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Third-party logistics (3PL) provider: Meaning, benefits, process

Third-party logistics are service partners who offer outsourced logistics support. Learn more about the benefits, workings, and types of 3PLs in this blog.

Efficient logistics is crucial for success in international trade. Many businesses streamline operations by outsourcing shipping and logistics to third-party logistics providers (3PLs). This allows exporters to focus on core business growth and benefit from expert logistics support. In this blog post, we will explain the workings, types, and advantages of 3PLs.

What is a third-party logistics provider (3PL)?

A third-party logistics provider (3PL) is a service provider that assists businesses in managing their supply chain. 3PLs offer a range of services, including storage, inventory management, order fulfillment, shipping, and handling returns. Partnering with a 3PL enables companies to optimize their operations and concentrate on other critical areas of their business.¹

Core services of third-party logistics (3PL)

Third-party logistics providers enhance various aspects of a company’s supply chain by offering a range of core services. Some key offerings are as follows:

1. Transportation management

A 3PL provider oversees the movement of goods from point A to point B by providing recommendations for shipping and selection of carriers. Through their large carrier network and advanced technology, 3PLs can cut shipping fees and enhance delivery speeds.

2. Warehousing and distribution

3PLs provide warehouse services that enable firms to store products in strategic locations, improving inventory management and ensuring fast distribution.

3. Order fulfillment

3PL providers often manage the entire order fulfillment process, from picking to shipping, ensuring timely and accurate deliveries to enhance customer satisfaction. By utilizing advanced 3PLs, companies can improve supply chain efficiency with customized packaging and return handling.

4. Inventory management

3PLs use advanced technology to monitor and manage inventory levels. This reduces overstocking and prevents shortages. Regular inventory updates from 3PL providers help businesses make informed decisions about replenishments and adequate stocking.

5. Reverse logistics

3PLs can simplify the complex and costly process of product returns, managing both return logistics and the refurbishment or disposal of items as needed.²

Types of third-party logistics providers

Different 3PL companies offer varied services, and businesses must choose the right type based on their specific logistics needs:

1. Standard 3PL providers

Standard 3PL providers offer basic logistics services like transportation and warehousing, making them a low-cost option suitable for firms that need only essential support.

2. Service developers

3PL service developers offer advanced services like tracking, customer-specific IT solutions, and customized transportation, providing a deeper level of integrated logistics management with specialized activities.

3. Customer adapters

Customer adapters manage the entire logistics process for businesses, overseeing all supply chain elements, including storage, distribution, and final customer service. This integration allows these 3PLs to provide end-to-end support to the businesses they partner with.

4. Customer developers

Customer developers completely take over logistics activities by providing comprehensive supply chain management services, handling operations while also consulting with businesses to boost overall efficiency.

How does third party logistics (3PL) work?

Here’s a general overview of how third-party logistics service providers operate:

1. Inventory acquisition

The 3PL accepts products from suppliers or manufacturers and conducts quality inspections before warehousing.

2. Order processing

Upon receiving a customer order, the 3PL retrieves the product from its inventory, packages it appropriately, and prepares it for dispatch.

3. Order fulfillment

The 3PL coordinates the shipping process, providing clients with tracking details, and in some cases, last-mile delivery through local carriers like DHL, UPS, etc.

3. Product return management

The 3PL provider manages the return process, handling everything from retrieving the product from the consumer to restocking or disposing it effectively.⁴

Benefits and disadvantages of third-party logistics

Using a third-party logistics provider comes with many advantages but also some disadvantages that businesses should be aware of:

Benefits of 3PLs

Disadvantages of 3PL

Reduced costs

Helps businesses cut costs by lowering warehouse and transportation expenses and securing better shipping rates.

Cost considerations

While 3PLs can reduce costs, outsourcing may be more expensive than managing logistics internally, especially for businesses with low shipping volumes.

Increased scalability

Provides flexibility to manage demand fluctuations, whether seasonal or due to rapid growth.

Dependency on a single provider

Overreliance on one 3PL can expose businesses to risks like service interruptions.

Specialized expertise

Offers in-depth knowledge of supply chain management, enabling informed decision-making based on industry best practices.

Loss of control

Outsourcing logistics means giving up control over key supply chain components, which can lead to issues if expectations aren't met.⁶

Elevated customer service

Faster shipping and accurate order fulfillment lead to increased customer satisfaction and loyalty.

Advanced technology access

Utilizes cutting-edge logistics technologies for real-time tracking, improved inventory control, and greater order accuracy.⁵

Difference between 3PL and 4PL

3PL

A 3PL focuses on specific logistics tasks like transportation, warehousing, and order fulfillment, providing the resources needed to move products efficiently.

4PL

A fourth-party logistics provider or 4PL, in contrast, manages the entire supply chain, including planning, coordinating logistics, and improving processes using advanced technology and data analysis.

Click here for a detailed analysis of the differences between 3PL and 4PL service providers

Difference between 3PL and dropshipping

The main difference between 3PL and dropshipping lies in inventory management and order fulfillment

3PL

In 3PL, businesses store their inventory in a third-party warehouse, which handles storage, picking, packing, and shipping directly to customers.

Dropshipping

In contrast, dropshipping allows retailers to sell products without holding inventory. When a sale is made, the retailer purchases the item from a supplier and ships it directly to the customer. Essentially, 3PL involves managing physical stock, while dropshipping relies on suppliers to fulfill orders on behalf of the retailer.

How can 3PL services help businesses?

3PL providers streamline delivery, allowing e-commerce exporters to focus on core operations. Efficient and accurate shipping is crucial for customer satisfaction, and 3PLs offer the infrastructure and expertise needed for risk-free, on-time deliveries. This support enhances the customer experience and simplifies selling both in India and internationally.

When should an exporter consider a 3PL?

Exporters may benefit from partnering with a third-party logistics provider (3PL) in the following scenarios:

● Outsourcing logistics is more cost-effective than managing it internally.
● The business is growing faster than anticipated, straining existing resources.
● Labor and facility costs are rising.
● The business needs support with inventory management so it can focus on core business activities.
● The business needs access to advanced technology to manage its supply chain but does not want to make heavy upfront investments.

How to find the best third-party logistics providers?

The efficiency and success of your supply chain depend significantly on your strategy for choosing the right provider. Here are some factors to consider:

● Industry expertise and reliability

Choose a 3PL with specialized knowledge to ensure tailored solutions and reliable service.

● Technological integration and innovation

Look for a provider that offers technology that integrates seamlessly and enhances data use.

● Cost transparency and flexibility

Prioritize providers with clear pricing and flexible models that adapt to your volume.

● Geographical coverage

Select a 3PL with a broad network and proximity to transport hubs for faster delivery.

● Scalability and flexibility

Ensure the provider can adjust scale and scope of operations to match your growth and demand.

● Customer service and crisis management

Choose a provider that offers responsive service and effective crisis management.

● Sustainability and compliance

Partner with a 3PL that focuses on sustainable practices and adheres to regulations.⁹

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Global Selling

Amazon Global Selling is an e-commerce exports program that enables sellers to reach over 300 million international customers shopping on Amazon marketplaces in USA, UK, Australia, UAE, Singapore, and more. Apart from Amazon inventory management system and FBA, you can also use other international tools and programs – Exports Compliance Dashboard, simple listing and A+ content – that make your exporting from India easy and seamless.

To support you for hassle-free logistics, Amazon has also launched SEND, enabling you to ship directly to international fulfillment centers at competitive prices. All you have to do is book, pay and track shipments without any hassles from India to the world.

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Frequently Asked Questions

1. What is the difference between 3PL and a freight forwarder?

A freight forwarder acts as an intermediary between client companies and shipping carriers. Unlike 3PLs, freight forwarders do not physically transport goods. Instead, they focus on logistics tasks such as negotiating pricing, selecting the most efficient mode of transportation, and planning cost-effective shipping routes.

2. Is 3PL the same as order fulfillment?

No, 3PL and order fulfillment are not the same. Order fulfillment is one service provided by a 3PL, which also handles broader logistics like inventory management, transportation, and warehousing.

3. How do you measure 3PL performance?

Percentage of deliveries made on time, order and shipping accuracy, inbound receiving time, and timing of return processing are some of the performance indicators companies can consider to evaluate 3PL performance.

4. Which is better – 3PL or 4PL?

A 3PL provider concentrates on the ongoing logistics of the supply chain, whereas a 4PL concentrates on streamlining the end-to-end supply chain. A 4PL then assumes control of the entire process.

5. What does a 3PL handle?

A third-party logistics provider or 3PL is a service provider or partner that aids online retailers in controlling their supply chain.

6. What does a third-party logistics provider do?

A third-party logistics provider handles various aspects of supply chain management, including warehousing, transportation, and order fulfillment. They help businesses streamline operations, reduce costs, and improve efficiency.

Published on December 3, 2023.

Sources:
1. https://redstagfulfillment.com/3pl-definition-process-resources/
2. https://www.blumeglobal.com/learning/services-third-party-logistics-providers-offer/
3. https://www.thefulfillmentlab.com/blog/4-types-of-3pl-providers-and-how-they-differ
4. https://sell.amazon.com/blog/3pl-third-party-logistics
5. https://www.ltsglobalsolutions.com/5-benefits-of-third-party-logistics-3pl-in-supply-chain-management/
6. https://www.clickpost.ai/blog/3pl-third-party-logistics-advantages-and-disadvantages
7. https://redstagfulfillment.com/drop-shipping-third-party-fulfillment-difference/#what-is-third-party-fulfillment
8. https://www.cleo.com/blog/knowledge-base-3pl-third-party-logistics
9. https://www.massoninternational.com/blog/third-party-logistics/3pl-selection

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Third-party logistics (3PL) provider: Meaning, benefits, process

What is a third-party logistics provider (3PL)?

Core services of third-party logistics (3PL)

1. Transportation management

2. Warehousing and distribution

3. Order fulfillment

4. Inventory management

5. Reverse logistics

Types of third-party logistics providers

1. Standard 3PL providers

2. Service developers

3. Customer adapters

4. Customer developers

How does third party logistics (3PL) work?

1. Inventory acquisition

2. Order processing

3. Order fulfillment

3. Product return management

Benefits and disadvantages of third-party logistics

Benefits of 3PLs

Disadvantages of 3PL

Reduced costs

Helps businesses cut costs by lowering warehouse and transportation expenses and securing better shipping rates.

Cost considerations

While 3PLs can reduce costs, outsourcing may be more expensive than managing logistics internally, especially for businesses with low shipping volumes.

Increased scalability

Provides flexibility to manage demand fluctuations, whether seasonal or due to rapid growth.

Dependency on a single provider

Overreliance on one 3PL can expose businesses to risks like service interruptions.

Specialized expertise

Offers in-depth knowledge of supply chain management, enabling informed decision-making based on industry best practices.

Loss of control

Outsourcing logistics means giving up control over key supply chain components, which can lead to issues if expectations aren't met.6

Elevated customer service

Faster shipping and accurate order fulfillment lead to increased customer satisfaction and loyalty.

Advanced technology access

Utilizes cutting-edge logistics technologies for real-time tracking, improved inventory control, and greater order accuracy.5

Difference between 3PL and 4PL

3PL

4PL

Difference between 3PL and dropshipping

3PL

Dropshipping

How can 3PL services help businesses?

When should an exporter consider a 3PL?

How to find the best third-party logistics providers?

● Industry expertise and reliability

● Technological integration and innovation

● Cost transparency and flexibility

● Geographical coverage

● Scalability and flexibility

● Customer service and crisis management

● Sustainability and compliance

Easy e-commerce exports with Amazon Global Selling

Frequently Asked Questions

Sell across the world with Amazon Global Selling

Register now to export from India

Select your preferred language

Outsourcing logistics means giving up control over key supply chain components, which can lead to issues if expectations aren't met.⁶

Utilizes cutting-edge logistics technologies for real-time tracking, improved inventory control, and greater order accuracy.⁵

Easy e-commerce exports with Amazon
Global Selling