Order fulfillment is one of the key elements to success in an e-commerce business. If your business is growing rapidly, then it’s best to outsource your logistics and supply chain operations. There comes the importance of third party logistics providers also called 3PL providers. The 3PL logistics market in India is growing quickly. As of October 2024, it is valued at $40.03 billion and is expected to reach $56.88 billion by 2029.
Outsourcing logistics lessens the operational costs associated with warehouse and inventory management. E-commerce businesses can focus on core activities like research and development of a new product or exploring new markets.
An Overview Of Third Party Logistics
The history of 3PL third party logistics dates back to the 1980s. Businesses began to outsource transportation and warehousing to external 3PL providers. The 1980 Motor Carrier Act made a drastic change in the logistics sector.
Before this act, there were strict rules and regulations on pricing and services in the transportation industry. It makes it difficult for any business to operate flexibly or take help in shipping logistics. However, after the Motor Carrier Act, businesses started to hire third-party logistics providers. It reduces the warehousing cost of a business and improves efficiency.
E-commerce started to grow in the 1990s. Businesses needed more help, excluding transportation services. So, they started hiring a 3PL provider for services like warehouse storage, inventory management, pick and pack, and many more.
Today, most people are interested in online shopping. So, 3PL providers have become a necessity for the success of any e-commerce business. These providers use advanced technologies and manage the demand for fast customer delivery. The Global 3PL industry is anticipated to be $2.5 trillion by 2030. The 3PL logistics services are fast growing in Asia, particularly India and China.
What Is Third Party Logistics?
When a business expands its products, they need more storage space to store their products. Businesses also need to deliver products to customers at the right time. Every business may not be able to spend a lot of capital on recruiting staff or building their warehouse, managing staff, and buying heavy equipment like forklifts. So, most businesses outsource their logistics operations to third-party logistics providers.
The 3PL providers manage warehouse logistics, transportation, inventory management, packaging, etc. Third-party logistics streamline the supply chain and warehousing operations and expand the business nationally and internationally.
Note: In the current scenario, using technologies like e-way bills, fast-tags, e-invoicing, and GPS-based toll collection is expected to make logistics operations run more smoothly and efficiently.
3PL Logistics Examples
Sara started an online T-shirt business. Fortunately, the business grew in a few months, and the demand for the T-shirt was high. Sara had a shortage of space to accommodate T-shirts. Again, she and her friends had to spend a lot of time on packaging and labeling.
So, they thought of hiring a third-party logistics service provider. The 3PL logistics company has enough space to accommodate all the T-shirts. The Company handles all logistics tasks, from picking up the t-shirt to delivering it to the customer on time. Sara is now much relieved and can focus more on the core activities of her business.
Key Functions Of Third-Party Logistics
A third-party logistics provider manages various aspects of the supply chain. The main functions of third-party logistics are as follows.
1. Third Party Warehousing
A third-party logistics provider provides storage facilities where a Company can store their goods. 3PL Warehouse receives the goods and stores them in a specific location. The 3PL Company manages the entire warehouse operations, handles goods properly, manages returns, and tracks inventory. Every 3PL Company has its own set of methods for receiving and storing goods of a business.
2. Inventory Management
The third-party logistics provider manages stock levels and reduces the chances of overstocking or stock out. The Company also helps businesses forecast demand, allowing them to predict future sales. Based on this prediction, businesses can manage their stock better.
3. Distribution
When a business receives an order, it appears in the warehouse distribution system. They pick up the product and prepare it for distribution.
In the past, 3PL providers uploaded the orders manually. Sometimes, they create spreadsheets and enter all the order fulfillment details and customer shipping information there. But now, third party logistics utilize WMS to track all the orders in real time.
4. Shipping
It is the responsibility of the 3PL logistics provider to handle the shipments of goods. They usually have partnerships with numerous top transport companies and make sure that they will deliver goods on time to the customer. The third-party logistics provider even selects the best shipping methods (air, rail, or road) for transporting goods.
5. Reverse Logistics
Third-party logistics even provide reverse logistics services. If a customer doesn’t like the product, he raises a return request. The 3PL provider will pick up the item from the customer, inspect it, and keep it on the shelf once again.
Importance Of Third Party Logistics
- When a company outsources all its logistics operations to a 3PL third party logistics, then it significantly reduces the cost associated with B2B warehousing, recruiting staff, and transportation.
- When a 3PL provider handles logistics operations, a business has enough time to focus on core activities like product development or develop marketing strategies.
- A 3PL provider usually specializes in logistics and supply chain management. They choose the best transportation route or properly handle the ecommerce fulfillment process, optimizing your business performance.
- Most 3PL providers use advanced technology like warehouse management systems and inventory management systems that reduce errors and enhance the streamlined operations of the business.
Advantages Of 3rd Party Logistics
There are numerous reasons why e-commerce companies are taking the help of 3PL services.
1. Cost Saving
Some e-commerce businesses handle transportation and all the logistics operations by themselves at the beginning. However, when product demand increases, they cannot handle shipping by themself. They need space to accommodate a large number of products. Hence, they take the help of 3PL services.
The 3PL provider has a warehouse where an E-commerce business can store a large number of products. The 3PL will receive goods and place them in specific locations. They have staff who specialize in logistics management.
The 3PL does packaging and labeling, warehousing solutions, chooses the best transportation route for the product, and delivers it at the correct time to the customer.
So, the Company does not have to spend a lot of money on building an infrastructure to store its products. They do not have to recruit staff to manage stored goods or buy equipment like forklifts. 3PL providers usually have partnerships with numerous shipping companies.
So, the shipping cost is lower when an e-commerce business uses 3Pl warehouse services.
2. Expertise And Specialization
Most third party logistics have the necessary knowledge and expertise in D2C warehousing, B2B logistics, inventory management, and shipping regulations. They are even updated on the industry’s best standards and current developments in logistics.
3PL Companies use advanced technology like warehouse management systems, inventory management systems and data analytics to enhance the efficiency of the supply chain of a Ecommerce business.
3. Risk Mitigation
Almost all the businesses are associated with risks. Delays in delivering the product are one of the common or unpredictable events that are common problems faced in the logistics world.
However, 3PL providers have many years of experience and have good networks. They are trained to handle risks or unpredictable events. These third party logistics reduce the risks as much as possible by double-checking all the logistics work.
4. Improve Customer Experience
Third-party logistics providers try to deliver products to customers at the right time. It increases customer satisfaction and loyalty. Some 3PL Companies even provide real-time tracking facilities to the customer so that they can know exactly the location of the ordered product.
5. Expand New Markets
Outsourcing logistics helps a business concentrate on core activities like product development or market strategies. The business can expand nationally and internationally without spending capital on warehouses and transportation.
3PL providers have good networks and warehouses in different regions. They also have worldwide warehouse partners, which can help an e-commerce business access new markets at a low cost.
Which Industries Must Have to Choose 3PL Third Party Logistics Provider?
Various industries can benefit from choosing third-party logistics providers. We are listing some of them below.
Various industries can benefit from choosing third-party logistics providers. We are listing some of them below.
1. Retail And e-commerce Business
Retail and e-commerce businesses have to manage order fulfillment and deliver products to customers at the right time. 3PL providers will manage all these operations efficiently. They provide fast delivery to customers, reduce the cost of the business, and enhance customer service.
2. Manufacturing
Manufacturers depend on 3PL services to move raw materials to production facilities and B2B distribution of the finished products to customers. 3PL services reduce transportation costs and manage the inventory properly for a manufacturing company.
3. Pharmaceuticals
A pharmaceutical Company requires proper product handling, efficient storage of temperature-sensitive products, and transportation. 3PL services help in efficient storage and lessen the risk of product damage. They even transport sensitive goods safely.
4. Food And Beverage
The food and beverage industry needs temperature-controlled storage and transportation to maintain the quality of the products. 3PL services efficiently store perishable goods and reduce food wastage.
Future Trends And Technology
3PL’s future is evolving quickly because of new trends and technology.
- Automation And Robotics: Robots will move goods inside the warehouse. This will reduce manual work, improve product handling and speed up tasks like picking and packing goods.
- Artificial Intelligence: AI will help logistics companies make better decisions. For instance, AI can suggest the best transportation route to speed delivery.
- Satellite-Based Toll Deduction: The Indian government has introduced satellite-based toll deduction, which helps reduce traffic at toll plazas, leading to faster deliveries.
- Sustainability: 3PL Companies will focus on green practices like using electric vehicles to reduce environmental pollution.
- Internet Of Things: The Internet of Things uses smart sensors to monitor products in real time. These sensors can track the location and temperature of the product and ensure safe storage and delivery.
Conclusion
Whenever a business grows, it struggles to find enough space to store its products. It has to spend a large amount of capital on transportation. So, most companies prefer to partner with third party logistics providers. 3PL plays an important role in modern supply chains.
Logistics partners help businesses reduce costs, increase customer satisfaction, and explore new markets. When a business heavily depends on 3PL, it has to face certain cons. If the 3PL has some technical issues or delays in delivering products because of a strike or some other problems, then it disrupts the entire supply chain of the Company.
AAJ Supply Chain Management
