Third Party Logistics – Definition

Cite this article as:"Third Party Logistics – Definition," in The Business Professor, updated May 6, 2019, last accessed June 1, 2020, https://thebusinessprofessor.com/lesson/third-party-logistic-definition/.

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Third-party Logistics Definition

Third-party Logistics describes an approach that organizations or companies use in the easy 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. Third-party Logistics is also called 3PL or TPL, this basically means outsourcing, it is a situation a external party (Third-party) handles procurement and distribution for a company. This aids fulfilment of services and satisfaction of clients.

A Little More on What is Third Party Logistics

Providing a third-party logistics service for another company requires that transportation and warehousing services are integrated into the logistics. Since the logistics practically entail moving around, procuring and delivering goods and services, the importance of transportation and warehouse cannot be overemphasized.

There are also times when third-party logistics providers go beyond providing logistics for their clients, they also augment other value-added services that are crucial for supply chain management.  However, a third-party logistics provider that integrates transportation, warehousing and value-added services is fit to be called a third-party supply chain management provider (3PSCM) or supply chain management service provider (SCMSP).

According to Hertz and Alfredsson (2003), third-party logistics providers can be categorized into four. 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.

It is important that 3PL providers have solid customer orientation that would help them perform logistics tasks seamlessly. A company often decides to outsource its logistics for better service distribution and fulfilment, so, it is important that the 3PL provider that wants to take charge fit into the structure of the company as well as its standards and requirements. An important quality that 3PL service providers should also possess is the ability to quickly adapt to clients’ needs and proffer reliable solutions in cases of logistics difficulties.

There are many ways through which third-party logistics benefit companies or clients. The major advantages 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 client’s business, a complete takeover might occur.
  • Loss of relevance- since the 3PL service provider interacts with a firm’s 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.

References for Third-Party Logistics

Academic Research on Third-party logistics

Strategic development of third party logistics providers, Hertz, S., & Alfredsson, M. (2003). Industrial marketing management, 32(2), 139-149.

Third-party logistics: is there a future?, Berglund, M., Van Laarhoven, P., Sharman, G., & Wandel, S. (1999). The International Journal of Logistics Management, 10(1), 59-70.

Third-party logistics: A literature review, Marasco, A. (2008). International Journal of production economics, 113(1), 127-147.

Third party logistics: a literature review and research agenda, Selviaridis, K., & Spring, M. (2007). The International Journal of Logistics Management, 18(1), 125-150.

Third party logistics–from an interorganizational point of view, Skjoett-Larsen, T. (2000). International journal of physical distribution & logistics management, 30(2), 112-127.

Third-party logistics in Europe–five years later, Van Laarhoven, P., Berglund, M., & Peters, M. (2000). International Journal of Physical Distribution & Logistics Management, 30(5), 425-442.

Managing effective third party logistics relationships: what does it take?, Boyson, S., Corsi, T., Dresner, M., & Rabinovich, E. (1999). Journal of Business Logistics, 20(1), 73.

Third party logistics: present and future prospects, Sheffi, Y. (1990). Journal of Business Logistics, 11(2), 27.

A managerial framework for the acquisition of third-party logistics services, Sink, H. L., & Langley Jr, C. J. (1997). Journal of business logistics, 18(2), 163.

Third party logistics services: a Singapore perspective, Bhatnagar, R., Sohal, A. S., & Millen, R. (1999). International Journal of Physical Distribution & Logistics Management, 29(9), 569-587.

•    The use of third-party logistics services by large American, Lieb, R. C. (1992). The use of third-party logistics services by large American. Journal of Business Logistics, 13(2), 29.

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