To stay ahead of competitors, companies are continually seeking ways to streamline their operations, reduce costs, and improve efficiency. One effective strategy that has gained immense popularity is outsourcing logistics functions to third party logistics (3PL) providers. However, not all 3PL providers are created equal, and finding the right partner requires careful consideration and planning. So, what exactly do you need for the perfect 3PL partnership? Let's explore.

Whilst COVID-19 certainly drew attention to the essential need for supply chains to be agile and responsive to rapidly and regularly changing market conditions, there was already growing attention to this area due to the rise of Amazon and its effect on consumer habits and expectations. To remain competitive, companies are increasingly turning to 3PL providers to streamline their supply chain operations. A successful partnership with a 3PL can offer numerous benefits, including cost savings, improved efficiency, expanded market reach, and enhanced customer satisfaction.

What this article covers:

Understanding the basics of third party logistics - All the important bits you need to know about 3PL solution providers and how to optimise this service for your business.

What are the benefits of third party logistics? - What value-added services and technology are available.

How do I know if third party logistics is right for my business? - There are several factors to consider to determine if your should outsource your logistics.

Choosing the right 3PL provider - How to find the perfect 3PL match depending on your unique business requirements.

Working with a 3PL provider - The before, middle and after contracts are signed and how to choose a logistics provider that grows with your business.

Understanding the basics of third party logistics

What is 3PL?

3PL stands for third party logistics. It refers to the outsourcing of logistics and supply chain management functions to a third-party provider. In short, a 3PL provider supports businesses with a wide range of their logistics and fulfillment needs. This can include everything from transporting, warehousing and storage of products, to fulfilling orders and managing inventory.

3PL providers are utilised by all sorts of businesses, from owner-operators and SMEs, right through to some of the largest companies in the world. If you are thinking of outsourcing your supply chain logistics, finding the right match will be essential to the success of your business.

Businesses often utilise 3PL services to streamline their supply chain processes, reduce costs, improve efficiency, and focus on their core competencies. 3PL providers offer expertise, resources, and technology to manage logistics activities effectively, allowing companies to scale their operations without the need for significant investments in infrastructure or personnel.

What is eCommerce 3PL?

As the name suggests, eCommerce 3PL refers to third party logistics services specifically tailored for e-commerce businesses and online retailers. With the rapid growth of online retail, many e-commerce companies rely on 3PL providers to handle various aspects of their logistics and supply chain operations. By engaging a third-party logistics provider, eCommerce businesses can run their entire business – warehouse and all – from a remote office, or even the comfort of their own home.

There are many elements of 3PL that make it ideal for eCommerce. Outsourcing the complexities of logistics and supply chain management to experienced third-party providers, allows eCommerce businesses to scale efficiently, improve customer satisfaction, and remain competitive in the digital marketplace. Additionally, demand can fluctuate wildly in the online marketplace, making warehousing flexibility a must. Same day dispatch (and in many cases, delivery) was once considered a luxury, but is now the norm thanks to powerhouses like Amazon. Enlisting the infrastructure and expertise of a 3PL provider is a great way for eCommerce businesses to meet these demands without breaking the bank.

What is the difference between 3PL and 4PL?

4PL (or fourth party logistics) takes the concept of third party logistics and moves it out one more degree. The primary difference between 3PL and 4PL lies in their roles and levels of integration within the supply chain. While both 3PL and 4PL providers offer logistics and supply chain management services, 4PL providers also take a broader, strategic approach, overseeing and optimising the entire supply chain on behalf of the client.

4PL is an emerging concept that is more suited to larger businesses that need a holistic supply chain solution.

What are the benefits of third party logistics?

Many businesses may initially handle logistics internally. In fact, many choose to keep logistics and fulfillment in house. However, there may come a point where outsourcing to a 3PL) provider becomes not just an option, but a strategic imperative. Let's explore the numerous benefits that 3PL can offer to businesses of all sizes and industries:

• Saves money: Three of the biggest costs to a business are wages, rent and equipment. By leveraging the 3PL provider's established infrastructure, technology, and network, businesses can avoid hefty investments in warehousing facilities (rent), transportation fleets (equipment), and personnel (wages). Additionally, 3PL providers' economies of scale allow for better negotiation with carriers, leading to reduced transportation and warehousing costs.
• Saves time: Whether we’re talking international shipping or last mile delivery, the world of logistics is more regulated and complex than ever before. Entrusting logistics operations to a 3PL provider frees up valuable time and resources for businesses to focus on their core competencies, and direct their attention to activities that drive growth and profitability while leaving the complexities of logistics management to the experts.
• Mitigates risk: From supply chain disruptions to compliance issues and inventory management challenges, they implement robust risk management strategies and contingency plans to safeguard business continuity. By entrusting logistics to a reliable partner, businesses can navigate uncertainties with confidence and resilience.
• Access to expertise: 3PL providers bring specialized expertise, industry knowledge, and resources to the table. With their finger on the pulse of logistics trends, regulations, and technological advancements, they can implement best practices and innovative solutions to optimize supply chain efficiency. By tapping into the provider's extensive network of carriers, warehouses, and distribution centers, businesses gain access to a broader reach and enhanced capabilities.
• Improved performance: Outsourcing logistics to a 3PL provider often translates to improved efficiency and performance throughout the supply chain. From streamlined order fulfillment processes to optimized inventory management and faster delivery times, businesses can enhance customer satisfaction and loyalty.
• Expanded reach: Partnering with a 3PL provider opens doors to new markets and opportunities. With access to a vast network of transportation providers and distribution channels, businesses can expand their reach domestically and internationally.

What value-add does third party logistics offer?

3PL providers offer several value-added services beyond basic transportation and warehousing functions. Value for money is a priority for almost every business. Fortunately, third party logistic providers offer a range of services that can deliver extra value. Depending on the provider, these may include things like negotiating good prices with carriers, offering advice and guidance on your logistics requirements, providing last mile delivery, reverse logistics services, and access to advanced 3PL software.

Value-added services offered by 3PL providers contribute to improved efficiency, reduced costs, enhanced customer satisfaction, and greater agility in responding to market demands. By leveraging these value-adds, businesses can optimize their supply chain operations and gain a competitive edge.

What 3PL software is available?

We’ve come a long way from using clipboards and spreadsheets to manage inventory. The integration of technology in 3PL has revolutionised the way logistics and supply chain operations are managed and optimised. There are several software solutions available, each offering a range of features and functionalities tailored to optimise logistics and supply chain operations - this should be considered when choosing a 3PL provider.

Through applications such as Warehouse Management Systems (WMS), Transportation Management Systems (TMS), and Inventory Management Systems, 3PL providers optimise warehouse operations, streamline transportation processes, and manage inventory levels efficiently. Additionally, Order Management Systems (OMS) facilitate end-to-end order fulfillment, while supply chain visibility platforms leverage IoT sensors and data analytics for real-time insights. Predictive analytics and cloud computing enhance decision-making and scalability, while e-commerce integration ensures seamless order processing for online retail.

Ultimately, the integration of technology and software empowers 3PL providers to deliver superior services, improve efficiency, and meet the dynamic demands of modern supply chains, whilst also providing clients visibility, tracking and real-time data.

How do I know if third party logistics is right for my business?

There’s no archetype of what a 3PL client looks like. Determining if 3PL is right for you involves evaluating your business's specific needs, goals, and resources. You should:

• Assess the complexity of your logistics operations. If managing transportation, warehousing, and distribution is becoming burdensome or challenging to handle in-house, outsourcing to a 3PL provider could be beneficial.
• Consider your business' scale and growth trajectory. If you're experiencing rapid growth or seasonal fluctuations in demand, leveraging 3PL services can provide the flexibility to scale your operations efficiently without the need for significant capital investment.
• Evaluate your company's core competencies and strategic focus. If logistics and supply chain management are not core functions of your business, outsourcing these tasks to a 3PL provider allows you to concentrate on areas where you can add the most value.
• Conduct a cost-benefit analysis to compare the expenses associated with managing logistics in-house versus outsourcing to a 3PL provider. Factor in costs such as transportation, warehousing, labor, technology, and overhead to determine the potential cost savings and efficiencies of working with a 3PL.
• Assess the range of services offered by 3PL providers and determine if they align with your logistics needs. Consider whether you require specific services such as order fulfillment, inventory management, freight forwarding, or value-added services like kitting and packaging.
• Look for 3PL providers with experience and expertise in your industry or niche. A provider familiar with the unique challenges and requirements of your industry can offer tailored solutions and insights to optimize your supply chain operations.
• Evaluate the technology capabilities and integration options offered by 3PL providers. Ensure they can seamlessly integrate with your existing systems and provide real-time visibility and reporting to track inventory, shipments, and performance metrics.
• Consider whether the 3PL provider can accommodate your current needs as well as future growth and fluctuations in demand. Look for flexibility in contract terms, scalability of services, and the ability to adapt to changing business requirements.

It doesn’t matter whether you’re a start-up or an ASX100 company, engaging a third party provider to support your logistics needs could help your business keep costs down, operate more efficiently, help you achieve your environmental goals, and improve your customer experience. If the benefits listed above resonated with you, there’s a good chance 3PL might be right for you.

Choosing a 3PL provider

Why is choosing the right 3PL provider so important?

Finding the right 3PL provider for your business is vital. A good provider does much more than simply store and dispatch your inventory, they can also unlock operational efficiencies, offer insights and guidance, and keep your customers satisfied. On the other hand, choosing the wrong 3PL provider can lead to frustration, mismanaged stock, and a poor customer experience – all of which can be avoided with some careful research.

How do I find the perfect 3PL to suit my business?

If you’re asking that question, you’re already off to a good start. Not all 3PL providers are created equal and some will align better with your business needs than others. To find the right one for your specific requirements, you should consider several factors including:

• Your logistics requirements and which provider can meet them.
• Your budget and what this will get you with each provider. Going with the cheapest can end up costing you if they have a long list of additional fees or their carriers don’t have adequate insurance.
• Your future plans and whether providers are prepared to meet your growth.
• Their reviews can tell you a lot about the way they operate and what to expect.

While researching providers can take a bit of time and effort, it can really pay off in the long run. uTenant takes the pain out of the process by matching clients with the right 3PL provider for their requirement from our existing network of reviewed 3PL providers. Find out everything you need to know about uTenant’s pallet-matching service here.

Working with a 3PL provider

How do I work in harmony with my 3PL provider?

Finding the right 3PL provider is an important step, but it’s only the beginning in what will hopefully be a long and fruitful relationship. And just like all relationships, good communication is key.

Begin by establishing clear expectations and maintaining open communication channels. Collaborate on strategic planning, leverage technology for seamless integration, and conduct regular performance reviews.

Stay flexible and adaptable in responding to changing market conditions, and collaborate with your 3PL provider to develop contingency plans. Invest in training your own team to ensure they are equipped with the necessary skills and knowledge to effectively collaborate with your 3PL provider.

Cultivate a culture of mutual respect and trust between your organization and your 3PL provider. Working in harmony with your 3PL provider is essential for achieving mutual success, optimising supply chain operations and fostering a productive and mutually beneficial relationship.

How do I know if a 3PL will fulfill our unique business requirements?

Entering into a partnership with a 3PL provider can feel like a real leap of faith. To determine if a 3PL provider will fulfill your unique business requirements, assess their industry expertise, service offerings, technology capabilities, geographic coverage, scalability, and flexibility. Check references, review pricing and contract terms, conduct site visits if possible and evaluate their customer service and support. By thoroughly evaluating these factors, you can determine if a 3PL provider is suitable for your specific logistics and supply chain needs.

Once you’ve selected a reputable 3PL provider, ensure you are aligned on your business requirements and expectations and establish some strategic KPIs, so you can flag any issues before they develop into serious problems.

Still unsure about how to choose the right 3PL provider?

Updated: 27 February 2024