Third Party Logistics: Type, Meaning, Working, & Benefits

Sanidhya Negi / September 25, 2024

As e-commerce businesses grow and expand, managing their logistics becomes increasingly challenging. Ensuring timely deliveries and keeping customers satisfied can become overwhelming. This is where 3PL logistics comes into play. 

For businesses struggling to keep up with supply chain complexities, third-party logistics providers offer a smart solution. By outsourcing logistics operations to a 3rd party logistics provider, companies can streamline their processes, save costs, and focus on growth. 

With rising consumer demands for faster, cost-effective deliveries, partnering with 3PL services helps businesses simplify their logistics.

Meaning of 3PL

A 3PL (third-party logistics) refers to a partner that helps businesses streamline their supply chain by outsourcing key logistics functions. These third party logistics companies offer services like inventory management, warehousing, order fulfillment, and shipping. The 3PL meaning revolves around simplifying complex logistics processes which allows businesses to focus on growth. 

A 3PL service provider can handle everything from storing products to managing returns by ensuring smooth operations. Whether you need a single service or a complete solution, partnering with a third party logistics provider is a smart move. With 3 party logistics, businesses can efficiently manage their supply chain and improve customer satisfaction.

Types of 3PL Services

3PL services play a vital role in helping businesses manage their logistics operations efficiently. By outsourcing to a third party logistics provider, companies can focus on their core activities while leaving the complexities of the supply chain to professionals. 3PL logistics covers a wide range of services, from transportation to packaging, ensuring businesses meet customer demands smoothly. Let’s explore the key services offered by 3rd party logistics providers:

Transportation: 3PL providers handle the movement of goods from one location to another, ensuring timely delivery through a network of carriers. They optimize routes, reduce costs, and provide real-time tracking.

Warehousing: A third party logistics provider offers storage solutions, thus managing your inventory in strategically located warehouses. This ensures that goods are kept safe and easily accessible for quick dispatch. 

Inventory management: With 3PL services, businesses can keep track of their stock levels, preventing overstocking or stockouts. Real-time inventory monitoring helps in efficient supply chain management.

Order Fulfillment: 3PL services manage the complete order fulfillment process, from picking and packing to preparing shipments. This ensures that customers receive their products promptly and accurately.

Shipping: 3rd party logistics companies partner with the most cost-effective and reliable carriers for domestic or international deliveries, while providing tracking updates to businesses and customers.

Reverse Logistics: Managing returns and exchanges is another key service provided by 3 PL companies. They simplify the process of handling returned goods.

Packaging: Efficient packaging is crucial to protect products during transit. 3PL logistics providers offer custom packaging solutions to ensure items arrive safely and meet branding requirements.

Labeling: Proper labeling is essential for smooth order processing. Third party logistics companies handle product and shipping labels to ensure that packages are accurately identified and delivered to the right destination.

Working of Third Party Logistics Companies

The working of 3PL involves coordinating various stages to ensure a smooth order fulfillment process. This system helps businesses focus on their core activities while the third party logistics companies handle the logistics. Here’s how it works:

Receiving: When your products arrive from a supplier or manufacturing facility, your third party logistics (3PL) provider checks the inventory for quality and accuracy. The products are then logged into their inventory management system and stored securely in the warehouse.

Warehousing: 3PL services store your products in strategically located warehouses. This ensures that the products are easily accessible and can be shipped quickly to your customers. These warehouses are organized for fast picking, which speeds up order fulfillment.

Picking: With advanced technology, 3rd party logistics companies connect directly with your e-commerce platform. When an order is placed, the 3PL team begins the fulfillment process by locating and picking the items in their warehouse.

Packing: Next, the fulfillment team carefully packs the orders using materials that provide protection and minimize shipping costs. A 3PL may also offer custom packaging and labeling services to enhance the customer experience.

Shipping: Your third party logistics provider will ship the orders through their partnered carriers. Shipping and tracking information is updated in the system and synced with your online store, so customers can track their packages in real time.

Returns: If a customer returns an item, the 3PL provider handles this process as well. They inspect the returned products, update the inventory, and reship or restock them efficiently. 

Difference between 3PL and 4PL

A 4PL handles more than what a 3PL does. While the third party logistics handles tasks like shipping and warehousing, 4PL oversees the entire supply chain by managing multiple 3PLs and offering end-to-end solutions for businesses. Let’s explore the difference between both services.

 

Services	3PL	4PL
Order Fulfillment	A 3PL company focuses on specific tasks such as warehousing, picking, packing, and shipping orders.	A 4PL handles the entire supply chain, including transportation, fulfillment, and technology management.
Supply Chain Optimization	Merchants work directly with their 3rd party logistics provider to optimize fulfillment processes	A 4PL manages multiple 3PLs and looks for ways to improve the entire supply chain.
Client Communication	Merchants communicate directly with the 3PL provider, which allows for faster resolution of issues.	A 4PL acts as the middleman between merchants and multiple 3PLs, which can sometimes delay communication and issue resolution.
Data Centralization	Data is managed individually by each 3PL service provider.	A 4PL consolidates data from all 3PLs and offers a unified view of performance and metrics.

Advantages of Using 3PL Service Providers

Outsourcing your supply chain management to third party logistics companies can offer numerous benefits. Here’s how 3PL logistics services can help streamline your business.

Reduced Supply Chain Risks: A 3PL service provider can help reduce risks in your supply chain. With expertise in handling disruptions such as natural disasters, strikes, or transportation issues, third party logistics companies can offer backup strategies and alternative delivery routes and ensure minimal disruptions to your business.

Time Savings: Managing complex supply chains can be time-consuming. By outsourcing logistics to 3PL services, you free up valuable time to focus on growing your business. They have the technology, expertise, and infrastructure to streamline your order fulfillment and logistics operations.

Quicker Deliveries: If your business operates with only one fulfillment center, delivering products quickly across distant regions can be a challenge. 3PL providers can offer faster delivery by storing products in strategically located warehouses. Hence, ensuring that customers receive their orders in a shorter time frame, no matter their location.

Lower Operating Costs: Partnering with a third party logistics provider can significantly cut down costs. 3PL services allow businesses to take advantage of their logistics network without maintaining their own expensive warehouses or delivery fleets. By outsourcing to 3rd party logistics, companies can focus on their core operations while leaving the logistics management to the experts.

Focus on Core Business Functions: By leaving logistics to a 3PL provider, companies can focus more on core activities like product development, marketing, and customer service. This allows for better resource allocation towards activities that directly impact growth and competitive advantage.

Industry Expertise and Knowledge: 3PL companies are experts in supply chain management. Their up-to-date knowledge of the latest trends, regulations, and technologies ensures your logistics operations are optimized for efficiency and innovation.

Flexible Sourcing Solutions: A key benefit of using third party logistics companies is the flexibility to source products from various suppliers and manufacturers worldwide. This flexibility means businesses can adapt quickly to changing demands without worrying about managing storage or delivery logistics.

Improved Customer Experience: Third party logistics services can enhance customer satisfaction by offering faster delivery times, accurate order fulfillment, and real-time tracking information. A seamless shipping experience can boost customer loyalty and improve your brand’s reputation.

When Should Businesses Consider Using 3PL Services?

As your business grows, managing supply chains and fulfilling orders can become increasingly challenging. Third party logistics companies offer expertise and solutions tailored to streamline logistics. Here are key situations where businesses can consider using 3PL services.

Limited Infrastructure and Resources: Not all businesses have the resources to invest in the necessary logistics infrastructure, such as warehouses, advanced technology, or dedicated personnel. Relying on 3rd party logistics allows you to scale operations without straining your budget.

Fluctuating Customer Demand: Sudden changes in customer demand can overload your current logistics setup. Outsourcing to 3rd party logistics offers the flexibility you need to handle fluctuations. 

Lack of Specialized Knowledge: If managing your order fulfillment and supply chain has become overly complex, it might be a good time to consider 3pl logistics. Trying to handle these tasks without the right expertise can lead to inefficiencies, higher costs, and a poor customer experience.

International Business Growth: Expanding internationally brings a host of new challenges, such as customs regulations and language barriers. Third party logistics providers with experience in global markets can help you navigate these obstacles and successfully manage your international supply chain as you tap into new regions.

Key Considerations When Choosing a Third-Party Logistics Company

Choosing the right third-party logistics (3PL) company is crucial for streamlining your supply chain and meeting your business needs. To make an informed decision, keep the following factors in mind.

Proven Experience: A 3PL provider with years of experience has navigated various challenges and built a reliable track record, which is essential for long-term success.

Expertise in Logistics: Look for third-party logistics companies with the capability to handle end-to-end services, including order consolidation and fulfillment. Their expertise ensures seamless operations.

Flexible Supply Chain Solutions: Choose a 3PL company that can adapt to your business needs, whether it’s handling peak seasons, launching new products, or expanding into new markets. Flexibility is key for business growth.

Customized Services: Make sure the 3rd party logistics provider offers customizable solutions to match your specific requirements.

Strong Customer Support: The best 3PL services provide responsive and proactive customer support. Such companies ensure that any issue is addressed quickly and effectively for smooth operations.

Advanced Technology Systems: Top-tier 3PLs should offer advanced technology integrations that can smoothly connect with your e-commerce platform, support multiple sales channels, and provide custom APIs for efficient order processing. 

How to Measure the Performance of Your 3PL Service Provider?

Monitoring the performance of your third-party logistics (3PL) provider is key to ensuring efficient service and value for your money. Here’s a simple way to evaluate the performance of your 3PL service provider.

• One of the most important metrics is on-time delivery. Measure how frequently your orders are delivered within the agreed timeframes.
• It’s crucial to track the percentage of orders fulfilled with the correct products, quantities, and shipping details. High order accuracy from your 3rd party logistics partner reduces errors and improves customer experience.
• Monitor inventory accuracy by comparing the physical stock with what’s recorded in your system. Accurate inventory management by your 3PL reduces stock discrepancies and potential fulfillment issues.
• Order cycle time measures how long it takes for your 3PL provider to pick, pack, ship, and deliver products.
• Measure customer satisfaction by gathering reviews, tracking returns, and addressing complaints. Customer feedback provides valuable insights into how your 3PL logistics provider is performing and can help highlight areas needing attention

Best 3rd Party Logistics Companies

Third-party logistics (3PL) companies help businesses with shipping, warehousing, and distribution, streamlining their operations. Some of the top 3PL providers are given below:

• Bigship
• FedEx
• Delhivery
• DHL
• Shipbob
• RedStag
• NimbusPost
• Shipwire
• Blue Dart Express
• UPS Supply Chain Solutions

How Bigship Can Help You Scale Your Business?

Bigship is a trusted third-party logistics provider that helps businesses grow by simplifying their shipping processes. With partnerships across 19+ courier companies and serviceability to over 29,000 pin codes in India and 220 countries globally, Bigship is your go-to solution for efficient logistics. 

Here’s what you get when you trust Bigship with your logistics.

• Wide Range of Carrier Options
• Real-Time Shipment Tracking
• Cost-Effective Shipping
• Tailored Solutions as per your requirement
• Easy Documentation Process
• Outstanding Customer Support
• Seamless Channel Integration

By partnering with Bigship, businesses can streamline their logistics operations, reduce costs, and focus on growing their brand.

Conclusion

Partnering with a third party logistics (3PL) provider can significantly improve your business’s supply chain efficiency. By outsourcing logistics, companies can streamline operations, reduce costs, and focus on core business functions like growth and customer satisfaction.

A third party logistics like Bigship enable companies to streamline operations while focusing on growth. You can use the services of Bigship simply by signing up here.

Third Party Logistics: FAQs

Ques: What do you mean by 3PL?
Ans: 3PL, or third-party logistics, refers to a service provider that helps businesses manage and streamline their supply chain by handling various logistics functions. These services include tasks such as warehousing, inventory management, order fulfillment, shipping, and returns. 

Ques: Give an example of a 3PL company ?
Ans: An example of a 3PL company is Bigship. Bigship provides comprehensive third-party logistics services. By partnering with multiple courier companies, Bigship allows businesses to efficiently manage their supply chain.

Ques: When you should use a 3PL company?
Ans: You can use a 3PL company when you lack logistics resources, experience sudden demand changes, want to expand internationally, or need help managing complex supply chains while focusing on your core business.