Everything You Need to Know About Third-Party Logistics and the Way it Works

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Every company is comprised of several departments that work together despite its distinctive functions. With that said, it’s important that every division is running smoothly. Otherwise, it can jeopardize the entire system and can lead to serious workflow inefficiencies and loss of profit.

Relatively, this is a common dilemma seen within the product distribution industry. Most companies, particularly expanding ones, struggle to handle all business affairs without help. And to address this concern, these companies have come to depend on hiring reliable 3PL services.

But even if outsourcing third-party logistics is now done openly, many business owners are still in the dark about what it is and how it works. And if you’re one of them, you can read on to understand the concept and advantages of 3PL a lot better.

What is Third-party Logistics?

Third-party Logistics, also known as 3PL or TPL, refers to the process of outsourcing a third-party business for logistics management. The 3PL company takes over all operations related to the four key aspects of logistics: transportation, warehousing, distribution, and purchasing. This means that it will be responsible for managing some, if not all, functions associated with the flow of products and goods from its origin to its delivery.

What are the Types of Third-party Logistics?

In reality, there is a limited number of 3PL companies that are capable of providing full-service operational logistics. These are large 3PL firms that have international warehouses, resources, and connections. It’s most common to have standard 3PL service providers that specialize in an area or two. They are categorized into three different groups: 

1. Warehouse and Distribution Third-party Logistics

This is the most common type of 3PL in the business industry. They focus on storing, shipping, distributing, and handling returns of products. Basically, they cover the most basic functions of logistics. Thus, they’re perfect for companies aiming to distribute their goods internationally.

2. Transportation Third-party Logistics

This kind of 3PL specializes in moving and transporting goods from one place to another. Most transportation 3PL companies have their own warehouses. But because they do not provide storing services, they rarely keep products or parcels for a long period of time. They focus on moving items as soon as they get their hands on it. Thus, making them perfect for local-based companies and retail distributors.

3. Financial and Information Third-party Logistics

This is a type of 3PL that focuses more on documentation. After all, logistics management does not revolve around transporting products alone. 3PL service providers under this category specialize in cost accounting, freight audit, inventory management, and the like. Usually, they are hired by companies that have their own distribution and fulfilment teams.

What are the Advantages of Third-party Logistics?

Hiring 3PL services can prove to be beneficial in a lot of ways. This is especially true for companies that are looking to expand. Here are several factors why 3PL can be advantageous for you and your company:

1. Mitigated Errors and Risks

Delays in product shipment and distribution can be detrimental to the reputation of any company. These kinds of problems can result in losing contracts, clients, and customers. But by hiring 3PL services, you will be able to reduce these kinds of errors. Because 3PL companies can find alternative solutions to transport your products on time.

2. Smoother Company Expansion

When aiming to expand your company’s reach across different countries, it’s helpful to have a 3PL service provider. Because they can help in processing permits and documents for international shipping.

3. Lower Overhead Expenses

Companies that do not hire 3PL services usually handle logistics management on their own. Most of them decide to create a logistics team. However, this can just increase the total overhead expenses. After all, you have to lease a warehouse and hire more people. By choosing to work with a 3PL, you get to enjoy minimized costs that you can direct towards income-generating investments instead.

Hiring third-party logistics services are no longer uncommon in the corporate world. However, working with one can be frightening for some business owners, especially those who are new to the industry. But there’s really no need to fear. As long as you hire a 3PL service wisely and thoughtfully, you’ll see that it can help your company prosper and grow.

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