Third-party logistics (3PL) involves outsourcing logistics functions to specialised providers, resulting in improved efficiency and reduced costs for businesses. As the trend of outsourcing logistics continues to grow, companies increasingly recognise the value of leveraging 3PL partners' expertise and technology.
This article explores 3PL for businesses in detail. By examining the specific benefits of partnering with a 3PL services provider, and their business processes you can make informed decisions to optimise your logistics operations and achieve strategic growth objectives. So, if you want to leverage 3PL for your business, this is your go-to guide.
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Process of 3PL (Third-Party Logistics)
Before we begin discussing 3PL in detail, it's important to understand the process a third-party logistics company follows.
Assessment
Initially, a 3PL provider conducts a thorough assessment of the client's logistics needs. This includes evaluating factors such as inventory volume, transportation requirements, and warehousing specifications.
Planning
Based on the assessment, a 3PL creates a customised logistics plan that outlines how various aspects of the supply chain will be managed. This plan includes detailed strategies for inventory management, order processing, and warehouse operations. The goal of the planning phase is to establish clear guidelines and protocols for executing the logistics strategy efficiently.
Implementation
With the logistics plan in place, a third-party logistics company begins the implementation phase, where they put the agreed-upon strategies into action. This may involve tasks such as receiving and storing inventory, picking and packing orders, coordinating transportation, and managing distribution networks.
Monitoring
Throughout the logistics process, 3PLs continuously monitor key performance indicators (KPIs) to assess the effectiveness of their operations. This includes tracking metrics. These metrics mainly include order fulfilment rates, transportation costs, and delivery times.
By closely monitoring performance metrics, a third-party logistic company identifies any areas of inefficiency or opportunity for improvement and takes corrective action as needed.
Optimisation
Based on the insights gathered from monitoring performance metrics, a 3PL works to optimise the logistics process to improve efficiency and reduce costs. This may involve implementing changes to warehouse layout and organisation, optimising transportation routes they follow. Additionally, they may also make strategies to adjust inventory management. Eventually, it helps them to maximise the effectiveness of the logistics process.
Reporting
Regular reporting is an essential aspect of 3PL logistics, providing the client with visibility into their supply chain operations. 3PL generates detailed reports that outline key performance metrics. These reports allow the client to assess the effectiveness of their logistics strategy and identify areas for improvement.
Adaptation
As the client's needs evolve, a 3PL adjusts the logistics strategy accordingly to ensure continued alignment with their goals and objectives. As per the circumstances, they may revise the entire logistics plan. Plus, it may include expanding service offerings to meet changing demands.
Benefits of Choosing Third-Party Logistics Provider in Supply Chain Management
Here are some benefits of choosing a 3PL logistic partner for your logistics operations; let's discuss them one by one.
Cost Efficiency
Leveraging the expertise of 3PL companies enables businesses to achieve cost savings by optimising logistics operations. It’s because the expenditures associated with warehousing, transportation, and inventory management, are managed by 3PL providers on behalf of a business.
For instance, sending shipments from Melbourne to Tasmania would require a lot of effort and resources, eventually affecting the profit margins for the retailer. In such cases, a Third-Party logistics solution provider would incur all the costs and ensure the shipment reaches the destination in time.
Operational Efficiency
Through the utilisation of advanced technology and industry knowledge, 3PL companies enhance operational efficiency, facilitating faster order processing and delivery. With sophisticated software for route optimisation and inventory tracking, businesses can improve their logistics processes and meet customer demands with greater speed.
Scalability and Adaptability
3PL providers offer scalable solutions that align with businesses' evolving needs, whether during periods of growth or contraction. Consider the same example of a logistic transaction from Victoria to Tasmania. In case the demands in Tasmania grow, the consignor in Victoria need not fret about readying their freight all by themselves.
While, in case of falling demands, they don't have to incur any maintenance costs for their entire fleet in Tasmania. This flexibility allows businesses to adapt logistics seamlessly to changing demand and market conditions. This allows businesses to maintain efficiency and service quality.
specialised Expertise
Drawing upon years of experience and industry insights, 3PL businesses have specialised knowledge in logistics management. Businesses can benefit from the expertise of 3PL providers, ensuring smooth and effective logistics operations, especially in the case of long-distance transactions.
Improved Customer Experience
3PL companies play a crucial role in enhancing the overall customer experience by ensuring timely delivery. And this leads to increased customer satisfaction and loyalty. Additionally, it drives repeat business and positive word-of-mouth referrals. Which is a win-win for a business.
Competitive Advantage
Partnering with a Third-Party Logistics (3PL) provider offers businesses a competitive advantage by streamlining logistics operations, reducing costs, and enhancing customer service. By leveraging the expertise, resources, and technology of a 3PL partner, businesses can improve operational efficiency, achieve faster order fulfilment, expand their geographic reach, and focus on core competencies, ultimately positioning themselves for success in the marketplace.
What Should You Look For in a 3PL Logistic Company?
Choosing the right Third-Party Logistics solutions provider matters because it can significantly impact your business's efficiency. To make the right decision, you need to carefully select your 3PL partner. Here are a few parameters to consider:
Reliability
Choose a 3PL with a proven track record of consistently meeting delivery deadlines and ensuring the safe arrival of goods. Verify their reliability through client testimonials, industry certifications, or performance metrics.
Expertise
Look for a 3PL company that specialises in handling the specific type of products or industry requirements relevant to your business. Evaluate their experience, industry knowledge, and capabilities to ensure they can effectively manage your logistics needs.
Technical Soundness
Opt for a 3PL organisation that utilises modern technology solutions for efficient tracking of shipments, real-time inventory management, and streamlined communication. More specifically, partner with companies that leverage data analytics capabilities to enhance operational efficiency and decision-making.
Scalability
Ensure that your 3PL partner has the flexibility and resources to accommodate your business's growth and fluctuating demand levels. Evaluate their capacity, network, and scalability options to ensure they can scale operations seamlessly without compromising service quality or reliability.
Communication
Effective communication fosters transparency, collaboration, and trust, ensuring a smooth and productive partnership with third-party solution providers. Look for a partner who maintains open lines of communication, provides timely updates on shipment status. Also, it offers proactive solutions to address any logistic-related issues or concerns that may arise.
Budget
Considering budget while choosing a Third-Party Logistics (3PL) provider is crucial to avoid unexpected expenses and ensure cost-effectiveness. Hidden costs such as additional fees for services, surcharges, or penalties for exceeding volume limits can impact overall expenses.
Transparency in pricing and budget planning helps prevent financial surprises and maintain profitability. Therefore, it is yet another important point to consider.
When to Opt For a Third-Party Logistics Solution?
There are a few use cases when you need to rely on nothing else than a reliable 3PL solution. Let's discuss these scenarios.
Peak Seasons
As a business, you must have seen scenarios or specific seasons when demands hit a peak. Usually, for an average company, 100+ orders become a hassle. In a case like this, you can choose a 3PL that can do all the heavy lifting for your business, allowing you to get more profits for your business.
Inventory Management Complexity
When you are struggling to manage inventory levels or track stock movements accurately, a 3PL can offer expertise and technology solutions to streamline inventory management processes.
Software such as Warehouse Management System (WMS) ensures a higher level of precision in inventory optimisation. In short, addressing all the inventory management issues, choosing a 3PL company that could manage all your needs would be a wise choice.
Global Expansion
When a business expands into new markets or regions, it faces complex logistics challenges related to customs regulations, international shipping, and navigating unfamiliar territories. Without specialised expertise, businesses may struggle to efficiently manage these logistical complexities. This leads to delays, compliance issues, and increased costs.
Partnering with a third-party logistic provider offers access to their global transportation services. It helps businesses navigate regulatory requirements and ensure smooth operations across international borders.
Running Offers or Deliver Commitment
If you are committed to delivering your orders under “2-day delivery” or “72 hours delivery”, a reliable third party logistic service provider can be beneficial. The swift delivery will help your business.
Popular Software Used in 3PL for Improving Business Process
Innovation and automation have revolutionised the logistics industry, streamlining processes and enhancing efficiency. These tools are utilised to eliminate manual tasks, and minimise errors. These tools can increase the team’s productivity which ultimately enables 3PL providers to deliver faster and cost-effective services to their clients. Let's discuss some important tools that are used in a 3PL warehouse.
Warehouse Management System (WMS)
This software automates and optimises warehouse operations, including inventory tracking, receiving, picking, packing, and shipping. It provides real-time visibility into inventory levels, streamlines order fulfilment processes and improves accuracy through barcode scanning and RF technology.
Transportation Management System (TMS)
TMS software facilitates the planning, execution, and optimisation of transportation activities, including carrier selection, freight forwarding, freight rate management, and shipment tracking. It helps businesses reduce transportation costs, improve delivery times, and enhance visibility and control over shipments.
Inventory Management Systems
Inventory management systems enable businesses to track and manage inventory levels across multiple locations in real time. They provide features such as stock tracking, replenishment alerts, cycle counting, and demand forecasting to optimise inventory levels, reduce stockouts, and improve overall inventory accuracy and efficiency.
Order Management Systems (OMS)
OMS software automates and centralises order processing workflows, from order capture to fulfilent and customer delivery. It integrates with other systems, such as WMS and TMS, to ensure seamless order processing, inventory allocation, and shipping coordination. OMS helps businesses improve order accuracy, streamline order fulfilment processes, and enhance customer satisfaction.
Enterprise Resource Planning (ERP) Systems
ERP systems integrate various business functions, including finance, sales, inventory, and logistics, into a single unified platform. They provide visibility and control over key business processes, facilitate data sharing and collaboration across departments, and support strategic decision-making. ERP systems help businesses streamline operations, improve efficiency, and drive overall business performance.
Labour Management Systems (LMS)
A Labour Management System helps businesses optimise workforce productivity and efficiency in warehouse operations. It provides tools for labour planning, scheduling, performance tracking, and incentive management, allowing businesses to maximise warehouse workforce utilisation and minimise labour costs.
4PL (Fourth-Party Logistics): A Comprehensive Solution?
As you know, how a 3PL company can help you with logistics, but what about the overall supply chain management? That’s where 4PL comes into play.
4PL (Fourth-Party Logistics) is a supply chain management solution where a centralised entity manages and integrates various logistics services, including multiple 3PL providers. They optimise the entire supply chain network on behalf of the client.
Let’s understand it with the help of an example. For only logistics related needs, a brand called ABC would opt for 3PL services. However, if the brand ABC wants A-Z supply chain management solutions like final-mile delivery, a 4PL solution is what they would look for.
Generally, it’s uncommon for many 4PL companies to provide all such solutions in-house because of scalability related issues. However, companies like Complete Storage and Logistics are one of those few 4PL companies that provide effective in-house solutions across Mainland Australia and Tasmania.
What 4PL Service Providers Offer?
For a large-scale order from Victoria to Tasmania, a Fourth-Party Logistics could offer additional supply chain management services. A few of these are as follows:
Order Fulfillment Services
Fourth-party logistics utilises advanced technology and data analytics to optimise inventory allocation. Moreover, they even assemble the order and ship it for you, once your business receives an order. Eventually, it ensures the right products are available at the right locations at the right time. This indirectly adds up to your brand’s reputation.
Warehousing and Distribution Services
A 4PL would allow their client to leverage their warehousing and distribution services in Victoria as well as in Tasmania to deliver the orders on time. They may also help them with cross-docking, which means they can directly move from inbound to outbound transportation vehicles, with no storage time in between. Plus, it can also be beneficial for businesses who prefer same-day delivery.
Final Mile Logistics
Final mile delivery or last-mile Delivery is the last step of delivering goods to the end customers. Here, challenges like delays in delivery, incorrect or damaged shipments, difficulty accessing delivery locations, or inefficient routing arise.
The fourth-party logistics company makes decisions to eliminate last-minute delivery errors. And they utilise their fleet of vehicles to deliver it to the intended customer within time and cost constraints.
In Conclusion
Third-party logistics (3PL) offers businesses significant advantages in efficiency and cost reduction. By partnering with 3PL providers, companies can optimise their logistics operations effectively. Especially when companies are trying to meet peak demands, choosing a third-party logistics service can help you cut costs.
However, while looking for a third-party company to manage your logistics, always consider factors such as budget, technical soundness and scalability. To tackle challenges related to the entire supply chain, choosing fourth-party logistics helps you go a long way.
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