What Does 3PL Mean?

What Does 3PL Mean?

Third-party logistics (3PL) is a growing industry both in the United States and across the globe. In 2020, the United States 3PL market generated 231.5 billion dollars and is projected to reach 297.2 billion dollars in 2023. While these numbers are impressive, it is helpful to keep in mind that the North American 3PL market is second in size to the Asia-Pacific market. In 2020, the global 3PL logistics industry revenue was 961.8 billion U.S. dollars, and 389.9 billion dollars of that was from the Asia-Pacific market. 

These numbers show that 3PL is a big deal for freight logistics in North America and across the globe. If you deal with logistics in any way, you need to know about 3PL, what 3PL means for logistics, how a 3PL works, and the benefits of a 3PL. 

What is a 3PL?

So, what does 3PL mean? What does 3PL mean in logistics? If your business needs to increase productivity and focus on marketing, growth, and conversations, it’s important that you know about a 3PL. 

A 3PL is a third-party logistics provider who handles some or all of the inventory management, order fulfillment and distribution, and operations for an enterprise. A 3PL is valuable to companies that produce goods and products that need to be transported. The services that a 3PL provides to companies include: 

  • Warehousing
  • Inventory management
  • Shipping and receiving
  • LTL and FTL freight shipping
  • Kitting and customization
  • Picking and packing
  • Returns or reverse logistics

There are different types of 3PL companies that specialize in specific types of fulfillment and warehousing services. Some 3PL providers specialize in refrigerated goods. Other types of 3PL companies specialize in hazardous materials or heavy, extra-large, and high-value goods. 

How does a 3PL work?

A 3PL typically owns or leases warehouse space that they provide to their customers. For freight and shipping, they typically contract with other carriers. A 3PL utilizes these assets and contracts to manage their client’s inbound and outbound transportation and warehousing needs. Warehouse workers receive products, organize the inventory, select items from shelves to fill orders, and package orders securely for shipment. The 3PL then coordinates shipment with various carriers who deliver the orders to clients. 

When you use a 3PL, your supply chain flows in the following manner:

  1. You source the products and goods that you sell.
  2. You invest the capital to purchase raw materials, goods, and/or products before you make the sales.
  3. You ship your merchandise to the order fulfillment warehouses contracted through your 3PL.
  4. You list available inventory for sale in your eCommerce platform.
  5. Customers place orders. 
  6. The 3PL warehouses receive the online order notifications.
  7. Experienced warehouse employees carefully pick, pack, and ship the orders. 
  8. The customers receive the orders. 
  9. …and ideally the customers are satisfied with both the products and the smooth delivery so they place repeat orders. 

Benefits of a 3PL

When a company outsources aspects of their operations to a 3PL, they receive several notable benefits, including: 

Lower Cost of Goods

Without a 3PL, a company may be forced to make ordering decisions based on the available storage space within the office. With a 3PL, a company can make ordering decisions based on customer demand because the 3PL provides the storage space. This allows companies the flexibility to purchase more goods upfront, pay lower wholesale prices, and raise the profit margins. 

Greater Flexibility in Product Sourcing

When you use a 3PL, it is easier to source products from multiple manufacturers and ship all of the products in the same box. A 3PL stores all your products in the same warehouse, organizes the inventory, and handles the shipping costs so that you can choose the best product sources with the least amount of constrictions. 

More Control over Logistics Operations

If you handle 100% of your operations in-house, you may be forced to make difficult business decisions about space management, task prioritization, and sourcing. With a 3PL, you have more opportunities to strategize operations so that you can focus on business growth while providing the level of service your customers expect. 

Faster and More Efficient Order Fulfillment

A 3PL provider is set up to receive, process, and ship your orders in the most efficient and expeditious manner. They have all of your products and goods organized and inventoried so that you customers can receive their purchases as smoothly and quickly as possible. 

Easier Returns Processing

The great thing about a 3PL is that they can also provide customer service and seamlessly process returns. This greatly reduces the challenges that companies can experience when trying to handle reverse logistics themselves and improves customer satisfaction with a smooth return process. 

To learn more about 3PL and logistics industry, visit First Star Logistics today.