FAQ: Understanding and leveraging 3PL providers

In this FAQ, learn all about third-party logistics (3PL) providers and what they can offer manufacturers.

What is a 3PL?

Third-party logistics providers (more commonly known as 3PLs) are companies that offer outsourced logistics management services. Basically, 3PL providers will handle most any task related to getting a finished product to its endpoint. The most common 3PL service is the transportation or shipping of packages, pallets, storage tanks or other units from a manufacturer's warehouse to the final destination -- that is, the customer.

A 3PL's usefulness is not limited to transportation, however. For example, most 3PLs will also provide outsourced warehouse management, order fulfillment, off-site storage and inventory management services. In addition, 3PLs will sometimes offer reverse logistics management -- that is, the reuse of materials and products through refurbishing and remanufacturing or, if reuse is not possible, the proper disposal of these items. 3PLs also often provide freight-related services, such as freight consolidation and inbound-outbound freight management.

What are the benefits of using 3PL services?

The main benefit of hiring 3PL providers is that the manufacturer no longer has to shoulder the burden of coordinating, staffing and tracking the transportation end of the supply chain. Besides the basic physical necessities -- trucks, ships, drivers and increasingly expensive fuel -- 3PLs also provide tracking software that allows for greater visibility into the shipping process. The scope of that visibility depends heavily on whether the 3PL works at a national or global level, so manufacturers should pay close attention to geographic reach before hiring a provider.

The supply chain visibility provided by 3PLs comes from real-time tracking technology, such as radio frequency identification (RFID) or global positioning systems (GPS). Such technology allows manufacturers to log onto an online portal and see the exact location of a shipment at any time. It also alerts them to any bumps along the way, including late or damaged shipments, giving them the time to react as setbacks happen, rather than afterward. On the consumer side, real-time visibility means that customers also have access to the status of their orders, including any updates to the estimated time of delivery.

How should manufacturers select 3PL providers?

There are a few points that manufacturers should investigate before selecting a 3PL. First off, it's critical to ensure that the 3PL provides the shipment modes, containers and vehicles needed to properly store and transport the kinds of products made by the manufacturer. Food and beverage manufacturers, for example, need temperature-controlled freights, which may not be available from every 3PL provider.

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Second, cost comparisons between 3PLs are important to ensure that at the end of the day, the manufacturer is saving as much of its transportation budget as possible. After all, the total savings from using the 3PL should be significant enough to warrant bringing a third-party into the supply chain.

Last, but certainly not least, is the technology check. Not every 3PL will have the most cutting-edge real-time devices installed on their vehicles, so check up on what each provider offers in RFID or GPS. Additionally, make sure the provider offers supply chain systems integration, which means it provides manufacturers access to information on the shipping process that can be shared with suppliers and customers.

Are 3PLs worth the cost?

The value of a 3PL lies in how much easier it makes life for its manufacturing customers. Hiring a 3PL should certainly result in cost savings, but it should result in time and energy savings, as well. The 3PL should be able to handle the job with minimal action on the manufacturer's part, and be easy to work with. There are always risks -- or at the very least, complications -- involved in bringing an outside party into the supply chain. Make sure that the 3PL is listening to specific customer needs, providing the most accurate shipment tracking technology and freeing up time for the manufacturer to pursue new innovations.

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This was first published in January 2014
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