3PL stands for third-party logistics and refers to a company that provides numerous services related to supply chain management. This means that they support some or all aspects of a business’s shipping operations, managing all aspects of moving goods from manufacturers and distributors to the end customer. A 3PL is commonly used to outsource a company’s shipping and fulfillment services, which can include:
- Materials procurement
- Inventory management
- Customs brokerage
- Freight audit
- Shipment tracking
3PL providers, therefore, offer services that relate to what happens to inventory before it gets to the warehouse, while it is at the warehouse, and how it gets from the warehouse to its final destination. As outlined above, there are many reasons that companies turn to a 3PL for their logistic services. Some of the more common reasons businesses choose to work with a 3PL include:
Scalability – A 3PL provider can scale a company’s space, labor, and transportation depending on the exact services required. Manufacturers, suppliers, and other producers can more effectively and uniquely grow in new territories with much less hassle.
Time Savings and Cost Savings – Rather than allocate money and resources toward building and maintaining a warehouse, determining how to transport goods and/or services, optimizing services, and keeping up with new technologies through an in-house management model, a 3PL eliminates those costs.
Expansion – By working with a 3PL, a business can leverage new supply chains, improve customer service, and access new markets it hasn’t been able to access before. Distribution centers and warehouses from third-party logistics providers tend to make such expansion more accessible than ever.
While there are several reasons for companies to embrace a 3PL, there is also another side to that coin. If you prefer pursuing your own means of managing and warehousing your products (whether public or private), you’ll be responsible for inventory, handling, storage, processes and tracking, among other duties. However, in-house warehousing does come with its own set of benefits which include:
Control over your products – This is usually the biggest reason most businesses choose to manage their own inventory. When a business decides to join forces with a third-party logistics provider, they are entrusting the 3PL to meet the agreed-upon SLAs (Service Level Agreements), and that requires a major leap of faith for functions that can directly impact customer satisfaction. With in-house warehousing, you can personally make sure your products are taken care of, stored properly and handled carefully.
Cost – A 3PL company might make financial sense upfront, but external factors (tariffs, over-regulation, weather, etc.) can lead to escalating costs. By deciding on in-house management, you’ll be saving the money you would’ve used to hire another warehousing company. Warehouse management software is also available to help you track inventory and customer orders, to ensure accuracy.
Business Understanding – It’s critical to choose a method of supply chain management that fully understands and suits your business, its goals, and how efficient logistics and distribution can enable those goals. If you’re in a highly regulated industry or have very specific needs (cold storage, temperature-controlled delivery, etc.) a run-of-the-mill 3PL may not suit your business as well as in-house warehousing.
In-house fulfillment is great for some companies, while 3PLs will be the right choice for others. The most significant difference is that in-house warehouses offer a much more limited number of services compared to 3PL providers. Self warehousing may offer you a place to store inventory, but also leaves coordinating product movement, managing packaging and shipping completely up to you. 3PL, meanwhile, takes these needs into account and specializes in a more seamless provision of services. They take a much more comprehensive approach and see public/private storage as just one part of a process rather than the sole focus of an operation.