Let’s begin with defining the terms third party logistics and “third-party logistics provider”. The Council of Supply Chain Management Professionals (CSCMP) provides a very extensive glossary that defines all of the terms in logistics. These two terms are defined by CSCMP as:
Third Party Logistics (3PL): Outsourcing all or much of a company’s logistics operations to a specialized company. The term “3PL” was first used in the early 1970s to identify intermodal marketing companies (IMCs) in transportation contracts. Up to that point, contracts for transportation had featured only two parties, the shipper and the carrier. When IMCs entered the picture – as intermediaries that accepted shipments from the shippers and tendered them to the rail carriers – they became the third party to the contract, the 3PL. Definition has broadened to the point where these days, every company that offers some kind of logistics service for hire calls itself a 3PL. Preferably, these services are integrated, or “bundled,” together by the provider. Services they provide are transportation, warehousing, cross-docking, inventory management, packaging, and freight forwarding. In 2008 legislation passed declaring that the legal definition of a 3PL is “A person who solely receives, holds, or otherwise transports a consumer product in the ordinary course of business but who does not take title to the product.”
Third-Party Logistics Provider: A firm which provides multiple logistics services for use by customers. Preferably, these services are integrated, or “bundled” together by the provider. These firms facilitate the movement of parts and materials from suppliers to manufacturers, and finished products from manufacturers to distributors and retailers. Among the services which they provide are transportation, warehousing, cross-docking, inventory management, packaging, and freight forwarding.
Third party logistics companies (3PL) are becoming an important part of today’s supply chain. These logistics companies offer services that allow businesses to outsource part or all of their supply chain management functions. Many 3PL companies offer a wide range of services including: inbound freight, freight consolidation, warehousing, distribution, order fulfillment and outbound freight. The growth of 3PL companies has been driven by the need for businesses to become leaner, reducing assets and allowing focus on core business processes.
Rise Of Third Party Logistics Providers
The growth of 3PL companies began back in the 1980’s when businesses began to look for new ways in which they could outsource logistics functions and concentrate on their core business. As companies saw the benefits of outsourcing delivery and warehousing functions, the number of third party logistics companies began to rise offering an ever increasing number of services. The increasing numbers of 3PL’s inevitably led to increased competition between these firms, which led to greater savings for the companies who employed them. The last decade has seen the 3PL provider transitioning from a local or regional business to one that offers national or global coverage.
Selecting A 3PL Company
Deciding to a use a third party logistics company is a decision that depends on a variety of factors that differ from business to business. The decision to outsource certain business functions will depend on the company’s plans; future objectives, product lines, expansion, acquisitions, etc.
Once a decision has been made to outsource certain processes, a company will begin a search for the right 3PL that fits all their requirements at the best possible price. Our logistics directory aims at helping you find the best logistics company to establish a long lasting and profitable relationship with.
Why Outsource Transportation Management Functions to 3PL providers:
1. Save Time & Money – 3PL’s have thousands of qualified carriers under contract with the ability to handle your freight. 3PL providers are able to reduce the amount of infrastructure investments in equipment, software, facilities and personnel. A single phone call to a logistics coordinator enables them to select the best value carrier for every shipment. Would it make sense to put that load into another shipping strategy, such as pool point distribution? Should we consolidate those LTL’s into a truckload? These 3PL’s are like a having non-paid employees on your staff and allow shippers to focus resources on areas where they are the expert (i.e. manufacturing, product sales).
2. No reason to buy an expensive TMS (transportation management system) – Reputable 3PL providers have invested in a TMS system or developed their own. These systems can be utilized for free when dealing with a third-party logistics provider and you will also get access to robust managed transportation services. Many companies can even run reports on your freight, analyze shipping patterns and keep scorecards on service quality. All of these factors help reduce overhead for shippers.
3. Liability– Third-party logistics providers manage carrier contracts, DOT safety ratings and insurance certificates better than most shippers. 3PL’s have a back office staff that have SOP’s in place to help the carrier vetting process, work with carriers on invoice variances through auditing services, and manage the entire freight claims process.
4. Economies of scale – 3PL providers provide large shipping discounts through economies of scale. 3PL’s are able to achieve much lower operating costs per load due to their ability to leverage their entire business for substantial discounts with trucking companies. These economies of scale can also be seen in the carrier qualification process, technology systems and consistent year-round freight prices.
5. Visibility of loads – Most third-party logistics companies have on-line tracking to give shippers visibility of their loads. Many 3PL’s are able to integrate tracking into shipper IT systems, provide integration into ERP and WMS, automated notices, or even real-time delivery notifications by e-mail.
6. Reduce back office duties– 3PL providers have the systems, manpower, and the know-how to process thousands of bills a day at a fraction of the cost compared to shippers. They can also audit all of the bills to make sure the carriers are charging the agreed upon rates. This process can be a real headache with large amount of LTL bills. Third-party logistics providers dramatically reduce the need for freight audit and payment personnel.
7. Utilize more carriers – Third-party logistics companies have contracts with thousands of carriers and know the lanes where these partner carriers need freight. If a shipper has consistent freight to multiple locations and regular lanes, an RFP (request for pricing) is initiated after analysis of freight shipment activity and analysis to further drive down costs. In combination with carrier compliance and vendor compliance accomplished through the TMS, the bottom line will look great and the c-suite will be happy with the transportation department.
Some of the Functions of Third Party Logistics Companies: