What is a 3PL (and how on earth do they work?)

3 minute read

Every business owner has thought at some point in time: wouldn’t it be nice if I could just focus on my product and get someone else to manage the distribution?  Well, that’s exactly the ethos behind third party logistics companies (3PLs)!   Keep reading to get the ultimate guide to 3PLs, including: what they are, how they […]

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Every business owner has thought at some point in time: wouldn’t it be nice if I could just focus on my product and get someone else to manage the distribution? 

Well, that’s exactly the ethos behind third party logistics companies (3PLs)!  

Keep reading to get the ultimate guide to 3PLs, including: what they are, how they work, the benefits of using a 3PL, and how they stack up against other popular services. 

Let’s jump in. 

What is a 3PL? 

3PLs are services that specialise in operational logistics: from warehousing through to delivery. When you use a 3PL, they essentially take over all of your company’s logistics operations for a fee, meaning that they become responsible for warehousing, distributing, and delivering your products to customers. 

In this way, 3PLs could potentially be a no-fuss solution to the logistics woes of many businesses, freeing up time and labour for more important tasks. Over the last few years, 3PLs have become increasingly popular, in fact, over 90% of Fortune 500 companies use a 3PL.  

How do 3PLs work? 

3PLs often have a large array of facilities, and often subcontract specialised tasks when needed, which allows them to take on the needs of many businesses at once. 3PLs profit from the fees paid to them by businesses, and make extra money by They are also able to stay profitable by securing specialised rates with carriers in exchange for their business. 

What are the Benefits of Using a 3PL? 

There are several benefits to using a 3PL to handle your logistics needs instead of doing the entire operation in house, including less stress, lower costs, and better scalability. Read through our full list of benefits:

Lower Costs

When it comes to negotiating, it’s no secret that bigger businesses with more experience have more bargaining power. 3PLs frequently have established relationships with carriers and subcontractors that allows them to secure lower rates. Using a 3PL can also produce savings in the form of administrative labour. With a 3PL handling all the administrative tasks associated with logistics, your team is freed up to work on other, more important projects

Total Scalability 

Scaling up or down your service on an individual level can be costly and time consuming: scaling up requires finding a new warehouse and hiring new labour, whereas scaling down means wasted space and potentially handing out redundancies. On the other hand, the service model of a 3PL is predicated upon lots of different businesses using the 3PL’s extensive facilities. Because of this, 3PLs have the capacity to help your business scale operations up and down with ease. 

Lower Startup Fees

If you’re a new business, setting up a logistics operation from scratch requires a lot of capital. From securing contracts with carriers, leasing a warehouse, to hiring and maintaining the manpower needed to run your operation — the logistics infrastructure needed to conduct deliveries can easily dwarf your profits. Using a 3PL can help you become operational more quickly, and often at a much lower cost.

Mitigate Risk

Using a 3PL means that your 3PL is responsible for finding alternative arrangements in the case of a shipping delay, helping your business save on time and stress.

How is a 3PL Different from a 4PL? 

In comparison to a 3PL, a 4PL model takes care of both a business’ logistics management and execution throughout the supply chain. Essentially, using a 4PL means that your entire logistics operation is being outsourced to a third party (unlike a 3PL, which only outsources the distribution and delivery process).  Of course, having a company handle your supply chain in addition to logistics management means that prices will generally be higher, making this model attractive to big companies with highly complex global supply chains, for whom supply chain management is worth the extra price tag. 

3PLs and 4PLs are both popular models of service for a reason, and each model will work for different businesses. 4PLs are attractive to companies that experience regular supply chain issues or run highly complex supply chains, whereas 3PLs offer a similar benefit to businesses that are able to handle their own supply chains with ease, want more control over their own supply chain, or want to avoid the extra premiums of a 4PL. 

Invest in the Service Right for You

3PLs are excellent tools for businesses who are getting started, or who are looking to spend less time and energy worrying about their logistics processes. 

If you’re a 3PL looking to invest in a warehouse management software, Datapel provides real time inventory data so you can ship, stock, and deliver the right product at the right time. 

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