May 27, 2021 - By :

What is 3PL?

What Is 3PL? Third-Party Logistics

Do you find yourself thinking, “What is 3PL?” It’s actually quite simple. 3PL stands for third-party logistics. This refers to outsourcing the logistics process to a third-party business. For instance, let’s take a look at an eCommerce business When an online store works with a 3PL company, that company handles inventory management, warehousing, and fulfillment for the business. In these cases, the 3PL provider allows an e-commerce business to accomplish more with its limited resources.  While it’s hard to say who coined the term 3PL, companies started the trend toward outsourcing logistics services in the 1970s. With the growth of e-commerce in the past couple of decades, 3PL companies began to expand their services.  Today, a 3PL handles supply chain integration services including both storage and distribution. 

3PL vs 4PL

If you started with “what is 3PL,” a 4PL might be a total surprise to you. As you might imagine, a 4PL adds another degree of separation between a business and its logistics processes.  When a business contracts a 4PL, it manages the relationship with and services of a 3PL. In some cases, people refer to this as “double brokering.”  Oftentimes, 4PL companies offer supply chain management to clients. This service includes 3PL services but also has the potential to include manufacturing or procurement. 

What Is a 3PL and What Does It Offer?

Aside from order fulfillment, “what is a 3PL” extends to a broad spectrum of services. Typically, this depends on the provider you choose. However, there are three core services that many 3PL providers offer. 

Inventory Management

Inventory management involves more than the storage of a company’s products. Typically, a 3rd party logistics company allows an eCommerce business to sync its inventory with the online store. As such, the company has access to real-time inventory levels at the fulfillment center. This means it has the ability to stay proactive with reordering inventory.  When your 3PL provider receivers and warehouses your inventory, you have the option to see the quantity on hand and units sold in a given day. This provides full visibility into what products are available to ship at a given time.  Depending on the capability and workflow of your 3rd party logistics company, you might even be able to change stock counts in real-time. This allows you to let customers know when items are out of stock. 

Shipping

As you wonder “what is a 3PL,” here are some important figures to keep in mind. 
  • 73% of customers expect affordable and quick delivery.
  • 44% of online shoppers who leave things in carts do so because shipping costs are high. 
  • 24% of shoppers have canceled orders due to slow shipping speeds. 
When you combine these trends with the fact that many retailers now offer two-day shipping or free shipping, you see that customers expect convenience and affordability in shipping.  The location of a 3rd Party Logistics warehouse makes or breaks its ability to meet customer expectations. When they are closer to a shipping destination, they offer more affordable shipping.  With a 3PL provider, you often have access to relationships with different carriers. This allows them to negotiate discounted rates for clients. 

Distribution

As you consider “what is a 3PL,” it’s important to understand the importance of distribution. With multiple locations, companies have the option to split inventory across different fulfillment centers. We call this “distributed inventory.” With the appropriate technology in place, a 3rd Party Logistics provider automates order fulfillment to route orders to the best fulfillment center. When customers are spread across a country, it’s beneficial to distribute your inventory to multiple facilities.  This puts your inventory closer to shipping destinations in these regions, which means you offer expedient shipping. A con of this is that distributed inventory isn’t always cost-effective. This is especially true when you have low-volume shipments.  Additionally, distributed inventory offers preparation for emergency situations. For example, if one warehouse cannot ship due to extreme weather conditions, another center picks up the order. 

What Is 3PL? See the Benefits with Derby Logistics

When you ask “what is 3PL,” it’s important to understand the core concepts above. Additionally, as you search for a 3rd Party Logistics provider, it’s essential to ask the right questions. At Derby Logistics, we strive to ship the unshippable.  Our goal is to better your bottom line through effective, efficient logistics. When you want to improve customer experience and grow your business, our team is here to help. Contact us today to see how our services meet your needs!

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