Third Party Logistics Guide - Process & Key Benefits of 3PL

Overview About Third Party Logistics

Historically third-party logistics dates back to the 1970s. In the past, companies used to handle their own distribution and transportation when they managed logistics by themselves.

The need for a new concept of logistics services arose for businesses that engaged in international trade. The launch of the 3PL industry was slow, although the industry started to grow during the early 1990s.

The third-party logistics (3PL) business market will be almost USD 1.29 trillion in 2024. Moreover, the 3PL market is also expected to reach USD 1.68 trillion by 2029, rising at a CAGR of 5.48% during the forecast period (2024-2029). Two main factors that have contributed to this increase are the advancement of online selling and buying and globalization.

What is Third Party Logistics?

Third-party logistics, also called 3PL logistics, is an instance of logistics services being availed of by external companies. 3PL involves areas such as:

Storage or warehousing of goods
Ecommerce Fulfillment
Movement of these goods or transport
Delivery or distribution.

The first aim is to achieve efficiency and a decrease in expenses.

Moreover, the following definition of third party logistics has been evaluated by the Council of Supply Chain Management Professionals (CSCMP):

“A firm that offers various logistics services to its buyers”.

How 3PL Logistics Works?

Third party logistics companies provide a plethora of logistics services to different clients. They deal with stock control, provide logistics and warehousing services and deal with product’ returns.

Here’s a breakdown:

Receiving: The 3PL provider receives goods from the manufacturer or supplier and stores them in their warehouse.
Inventory Management: Record and update stock inventory.
Warehousing: Keep goods in an area reserved for warehouse storage and for use at a later time.
Order Receiving: 3PL providers have their own software where they receive consumer orders.
Pick and Pack: After receiving the orders, they pick the right product and pack it accordingly.
Transportation: Transport service for ship orders from one place to another.
Returns Management: The company manages their product returns and, most importantly, resolves product returns.

Some of these services are packaged in complete solutions and it becomes possible for the business to delegate the whole supply chain management to the 3PL provider.

Key Process of Third Party Logistics

3PL logistics goes through a typical 5-step process:

Order Fulfillment: Receiving customer orders’, doing further processing and shipment. Order fulfillment is essential for an organization to effectively meet its customers’ needs in the shortest time possible.
Inventory Management: Being aware of changes in stock levels and regulating the changes. Efficient stock controls minimize costs and eliminate situations where there is inadequate stock.
Warehousing: Eco-friendly storage of products. Third-party logistics warehouses are placed in locations that reduce the time needed to transport goods.
Transportation: Transporting goods through different mediums (air, sea, and ground). The appropriate mode of transport can greatly minimise the distribution expenses and shorten the delivery time.
Reverse Logistics: Returns and the recycling process where a product is returned by a consumer and reprocessed to become another valuable product. The significance of reverse logistics is rising with the era of consumer electronic businesses.

Services Offered By 3rd Party Logistics Company

Following are the core services catered by 3PL Logistics company in India:

Warehousing: Storage solutions for meeting the needs of a business. Different types of warehouses are well-equipped with modern technology for stock management.
Transportation: Be it rail, road, air or water, the efficient movement of goods and services is done. This entails both local and international transport.
Distribution: Making it available to the end users as soon as possible. The distribution centers are strategically placed near the major markets.
Freight Forwarding: Coordinating for the goods shipment. Freight forwarders also haggle and bargain for the prices and make sure that they get the services/waybills by the set laws.
Customs Brokerage: Managing the customs. This comprises the readiness of documents and paying of customs duties.

As for the additional services provided by the 3PL providers, packaging, labeling, and kitting are common.

Benefits of Outsourcing Third Party Logistics

Outsourcing to 3rd party logistics providers offers numerous advantages:

Cost Savings: Cuts operation costs by about 10-15%. Thus, 3PL providers can experience economies of scale.
Expertise: Availability of expertise which is hard to come by in everyday practice. Originally, 3PL providers were vendors proficient in the field of logistics and management of supply chains.
Scalability: Sustain changes which are easier to adapt as a response to the changing market. 3PL providers can react flexibly and increase or decrease the volume of their activity.
Focus: Enables companies to minimize their business functions. Logistics can then be outsourced hence creating more time.
Efficiency: Systemise the supply chain operations and its processes. Third-party logistics providers apply various new technologies to improve multiple processes.
Flexibility: Being bound service providers, 3PL providers display a unique solution that is capable of meeting particular requirements.
Risk Management: 3PL providers can manage elements related to warehouse logistics and supply chain interruption.

3PL Logistics Vs 4PL Logistics

When talking about 3PL Logistics, how can 4PL Logistics not enter the chat? Here is the table extending the clearest difference between 3PL Logistics and 4PL Logistics:

Particulars	3PL Logistics	4PL Logistics
Meaning	Outsourcing logistics services	Handling the whole supply chain
Services	Transportation, warehousing	Integration of resources and technology
Control	Limited	Comprehensive
Implementation	Tactical	Strategic
Provider	External logistics providers	Supply chain integrators

Fourth-party logistics, or 4PL logistics, is the management of the total logistics function, where the 4PL provider often supervises the 3PL. They are much more integrated and coordinated than other forms.

Key Considerations Before Outsourcing the 3PL Logistics Service

Now, take a look at the top aspects to consider before you consider outsourcing your business’ logistics operations to a 3PL logistics company:

Cost: Analyze cost-benefit. Another important thing to check before choosing a 3PL provider is if their warehousing cost are fair. Compare the 3-4 third-party logistics companies’ pricing.
Technology: Ensure the 3PL Logistics company in India uses the latest technology and software. There should be guidance to implement the best technology. Try to contract facilities that utilize the most modern equipment.
Scalability: It is also important to evaluate the scalability of the warehouse operations. There should be flexibility in that the provider should be able to expand parallel to your business.
Reputation: Check the provider’s credentials carefully. It’s also a good idea to read reviews and testimonials from other customers to see what they say about their experience.
Integration: Assess compatibility with the presently used systems. That means the provider should be able to fit into your company’s systems easily.
Security: Make sure that the provider has the best security measures in place.
Compliance: Ensure you have the records to confirm that the provider is legally compliant.

The Bottom Line

In summary, applying technology is crucial for any firm, especially in the current business environment. Therefore, third-party logistics remains crucial for new-era businesses as this helps them greatly streamline their supply chain process.

Moreover, companies can develop their logistics chain and concentrate on further business development by gaining knowledge regarding the features that characterize third-party logistics.

Indeed, this guide addresses fundamental and modern developments in 3PL to ensure that it becomes receptive to any business that wants to acquire the 3PL logistics service.