What Is a 3PL?

Many corporations today understand the role logistics and supply chain management plays in successful business operations. Developing an optimized and well-executed logistics strategy requires the right expertise, infrastructure and human capital. With many businesses lacking these capabilities and focusing on core competencies, it’s no wonder they often look to outsource their needs to those specializing in logistics.

3PL companies are there to fill these organizations’ outsourcing needs and develop mutually beneficial relationships. 3PL stands for third-party logistics and includes distribution, warehousing and fulfillment services within logistics and supply chain management. These third-party logistics companies offer customized solutions that can flex and scale to meet their customer’s unique needs. Market conditions, product demands and delivery service are just some of the elements considered when developing a custom approach for clients. Businesses searching for reasons to use a 3PL can benefit from the educational content provided below.

How 3PLs Work

Businesses that sell tangible products have to consider these 4 elements of the supply-to-customer sales cycle; procurement, transportation, distribution and growth. Procurement involves sourcing and manufacturing, including the specific areas of raw materials, product development, and manufacturing scheduling. Transportation tackles the challenges associated with schedules, paperwork, import/export requirements, government/defense level transportation specifications and even overseas shipping. Distribution involves 3PL fulfillment with solutions for warehousing, inventory, packaging, kitting, stocking, inventory picking, order processing and return management. A good logistics partner can also help with managing the future growth of your company. While some 3PL providers focus on one of these segments, other companies bundle value-added warehousing and distribution services that extend to every aspect of the supply chain.

Think of the elements in the supply chain like a gear structure. One weak link can cause a failure in the entire system. While businesses may be proficient in their field, that doesn’t necessarily mean they have the experience, infrastructure, capital, resources, access and connections that a logistics company has.  Without particular expertise in these areas, businesses may end up wasting time and money, damaging reputations.

One of the main goals of a 3PL is to streamline a national shipping process. In a competitive economy with explosions in technological capabilities and insights, 3PL service providers are constantly evolving to provide new and improved programs for their clients. They achieve this by constantly searching for distribution specialists, warehousing and freight solutions that push ingenuity while staying competitively priced. Because 3PLs have a considerable network of contacts and resources at their disposal, a different and more appropriate solution can be obtained for each of their clients and their unique challenges.

Why Companies Should Use a 3PL

• Increase Cash Flow: The 3PL business model provides better cost control and greater utilization of assets which reduce liabilities in labor, overhead and inventory with a shared investment.
• Gain Access to a Knowledgeable Team: Companies who hire 3PLs not only get their logistics services met but also gain industry insights.
• Superior Equipment and IT Systems: Organizations benefit from the technology that 3PL companies have already invested in rather than spend time, resources and money on it themselves.
• 3PL’s Size and Scale: The size and scale capabilities of a 3PL offer better opportunities for system optimization, leading to cost reductions and opportunities to scale-up.
• Quality Assurance: 3PL providers often have successful quality management systems already in place to manage your supply chain.
• More Flexibility: Since supply chain needs continuously fluctuate with market conditions, a 3PL provider can more efficiently scale warehouse space and labor up or down depending on your seasonal periods.
• Continuous Improvement: 3PLs have the tools, technologies and management software to analyze and monitor supply chain procedures to remove inefficiencies.
• Save Time and Money: A 3PL (like NewStream Enterprises, LLC) has the expertise necessary to be efficient, on-time and forecast roadblocks before issues arise. 3PLs also have a vested interest in delivering cost effective solutions for their customers. Industry forecasting provided by a 3PL can help optimize inventory levels and save on inventory holding costs.
• Continued Focus on Core Competencies: Outsourcing to a 3PL company allows those with limited logistics experience to focus on hitting their sales objectives and achieving yearly growth.

Companies That Use 3PL

Any business involved in the sale of a tangible product can benefit from an efficient and cost effective logistics solution in their organization. In fact, third-party logistics outsourcing is so common, it is reported that 80% of all Fortune 500 companies and as much as 96% of all Fortune 100 companies take advantage of some level of 3PL services. This is a 46% increase from 2001 according to supply chain consultancy Armstrong and Associates.

How to Choose a 3PL provider

With so many 3PL service providers to choose from, how can you know which one is the best fit for your company? A 3PL can be thought of as an extension of your business, so when adding a partner, it’s critical to make the right choice. Here are some important items to  consider when making that choice:

• Value-Added Warehousing and Distribution (VAWD) Services: Often, value added services, or VAWD, can become the determining factor when choosing a 3PL. VAWD services to look for include: kitting, packaging, warehousing, distribution, sub-assembly, cross-docking, private branding, parts inspection, breakdown and consolidation, repacking, sorting, critical order fulfillment and complex assembly capabilities.
• References and Experience: It’s always a good idea to check a company’s website to see what types of customers they’ve supported and read their case studies. Also, search review sites to better understand their reputation and always ask for references before making a decision.
• Volumes: Get in contact with your prospective 3PL vendor to make sure their volume capabilities are inline with your typical business volumes. Additionally, make sure the company is able to scale up when your business is ready to grow.
• Technology: When the time comes, visit the 3PL in person and have them demonstrate their technological capabilities. Ask questions and make sure that their technology works seamlessly with your current business operations.
• Company Culture: While company culture of a vendor may not always be critical, when you’re dealing with a 3PL it is an important consideration. The 3PL’s ability to reliably deliver exemplary service depends heavily upon the level of motivation, commitment and engagement of the team delivering that service.

3PL experts essentially handle supply chain problems so you don’t have to. With many product managers and VPs focused on hitting sales objectives and key performance indicators (KPIs), 3PLs can take on the load of common logistics burdens of inventory solutions, on-time order, supply chain efficiencies and distribution challenges. Most companies end up saving money by hiring professionals to take care of these challenges for them rather than spend research time and manpower hours in trial and error to figure it out themselves. Sign up for our blog to hear more about how NewStream Enterprises seamlessly integrates with customers’ businesses so that they can continue focusing on what they do best.