Third Party Logistics (3PL)

Definition of Third Party Logistics (3PL)

Third Party Logistics Providers are external service providers who take over various tasks for companies. 3PL providers are thus responsible for outsourced logistics services. The (management) supervision remains with the company, and the services of Third Party Logistics are provided either by the provider itself or by subcontractors. 

Among others, services include:

• Warehousing/warehouse management
• Transportation
• Shipping
• Customs clearance
• IT solutions
• Order Management
• Cross-docking

Third-party logistics providers do not acquire ownership of products and goods. However, they sometimes have their own fleets of vehicles or warehouses and can customize their logistics services to suit their customers. 

What other forms of logistics service providers are there?

In logistics, a distinction is made between four different service providers:

• 1PL (First Party Logistics Provider
• 2PL (Second Party Logistics Provider)
• 3PL (Third Party Logistics Provider)
• 4PL (Fourth Party Logistics Provider)

The following table shows the tasks of the respective providers:

Why do companies use 3PL logistics providers?

Logistics outsourcing to external service providers has several advantages for companies. Third party logistics providers are used, among other things, when supply chains and processes become too complex for a company. Especially after mergers, internal capacities and own infrastructures are often not up to the new challenges. By working together, costs can be saved because no in-house warehouse or personnel need to be deployed to monitor the supply chain. In addition, 3PL providers often have a large network of warehouses, allowing them to handle the movement of goods more flexibly and quickly. At the same time, companies can deploy their resources more effectively in other areas, such as product development. Third-party logistics providers serve a wide variety of industries, so they bring a lot of experience to the table. 

Other advantages at a glance:

• Open up new or even global markets
• Benefit from the logistics provider's experience and technologies
•  Handle more customers and orders at the same time
• Meet demand
• More efficiency throughout the supply chain
• Control costs
• Improve customer service

Disadvantages of using 3PL service providers

There are always certain risks associated with using external companies. Outsourcing means placing responsibility in the hands of a third party, which creates a certain dependency due to a lack of control and direct supervision. If the 3PL provider makes mistakes, this will still reflect on the company itself. Communication problems can also occur, for example, due to errors in transmission, misinterpretation or insufficient information. So when selecting a Third Party Logistics provider, companies need to be very careful to ensure that the collaboration is a success.

Choosing a 3PL service provider

Once the decision has been made to use the services of a Third Party Logistics provider, the appropriate provider must be found. The following criteria can help:

• Research: Find out in advance what services are exactly offered, check references and define your requirements precisely.
• Geographical location: The location is crucial because 3PL partners should deliver the products to your customers as quickly as possible. Therefore, inquire about the locations and how long shipping/transportation takes in each case.
• IT capabilities: The logistics provider should use modern technologies and compatible systems, access across all platforms. In addition, the system should be easily adaptable to new challenges.
• Flexibility and scalability: In logistics, every company has different requirements. Logistics service providers must therefore be flexible in order to respond to dynamic markets. Flexibility and scalability play an important role in meeting peak demand. You should therefore ask how the 3PL service provider handles special situations.
• Costs: Logistics outsourcing should be an asset for the company - not a cost factor. Price therefore plays an important role when selecting a Third Party Logistics provider. Optimal service at a fair price is the goal.
• Establish collaboration: Good communication and smooth data exchange are the be-all and end-all of successful collaboration. The potential service provider should take time to understand your requirements and help to establish a basis of trust.