Lately, I have read many blogs explaining third-party logistics, but all the blogs are one-sided. No one is explaining to both parties what third-party logistics brings to the table for both businesses and customers.
Since eCommerce businesses are skyrocketing, the demand for delivering more and more services and products to customers is increasing. And to meet the end-user’s demand, these eCommerce businesses are turning towards third-party logistics providers to reach their goals and to offer complete customer satisfaction.
But do all 3PLs look the same? Do they all offer the same services and capabilities? Well, you will find the answers to these questions in this blog. We are going to answer these questions by mentioning the pros and cons of third-party logistics.
But first, let’s understand 3PL clearly.
Third-Party Logistics (3PL).
The 3PL companies offer logistics services to maintain all aspects of a business’s shipping operations and to manage everything related to moving goods from the manufacturers and retailers to the distributors to the end customers.
Third-party logistics is a type of outsourcing done in logistics and supply chain management to outsource a company’s shipping needs.
Now, shipping requirements include a lot of services, which include:
- Custom Brokerage
- Inventory Management
- Materials procurement
- Freight audit
For all these reasons, a 3PL will incorporate warehouse management and transportation operations into a broad delivery workflow.
There are many third-party logistics that offer custom brokerage, domestic and international transportation, and trade compliance, while some other logistics deliver omnichannel logistics solutions for all sizes of manufacturers, retailers, and eCommerce companies.
Pros & Cons of 3PL
An extensive number of businesses outsource their logistic functions to 3PL service providers because of all the benefits they come up with. On the flip side, business growth and other growth-related challenges will not allow businesses to open their own logistics. This is also one reason behind outsourcing logistics because companies first need to focus on their core business.
Like for bigger enterprises and eCommerce service providers like Amazon, managing global empire businesses is not simple and, thus, companies outsource such functions to service providers.
Pros of 3PL
1. Operational Efficiency
The first major benefit that businesses can attain by using 3PL services is operational efficiency. The eCommerce industry all around the world has evolved to be highly advanced and competitive, and these companies need to focus on their core business values.
And in such environments, managing huge supply chains and distribution networks will not be a cakewalk for companies. Thus, outsourcing logistics functions to a third-party logistics provider will ease a lot of operational burdens and promote operational efficiency.
Companies that outsource their logistic functions to third parties will have an ample amount of time and means to invest in their core business areas, which in turn will lead to higher productivity and faster growth.
The 3PL providers encompass various tasks in the supply chain, warehousing, and distribution network, including picking the packages and packing them up, along with tracking and security of the packages.
2. Reduced Operating Cost
It is not possible for large companies to have dedicated logistics teams all around the globe. Walmart is the only big retailer that has its own line of inward and outward logistics. But, Walmart has maintained its truck fleet only in the US. But having a dedicated fleet all over the globe will add up to the operating cost remarkably.
Therefore, despite its own huge fleet of trucks, Walmart depends on several 3PL providers to meet the huge, never-ending customer needs. Another example is the partnership of BMW with DHL for its supply chain requirements.
For any company to own the entire logistics chain with advanced technologies would prove to be very costly. On the flip side, 3PL providers have solved the puzzle of how to scale using such technologies and services at lower costs.
3. Flexibility in Supply Chain and Distribution
Today’s business complexity and hyper-competition require businesses to focus on their strengths and adapt quickly to the evolving industry environment. International companies have expansive supply chains and distribution networks, but the complexity level is very high. The use of services provided by 3PL companies will allow them to operate flexibly and respond faster to changing demands and preferences.
The environment in any industry is augmenting constantly. However, businesses can not always respond to those changes.
This is the reason the majority of the outsourced logistics functions are fully or partially outsourced to save time and costs.
The 3PL service providers bring greater variety in terms of the services they offer and provide higher flexibility in terms of geographical distribution. 3PL providers are known to offer cheaper and better routes for distribution than the companies can manage themselves.
4. Low Capital Investment
Most of the time, companies avoid the higher cost of supply and distribution by just using 3PL service providers. By doing this, they don’t have to purchase the warehouse space or establish a large transportation network.
This will reduce the overall capital requirement for doing business. This plan will be beneficial in cases where there is high variability in terms of capacity utilization of a company’s warehouse. There will be a sharp increase in the company's expenses if it decides to have warehouse space. Thus, to maintain a low capital investment, outsourcing logistics services is the best.
Cons of 3PL
Just like the pros of 3PL, there is the possibility of having some flaws or shortcomings as well. Some of the disadvantages that you have to deal with in employing third-party logistics providers are:
1. Lower Control
One major shortcoming of using 3PL providers is that the company will lose those agitated over the supply chain and distribution networks. Because the 3PL service providers assume that these responsibilities and additional interactions will cause additional risks.
2. IT-related complexity
Because of the involvement of advanced technology in logistics and supply chain operations. As supply chains have transformed, the IT for managing supply chain operations has also increased. However, the increased use of IT has made the process complex.
Thus, to achieve a high degree of synchronization between company operations and 3PL providers' IT services, they will be interoperable. And if the interoperability level is low, the amount of benefit derived from this system will also be lower.
3. Complexities with Reverse Logistics
There are many complications related to reverse logistics.
When a company uses 3PLs to manage its supply chain and distribution. Reverse logistics is an activity that occurs post-sales and is related to recapturing the values of the service provider. It involves the return of the product to the manufacturer or returning it for servicing or for recycling and product disposal.
It is your chance to brush up on these pros and cons and logistic rules by outsourcing your logistics requirements. A third-party logistics provider will provide a comfort level of navigation that provides various restrictions and needs from different government agencies at every step of the supply chain.
The third-party logistics provider will be beneficial to all sizes of enterprises with the proper infrastructure, transportation, and expertise. So, the whole point is that no matter the industry size, niche, or location, 3PL makes complete sense in business.
Now that you are certainly aware of third-party logistics and its advantages and disadvantages, contact NitroXpress today. And experience express delivery of your packages with NitroXpress quick delivery services.