What is a 3PL??
By Rick Holden
A third-party logistics provider (abbreviated 3PL) is a firm that provides outsourced (or “third party”) logistics services for part of, or all of their supply chain management functions. Third party logistics providers typically specialize in integrated operations that include warehousing, transportation , and light assembly services. These services can be scaled and customized to customers’ needs based on market conditions. Often, these services go beyond logistics and include value-added services related to the production or procurement of goods.
There are many advantages to engaging a 3PL provider. These include;
- Cost and time savings- A 3PL provider can meet the technical and equipment requirements in a faster and more cost efficient way than a manufacturer or distributor could do for itself. As logistics is the core competency of third party logistics providers they possess better know how and a greater expertise in providing supply chain solutions to their customers.
- Low capital commitment- When contracting with a 3PL it is no longer necessary for the client to own its own warehouse facilities or transportation assets. This lowers the amount of capital required for the client’s business. This is particularly beneficial if a company has high variations in warehouse capacity utilization, because a bad capacity utilization ratio at equal fixed cost (for warehouse) will reduce a company’s profitability.
- Focus- The outsourcing of logistics departments permits the company to focus even more on their core business. Manufacturers and distributors want to remain as competitive as possible. Allowing the focus of the organization to remain with the products it sells will enable the company who relies on a 3PL relationship to get more updated and relevant products to market faster and less expensively.
- Flexibility- Third party logistics providers can provide a much higher level flexibility and scalability. When manufacturers and distributors contract with a 3PL it allows then to offer a much larger variety of services than the clients could provide for themselves. In addition, the 3PL customer gets to utilize more flexible resources in labor, space and equipment. Essentially fixed costs are reduced and turned into variable costs.
As many companies would admit, logistics is not their core competency. These companies often do not have the time, resources or expertise to adapt their equipment and systems as quickly as necessary. By contracting with a 3PL it allows these manufacturers and distributors a unique advantage over their competition as they are able to get the most efficient supply chain while still keeping the focus of the organization on what it does well.