Third-party logistics, typically referred to by the acronym 3PL, is the process a company uses to outsource logistics services, including warehousing, inventory management, distribution, and shipping products to customers, distributors, or retailers. 3PL companies help businesses to automate all the functions related to the logistics of supply chain management. With the growth of e-commerce, the relevance of outsourcing logistics services to third-party companies has increased.
Who uses 3PL?
Businesses of all sizes depend on third-party logistics for moving products from the manufacturing facility to the point of sale. The e-commerce sector relies on 3PL companies to provide worldwide warehousing, inventory control, shipping, and product return services.
According to a study conducted by Research and Markets, the estimated value of the global market has reached $ 1 trillion and is expected to reach $1.75 trillion by 2026. The global 3PL market is also expecting potential growth in the near future with the development of technologies like Artificial Intelligence (AI), and the Internet of Things (IoT).
How does 3PL work?
3PL companies provide solutions for businesses’ most tedious and time-consuming workloads. Here’s how 3PL companies work:
- Warehousing: The primary function of a 3PL service provider is to offer safe storage space to keep products from the time they leave the manufacturing facility until the distribution to their point of sale happens.
- Transportation: Third-party logistics companies facilitate transportation of goods from the factory to the point of sale. They coordinate transnational and transocean freight by air, rail, and road, as well as transporting products from national points of entry to distribution warehouses and then on to sellers or buyers.
- Distribution: Distribution logistics entails the storing and shipping of the products from decentralized or regional distribution points to retailer/wholesale bricks & mortar locations. Some of the significant functions of distribution logistics include product kitting, order picking, parcel and freight shipping, and more.
- Reverse logistics: Most 3PL service providers offer reverse logistics that help businesses to make the return services more simple as third-party logistics companies take care of the process of return, and restock the products, and refund the customers.
What are the benefits of using 3PL?
- Increased revenue: Companies who use third-party logistics services substantially decrease their overhead by shifting logistics responsibilities off their books. They face lower real estate investments by avoiding the need to build and maintain warehousing and distribution facilities. And they eliminate the substantial cost of fleet vehicle ownership and maintenance.
- Improved customer experience: Businesses can provide an improved customer experience as 3PL enables them to deliver the products to customer doorstep within a predictable delivery window.
- Expanded business reach: With 3PL companies, businesses can support expansive nationwide distribution and timely delivery by warehousing and shipping from multiple, geographically diverse fulfillment centers across the country.