A Guide to Third-Party Logistics Providers (3PL)

For a company that’s experiencing growth, it can be extremely exciting—after all isn’t growth the goal for all startups and businesses?

At the same time, there can be growing pains that come during this time and challenges that need to be addressed.

One area where businesses that are growing, or even more established businesses run into problems are supply chains. This can include assembly, inventory storage, inventory management, and shipping.

That’s why third-party logistics (3PL) providers can be useful. 3PL providers can help with a variety of tasks for businesses, whether they’re growing or established and wanting to focus more on core areas of the business.

The following are some key things to know about 3PLs.

Software Platforms Help 3PLs Operate Efficiently

If you’re a business that’s going to be working with a 3PL or is considering it, you might want to ask them about the software platform that powers how they do things.

For example, according to ShipHero 3PL which is a platform for these providers, it’s important they have software that is “designed, built and optimized specifically to power third-party logistics providers.”

There are benefits for the 3PL provider, but also for the businesses that are their customers.

For example, some of the benefits for their customers include the ability to customize their fulfillment processes without having to worry about technical integrations.

What Does a 3PL Do?

If you’re really starting at the beginning with 3PLs, you might not even have any idea what they do. Essentially what they are is a way to outsource distribution and fulfillment. This can be especially relevant in the era of e-commerce. In the past, there was the shipper, which was usually a manufacturer or a wholesaler, and a shipping carrier.

But now, there are so many sellers but they often don’t have the ability to properly or efficiently manage logistics. That’s why third-party providers came about.

To get technical, a third-party logistics provider can receive, hold or transport a product during business, but they don’t have ownership of it. They don’t own any of the inventory they’re responsible for, but at the same time, there is still that sense of responsibility.

It’s estimated that 86 percent of Fortune 500 companies use third-party logistics providers.

How Do You Know When You Need a 3PL?

Working with a 3PL can be extremely beneficial for new or growing businesses, but sometimes they don’t realize they have a need until it’s too late and they’re in over their head.

For a business fulfilling as few as 10 to 20 orders a day, a third-party partner can actually be beneficial.

You will have to have enough padding built into your margins to cover the costs, but it can free you up for other tasks.

Also, if you’re having trouble storing inventory or you’re spending a lot on storage, it may be time to think about partnering with a 3PL.

If you’re in a period of growth or you’re estimating one is coming down the pipe, again working with a 3PL might be to your advantage.

Areas of Specialization

Many times a 3PL will focus on one area of expertise, but some handle it all. It usually depends on the size of the firm.

One area of potential specialty is transportation. This would include shipping inventory between a warehouse and a buyer, as an example.

The more common type of 3PL is one that is warehouse-based. This type of third-party provider would take care of things like storage and shipment but also returns.  It’s important to choose warehouse 3PLs carefully because the number of warehouses and their locations will play an important role in how quickly orders are received, and pricing.

Are There Downsides to a 3PL?

While there are more benefits to downsides, with anything there are things to weigh before making a big decision.

With a 3PL, if there is a delay for some reason as far as how your customer receives their products, the responsibility at least in their eyes is going to be on you. There will be upfront setup costs, and a lot of what happens with your products and quality control isn’t in your hands. That can be a tough pill to swallow.

If you choose the right provider, it’s a good way to move past a lot of these hurtles. Choose a strong partner with a good reputation and one that you feel you can trust based not only on your interactions with them but other customer’s reviews as well.