3PL and Freight-Forwarding, not the same thing.
3PL logistics is often a mis-understood term which has been around for a long time but many do not know what it means. I was asked only this week by an owner of a freight forwarding company that very question. What does 3PL stand for. 3PL stands for Third-Party logistics, that’s it a very simple term. 3PL logistics providers are are any company who integrate and offer subcontracted logistics and transportation services.
The 4 main types of 3PL providers.
Standard 3PL provider. This is the most basic form of a third party logistics company. They often perform activities such as, pick and pack, warehousing and distribution. The most basic logistics packages wrapped up for their customers to use.
Service developer. This type of 3PL provider will offer their customer advanced value-added services. Tracking & tracing, cross-docking, export packing or provide a unique security system.
The customer adaptor. This type of 3PL provider at the request of the customer takes complete control over the company’s logistics activities. Usually offering a full end-to-end supply chain capability and can include pick and pack distribution outside of the customers control. The customer base for this type of 3PL is quite small and uses the 3PL provider to enhance it’s offering.
The customer developer. The 3PL provider integrates itself with the customer and takes over their entire logistics function. These providers will have few customers, but will perform an extensive integrated supply chain for them.
Reasons to use a third party logistics provider.
There are many reasons to use a 3PL but the over-riding factor is usually cost. By taking advantage of third party logistics you have a specialist provider who can take care of a core function of running your shipping. Whilst your staff focus on the real main focus of the business. Choosing a 3PL logistics provider depends on your business model but some key issues remain the same.
- Visibility to your key staff in what your 3PL provider is doing.
- IT infrastructure, even the simplest 3PL provision needs a robust IT workframe.
- Cost to shipment ratio, there is no point in employing a 3PL provider if the cost to sale ratio does not work.
- As most or all operative functions are out-sourced their is no need to fund expensive warehousing and transport facilities in-house
There is another form of logistics provider, often referred to as a 4PL. This logistics provider has no owned transport or warehouse capacity. The person who asked me what 3PL means this week often acts as a 4PL without realising it. He takes care of shipments which arrive into the UK. Stores the shipments on behalf of his client in a bonded warehouse in Felixstowe. Then, on call, clears the parts they need and delivers them to delivery addresses up and down the country. He, like many, thinks of this as just freight forwarding. He doesn’t own the warehouse, he doesn’t own the ships, he doesn’t even do his own clearances, and he sub-contracts the delivery. A true freight forwarder in action acting as a 4PL without considering the term.
Finding a 3PL who suits your business.
If you are looking for a 3PL or 4PL for your logistics then there are plenty out there. Just make sure when you are doing your research you choose the right one for you. That doesn’t mean the cheapest it means one who can do what you need at the right economy of scale. Choose a third party logistics provider who is to big for you can be problematic. Choose one who is to small then you will find service issues where none need to be.
Small and Medium Enterprises (SME’s) often look at the bigger freight forwarders or Logistics providers. It is amazing what you can get by looking at 3PL’s who target SME’s and who’s businesses are similarly sized.