Warehouse Management: What It Is and How to Do It Right
This warehouse management article helps you understand practical advice for any business that is involved in running warehousing operations.
Basic Guide to 3PL (Third Party Logistics)
3PLs provide flexible and scalable logistics solutions can grow with your business. But what is a 3PL and how do they work?
What is 3PL?
Third-party logistics (3PL) is a business model in which a company outsources its logistics operations to a specialized provider. These providers, known as 3PLs, are responsible for managing various aspects of the supply chain, including transportation, warehousing, and distribution, while the hiring company can focus on its core business activities. 3PL logistics providers offer a comprehensive suite of services tailored to meet the unique needs of their clients, helping them optimize their supply chain and improve efficiency.
Table of Contents
Overview of Third-Party Logistics (3PL)
Third-party logistics providers (3PLs) play an essential role in the supply chain by serving as intermediaries between businesses and their customers. They are responsible for efficiently managing the movement of goods from the point of origin to the point of consumption, ensuring timely and accurate deliveries.
3PLs offer crucial support to businesses of all sizes, particularly those involved in eCommerce, where efficient and cost-effective logistics solutions are vital to meeting customer expectations and maintaining a competitive edge in the fast-paced online market. By handling various logistics tasks, 3PLs allow companies to focus on their core operations while benefiting from the expertise and resources of seasoned logistics professionals.
How Does 3PL Work?
The typical process for 3PL logistics begins with a company seeking to outsource its logistics needs. The company will then select a 3PL provider based on factors such as cost, service capabilities, and expertise. Once an agreement has been reached, the 3PL will take over responsibility for the agreed-upon logistics functions, integrating its systems with the client’s existing infrastructure for seamless operations.
3PL Process
- eCommerce platform integration: 3PL providers often integrate with popular eCommerce platforms, automating order and inventory management, and streamlining eCommerce fulfillment processes.
- FTL and LTL freight shipping and receiving: 3PLs manage both full truckload (FTL) and less-than-truckload (LTL) shipments, optimizing transportation costs and ensuring timely deliveries.
- Inventory management: 3PLs maintain accurate and real-time inventory tracking and reporting, helping businesses avoid stockouts and overstocking.
- Picking, packing, and shipping: 3PL warehouse teams are responsible for picking items from inventory, packing them securely, and shipping them to the end customer.
- Same-day shipping: Many 3PL providers offer same-day shipping services, enhancing customer satisfaction and improving businesses’ competitive edge.
- Reverse logistics: 3PLs also handle returns, exchanges, and warranty claims, managing these processes efficiently to minimize costs and maintain customer satisfaction.
Third-Party Logistics Business Model
The Business
The client, or the company outsourcing its logistics needs, enters into a contractual agreement with a 3PL provider to handle specific logistics functions.
The Logistics Company
The 3PL provider is responsible for managing the agreed-upon logistics services, leveraging its expertise and resources to optimize the client’s supply chain.
The Shipper
The shipper is the party that physically transports goods between locations, often partnering with 3PLs to provide transportation services.
Benefits of 3PLs
- Save Time and Money
By outsourcing logistics operations to a 3PL provider, businesses can significantly reduce overhead and logistics costs. 3PLs leverage economies of scale and industry expertise to negotiate better rates with carriers, optimize transportation routes, and streamline warehousing processes. This allows businesses to avoid costly investments in infrastructure, personnel, and technology while still benefiting from efficient and effective logistics management. - Leverage Industry Expertise
3PLs possess extensive knowledge and experience in managing complex logistics operations. They stay up-to-date with the latest industry trends, technologies, and regulatory requirements, ensuring that their clients’ supply chains operate efficiently and in compliance with all applicable regulations. By partnering with a 3PL, businesses can tap into this expertise to improve their logistics processes and make more informed decisions. - Expand Business Reach
Partnering with a 3PL enables businesses to access new markets and expand their distribution networks, both domestically and internationally. 3PLs have established relationships with carriers, suppliers, and other logistics partners around the world, making it easier for businesses to enter new markets and reach customers in different regions. This can help businesses increase their revenue and gain a competitive advantage in the global market. - Focus on Critical Functions
Outsourcing logistics to a 3PL allows companies to concentrate on their core competencies, such as product development, marketing, and sales. This frees up valuable time and resources that can be invested in activities that directly contribute to business growth and profitability. By leaving logistics management to the experts, businesses can ensure that their supply chains run smoothly while they focus on what they do best. - Flexibility and Scalability
3PLs offer adaptable solutions that can be scaled up or down based on business needs. As a company grows or experiences fluctuations in demand, a 3PL can easily adjust its services to accommodate these changes, allowing for seamless growth and expansion. This flexibility helps businesses maintain high levels of customer service and avoid disruptions to their supply chains. - Warehouse Safety and Capacity
3PL warehousing involves warehouses that are equipped with advanced safety measures and ample storage capacity, ensuring the secure and efficient handling of goods. These facilities often feature state-of-the-art security systems, fire protection equipment, and strict access controls to protect valuable inventory. Additionally, 3PLs can offer specialized storage solutions, such as temperature-controlled environments, to accommodate a wide range of product types and requirements. - Risk Mitigation
3PLs help businesses minimize risks associated with logistics, such as fluctuating transportation costs, regulatory compliance, and supply chain disruptions. By utilizing their extensive industry knowledge and resources, 3PLs can identify potential risks early and implement strategies to mitigate them, helping businesses maintain consistent and reliable supply chain operations. - Resource Network
3PLs have extensive networks of carriers, suppliers, and other logistics partners, which can lead to more efficient and cost-effective solutions. Through these networks, 3PLs can secure better rates, negotiate preferential terms, and access specialized services that may not be available to individual businesses. This can result in significant cost savings and improved service levels for clients. - Customer Satisfaction
By providing timely and accurate deliveries, 3PLs play a critical role in enhancing customer satisfaction and helping businesses maintain a positive reputation. 3PLs utilize advanced tracking and reporting systems to ensure that shipments arrive on time and in perfect condition, meeting or exceeding customer expectations. This high level of service can lead to increased customer loyalty, repeat business, and positive word-of-mouth referrals, all of which contribute to long-term business success.
Need warehousing help?
Let AMS’ Warehouse Services Do It for You
How Integrating Manufacturing and 3PL Helped Us Save Our Customers Money
At AMS, we offer a turn-key managed supply chain from engineering all the way through manufacturing, freight, and even fulfillment. For many of our customers that enables us to get very efficient as a third party logistics company (actually we are more like a 4pl). For example, we can save costs by controlling the entire chain and locating key areas for optimization.
But even more important, our visibility into the entire supply chain also enables us to communicate the right information so that each stage knows what to expect and when to expect it. This is super valuable because often the most costly events in the supply chain are simply missed dates or mis-communication.
What's the difference between drop-shipping and 3PL?
Businesses often grapple with the decision between utilizing a drop-shipping model and engaging with a third-party logistics (3PL) provider like AMS. Each model serves distinct operational and financial goals, so let’s look at each of them and see how they might differ:
Drop-Shipping: A Low Barrier to Entry
Drop-shipping stands out for its minimal upfront investment. Entrepreneurs can launch an online store without the burden of purchasing and storing inventory.
In fact, we’ve tested this ourselves – it’s possible to even launch a store in just 1 or 2 hours with the drop-shipping model.
This model hinges on a seamless integration between the retailer’s online store and the supplier’s fulfillment system, ensuring that products are shipped directly from the supplier to the customer. The allure of drop-shipping lies in its simplicity and the ability to test the market without significant risk. However, this model often results in slimmer profit margins due to higher product costs and potentially longer shipping times, which can impact customer satisfaction and loyalty.
3PL Services: Control, Efficiency, and Scalability
In contrast, partnering with a 3PL provider like AMS offers businesses a more robust infrastructure for growth and customer service excellence. By investing in inventory upfront, companies benefit from lower cost of goods and potentially higher profit margins.
The operational flow begins with the procurement of products, which are then stored in warehouses. As orders come in, a fulfillment team handles the picking, packing, and shipping, ensuring that orders are delivered swiftly and accurately.
This model grants businesses greater control over their inventory and logistics processes, allowing for a more branded and customized customer experience.
3PL Examples
FedEx
As a global 3PL logistics leader, FedEx offers a comprehensive suite of 3PL services, including transportation, warehousing, and supply chain management.
DHL
Another well-known player in the 3PL logistics industry, DHL provides a wide range of 3PL solutions, such as freight forwarding, warehousing, and distribution.
XPO Logistics
As a top ten global 3PL provider, XPO Logistics offers transportation, warehousing, and value-added services to businesses across various industries.
The Relationship of 3PL to 4PL Providers
When comparing 3PL to 4PL providers, it is important to note that while 3PLs manage specific logistics functions, fourth-party logistics (4PL) providers take on a more strategic role, overseeing the entire supply chain and coordinating the activities of multiple 3PLs. This higher level of integration allows 4PLs to provide end-to-end supply chain solutions, optimizing processes and delivering enhanced visibility and control for their clients.
Why Choose a 3PL Provider?
Choosing a 3PL provider offers numerous benefits for businesses looking to optimize their logistics operations. By outsourcing logistics functions to a 3PL, companies can save time and money, leverage industry expertise, expand their business reach, and focus on their core competencies. Additionally, 3PLs provide flexibility and scalability, ensuring that logistics solutions can grow with the business. With the right 3PL partner, businesses can effectively manage their supply chain, mitigate risks, and ultimately enhance customer satisfaction.
Where Is Third Party Logistics Headed?
Obviously there will always be a need for goods to move around the world, and then into customer’s homes. As long as people are on the earth, that will never go away. Freight forwarders, cargo ships, pick and pack workers in fulfillment centers will all have a place in this economy for a long time to come.
But what does it look like as technology and population centers continue to grow as they have?
At AMS, we have a kind of unique take on the future of the industry, and it actually revolves less around the technology and more what’s driving it.
Technology Shouldn't Replace Service
While the AI advancements and operational efficiencies that are gained from the integration of tech is necessary, at AMS we believe that what customers are really looking for is a reliable person and a relationship. So when we interact with our customers as a 3PL or on an engineering project, we make sure that we employ whatever tools we can, but that they don’t replace the core of what makes us human – our ability to relate.
So we make efforts to know our customers products, inventory, and processes. That seems to go a long way in our experience.
So no matter how big the 3PL or what kind of specific services they offer, that’s the philosophy we stand by. Of course we’d love to hear from you as well – contact us and let us know what matters to you most.
Free Warehouse Design Tools
Warehouse Capacity Calculator
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Pallet Storage Capacity Calculator
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