Perhaps you’ve never heard of a 3PL before, or maybe you’ve decided you want to learn more, either way this blog post will have valuable information for you and your business. The following sections contain information about:
- History of 3PLs
- Advantages of Using a 3PL
- Disadvantages of Using a 3PL
- Should You Use a 3PL
What is a 3PL?
3PL stands for third party logistics. Third party logistic companies specialize in areas such as managing shipping, storage, packaging, transportation, warehousing, invoice processing, rate negotiations, and carrier selection. A 3PL takes no ownership of any products being shipped, the third party instead acts as a manager between the shipper and the carriers. Companies turn to 3PLs for a myriad of reasons including lowering costs and help with complex shipping needs.
Companies began outsourcing their storage and shipping needs in the early 1900s, but the introduction and use of the term 3PL did not begin until the 1970s or 1980s. The first 3PLs were intermodal companies accepting loads from shippers and then moved those loads to rail carriers as explained in the CSCMP Glossary. From the 1970s to the early 2000s 3PL companies saw a steady growth until a large boom in the 2000s. Technology began to advance at an accelerated rate in the 2000s and with it came an increased utilization of 3PLs.
The fast advancements in technology meant companies could sell to a larger, and more global, audience than originally possible. Catering to a larger number of customers meant an increase in storage, shipping, transportation, warehousing, and distribution needs. These needs became too much for some companies and outside help was needed.
3PLs Today and in the Future
In 2001, 46% of Fortune 500 companies looked to one or multiple 3PL companies for help, but that percentage has nearly doubled to 90% of Fortune 500 companies using 3PL companies today. The gross revenue of companies in the U.S. also reflects the growth in the industry. In 2000 the gross revenue of 3PL companies capped at $56.6B and now 2019 gross revenue is predicted to rocket to a whopping $195B.
According to the results reported in the 2017 Third Party Logistics Study from CapGemini and Penn State University, 91% of 3PL users and 97% of 3PL providers perceive their relationships with each other to be successful. Despite common misconceptions, third party logistic providers are not just for big companies, small businesses can utilize 3PLs too. Here are just some of the advantages that any company may find when partnering with a 3PL.
Arguably, the greatest benefit of a 3PL is the industry knowledge they bring to the table. A 3PL already has experienced staff that know how logistical operations should work. Therefore, when you hire a 3PL you are gaining instant expertise far beyond the of most small, in house logistics departments. A 3PL can help a company figure out the most cost effective methods in spite of ever changing federal transportation regulations, fluctuating capacity, increased shipper demand, and other disruptions within the logistics industry.
3PL services make it easier than ever to expand businesses into foreign access global distribution networks. Third party logistics providers not only have the ability to ship goods around the country or around the world, they also have the ability to set up warehouses in many foreign and domestic markets. It’s much cheaper to hire a 3PL provider than for companies to buy or lease warehouse space in untested markets.
Partnering with a 3PL means cutting down your workload and simplifying a business’ concerns. Today’s market favors companies that focus and devote as much of their resources as possible to product development, and time spent on logistics could be better utilized elsewhere. In addition to saving the company time, 3PLs can cut the time for customers as well. A third party logistics provider can offer fulfillment services in multiple markets, saving cost on smaller shipments, and getting products into customer hands much more quickly.
The primary reason companies partner with a 3PL is to reduce costs. One way that a 3PL can save companies money is by taking over transportation needs. According to Steve Syfan, owner of Syfan Logistics, “a 3PL should be able to reduce transportation costs by at least 5 percent, and as much as 25 percent.” Another way 3PLs save companies money is by taking over warehouse operations. When companies maintain their own warehouses they run the risk of having too little or too much space. When a company chooses a 3PL for warehousing, they save money by not having to maintain their own warehouse, accompanying staff, or equipment costs. 3PLs also save companies money by offering better technology in the way of transportation management systems (TMS). A TMS is a program that can manage every aspect of a company’s transportation operations. However, a TMS is a difficult system to manage. That is why it is no substitute for a 3PL, just an added money saver. A 3PL also saves a company money by handling things such as claims, billing disputes, and invoice processing.
What about those 9% of companies that are left unsatisfied with their 3PL? Despite all of the many wonderful advantages that comes with partnering with a 3PL, some companies prefer to keep their logistic efforts in house. Additionally, not every 3PL is a good fit for every company. Here are some pitfalls to avoid when deciding if partnering with a 3PL is right for your business.
Lack of Business Understanding
If a business is in a highly-regulated industry or has very specific needs, a standard 3PL may not suit that business. Some 3PLs do not specialize in cold storage or all types of transportation such as air. If a company has very specific packaging requirements for safety or branding needs, some 3PLs may not be able to accommodate those needs. Additionally, 3PLs often have a large multitude of customers and may not give every company the specific and focused attention that they require. It’s important that companies choose a 3PL that fully understands the business, its goals, and what kind of strategies can enable those goals.
Hard to Go Back to Internal
Some companies decide to end their 3PL partnerships and return to handling logistics in house. When a company makes this decision they are faced with a few different difficulties. The first difficulty in bringing logistics back in house is hiring knowledgeable and experienced staff to take over operations that were once handled by the 3PL. The other difficulty a company faces when bringing operations back in house is that a company is once again tasked with day-to-day functions such as scheduling shipments, negotiating rates, filing claims, and so on. This means a company must be prepared to experience a loss in time and resources within the company.
Is a 3PL right for you?
It is important to weigh the pros and cons and see how they apply to your specific goals and needs before deciding to partner with a 3PL. Remember, not every 3PL is the same and will not provide the same services and levels of satisfaction, so do your research before settling on a company. When any company spends a large amount of their valuable time or money on shipping and all associated operations, it might be time to see why 91% of customers are satisfied with their 3PL provider.