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A 3PL, also known as a third party logistics provider, is a company that will manage your transportation costs, provide warehouse space, and fulfill customer orders on your behalf. This is a broad category, but to keep things simple we will focus on the warehousing and fulfillment component of a 3PL.
When a 3PL ships your company’s order, the package looks like it comes directly from you, as your company name is often listed as the return address. But the people who prepare the package for shipment are employees of the 3PL.
When fulfilling your orders, a 3PL typically charges you every time they touch something meaning that they are charging you every time they go to a shelf and grab a product to put into a box (often called a cost per unit). Some 3PL’s will also offer “cost plus” or “open book” pricing, which means that they take their costs and add a margin to the amount you pay. They often do this when the scope of work is unclear and it’s hard to gauge what their costs will be.
On the surface, it seems like a 3PL would be more expensive than fulfilling your own orders. After all, a 3PL is hiring people on your behalf and then charging a mark-up on top of what it costs them. When you are operating at massive scale, internal fulfillment will be cheaper than 3PL because you will have the volume to drive down your costs.
But when you are a young company, the main advantage of a good third party logistics provider is that they are able to pool their teams across multiple accounts. For instance, the Operations Manager on your account may be working on several accounts so you only pay for a portion of their salary; similarly, the cost of a forklift lease or software might also be shared across multiple accounts.
So even if they are charging a mark-up on their costs, at an early stage, they may be able to generate a cheaper cost per unit than you can on our own.
There are quite a few third-party logistics providers nowadays offering a litany of different services. Those in the loop will agree that not all third-party logistics providers are equal or even offer the same services. Choosing a third-party logistics provider (3PL) can be one of the most important decisions a supply chain can make.
Supply chains that utilize third-party logistics providers will experience an increased efficiency, greater capacity, and a lower cost of doing business.
If you are looking to increase the scale of your supply chain, then hiring a third-party logistics provider is how to do it. So which 3PL do I choose?
You wouldn’t buy a home without first considering what features you would like your new residence to include. The same principle is applied to choosing the right third-party logistics providers for your business.
Where is your supply chain struggling?
Why do you think a third-party logistics provider can help?
How do you want to interface with the 3PL?
How important is technology to your supply chain?
Answering these questions as specifically as possible will help you determine what services you would like your third-party logistics provider to provide, and therefore which 3PL is right for your supply chain.
The importance of doing your research before contracting your supply chain to a third-party logistics provider cannot be over emphasized.
It is critically important that you thoroughly review each candidate, the services they offer, the rates they provide for those services, and how well those services are provided.
Don’t be afraid of asking each candidate the hard questions like;
Technology in the logistics sphere is always changing. With that staying up to date on it all can be extremely expensive. But by spreading the costs of their equipment throughout several accounts 3PLS can offer the best software available to give live streams. Inventory updates, invoices and more instantly at a fraction of the cost.
Different third-party logistics providers will specialize in different aspects of the supply chain. When choosing the best third-party logistics provider for your supply chain, consider omnichannel experience thoroughly.
A third-party logistics provider that is versed in the various aspects of the supply chain and whoever can operate the most effectively between them is going to be the better candidate.
Furthermore, it is important to consider your omnichannel expertise. How well does your supply chain function regarding warehousing, freight transportation, inventory control, etc.? If you find that your supply chain lacks in any of these areas, then a third-party logistics provider may be able to lend their expertise and improve those areas.
To see how Refactor-Supply can sync up to improve your Supply chains efficiency click here.