3PL Explained: What Is It, Benefits and How to Choose

Photo: Kevin Bidwell

The following is a guest post written by Lassee Petersen at https://www.mactrans.ca/ 

3PL, or third-party logistics, is an order fulfillment strategy. To best understand what 3PL is, it helps
to talk about 1PL and 2PL.

Imagine a maple syrup farm that has to transport its produce to market. The owner decides that the
most convenient way to do this is to buy a truck and do the transportation himself. That is a first-party logistics strategy or 1PL.

As the farm grows it might start producing so much maple syrup that it doesn’t make financial sense to invest in more trucks. It hires another company to take care of transportation. The company that they hire is second-party logistics or 2PL.

Now imagine that the operation grows so big that the 2PL company can’t handle logistics and
transportation efficiently. The farm owner hires a subcontractor or logistics management company, which subcontracts some (or all) of the transportation logistics. The subcontractor is a 3PL.

A 3PL supply chain model comprises three components: the business (manufacturer/producer), the logistics provider who takes care of warehouse management, packaging and other services, and the carrier who is in charge of making sure that goods get to their intended destination in time.

Benefits of 3PL Providers

Why do so many businesses opt to involve 3PL companies for transportation services? There are several reasons, and they have to do with efficiency and cost-cutting:

•  Cost Savings

Companies are able to negotiate lower transport costs based on frequency and volume of deliveries.
The other option would be to hire individual drivers to move goods, and the downside to this is that
it leaves packaging and warehouse management unattended. The cost will quickly rise and efficiency
will likely drop.

• Wider Networks

3PLs come with networks already in place which allows businesses to deliver goods over vast areas.
The business owner doesn’t need to worry about whether goods will get to faraway locations; that
headache falls to the 3PL. The best ensure that they have networks that go far and wide.

• You can scale

A good 3PL allows you to adjust depending on demand without hurting your business. During peak
season they can help you handle the growth without eating into your profits or your time. If it
shrinks, you only need to let the 3PL that you have fewer logistical needs.

• Stellar service

One of the primary functions of a 3PL is to ensure that all deliveries are made on time. You can
avoid retail vendor chargebacks that occur as a result of logistical delays. Your customers will come
to trust your brand, which, in turn, helps grow your business.

• Access to the latest technology

Your customers expect you to use the latest technology to provide timely deliveries, and this falls
squarely on the 3PL you choose. It is up to them to invest in equipment and software that facilitates
transportation, driver and inventory management.

• You can focus on your core competencies

You’re not in the business of providing transportation. A 3PL company takes this function out of
your hands so that you can focus on what you’re good at.

• Driver management

Managing drivers happens to be one of the most complex tasks in the logistics chain. When you hire
a 3PL company it’s taken out of your hands. The subcontractor you hire vets drivers and makes sure
they meet their goals as mandated.

How to Choose a 3PL

What is the best third-party logistics provider? Many companies provide these services, and their
offerings differ. Before you hire, look at the following:

• How long has the company been in business? Ideally, the longer the better. They should be able to provide testimonials from their long-term clients.

• Capability – this includes things like kitting and equipment, multi-channel logistics, software and systems. The company you choose should be able to handle your company’s evolving needs.

• Safety and security – hire a company that complies with safety regulations and has a good track record for personnel and assets safety.

• Good customer service – this is one of the essential features of a good 3PL.

• Customization and scalability – can the company you have in mind handle your business’s unique needs and can they scale as you grow?

A good 3PL company can help you simultaneously streamline logistics and grow your business.

Look for a provider that is transparent about its processes and that doesn’t charge hidden fees.