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;
- 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.
- Standard 3PL Providers – these providers engage in the basic third-party logistics which include transportation, warehousing, delivery, pick and pack.
- 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.
- 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.