What are Third-party Logistics?

Third-party Logistics, also called 3PL or TPL, describes an approach that organizations or companies use in the distribution and provision of services. This approach entails the use of a third-party company in the distribution of goods and services to the desired clients. An external party (third-party) handles procurement and distribution for a company.

How does Third Party Logistics Work?

Providing a third-party logistics service for another company requires that transportation and warehousing services are integrated into the logistics. 

A third-party logistics provider that integrates transportation, warehousing and value-added services is called a third-party supply chain management provider (3PSCM) or supply chain management service provider (SCMSP). 

Common examples of third-party logistics providers are courier companies, transportation and logistics companies, freight forwarders and few others. The four categories are described as;

1. Service Developers - these set of 3PL service providers develop and offer improved services such as tracing and tracking, docking, specific packaging as well as security systems for their clients.
2. Standard 3PL Providers - these providers engage in the basic third-party logistics which include transportation, warehousing, delivery, pick and pack.
3. Customer Developers - this category of service providers perform detailed or comprehensive tasks for their clients. They basically take over the entire logistics, develop new services and have their clients worry about nothing.
4. Customer Adapters - these 3PL providers do not develop new services but they also take control of their clients company's logistics activities.

The major advantages of 3PLs include:

• Third-party logistics saves time and cost.
• Gives a company access to 3PL service providers that have related knowledge and expertise in the needed area.
• It exposes the client to low-capital commitment. That is, the client does not need to own a warehouse, a truck and other utilities before running its operations.
• Third-party logistics outsourcing also help companies have a wider reach and larger networking zones.
• Logistics outsourcing also help clients or companies to focus on other core aspects of their business.
• Third-party logistics providers render a larger variety of services than clients could provide for themselves which in turn increase profit margin.

Despite that there are many benefits attributed to Third-party logistics outsourcing, there are also some dark sides. The disadvantages of hiring third-party logistics providers include the following;

• Loss of control- a client might lose control over hi business through third-party logistics outsourcing. For instance, if the 3PL has too much hold or control over the clients business, a complete takeover might occur.
• Loss of relevance- since the 3PL service provider interacts with a firms customer and supplier, it can lead to loss of relevance on the part of the firm or client.
• Delays and financial losses can result from third-party logistics outsourcing.