Editor’s Note: Today’s blog is a guest blog by our friends at 2 Flow. In this blog, they discuss everything you need to know about a 3PL business.
There are several definitions of 3PL. These include:
It’s important to note that order fulfilment isn’t merely making sure that the specified goods reach the buyer. Nothing is done if a business has not fulfilled their orders . E-commerce is often plagued with invalid order fulfilment . The goods that reach the customer must be :
There are lots of reasons why a company might turn to a third-party logistics provider. Here are the five main reasons :
To provide supplementary supply chain support to test out new regional countries or markets where your company does not currently have a presence . This can be done without having to open a new distribution centre .
Companies with seasonal businesses can use a 3PL provider that allows you to scale your labour, warehousing space and transportation to provide full support during your busy business months while scaling back during slower months .
Using a third party logistics provider that has higher quality technology and processes than your in-house operations will help realise efficiencies with the management of your inventory and increase on-time performance .
By employing a third party logistics provider, you can take advantage of lower transportation rates that are provided by the 3PL firms . These firms have substantial buying power as a result of their ability to leverage load consolidation , backhaul opportunities and the volume of freight they deal with .
With lower risk, you can quickly build a multi-location distribution network. This can be done without the major capital investment that is often associated with building out your own network . Full support during your busy business months while scaling back during slower months .
Using a third party logistics provider that has higher quality technology and processes than your in-house operations will help realise efficiencies with the management of your inventory and increase on-time performance .
Some of the many benefits of using a 3PL provider include:
With faster shipping times, the relationship you have with your customers is improved. The fast and efficient service your customers receive can, therefore, increase your returning customers.
Depending on your type of business, 3PL allows you to scale back your operations over varied time frames. For example , if your prime business time is at Christmas, using 3PL will allow you to increase the scale of your business during this busy time period and reduce the size of your operations during the summer months.
3PL service providers have a large resource network in comparison to in-house supply chains . This improved resource network allows your business to be more efficient (as well as save costs) at every part of the logistics process . This also allows the 3PL provider to optimise each step of the supply chain which will allow the overall service to be faster and more effective.
All that is required with 3PL is entering your order, exporting it and importing the 3PL warehouse information . When you use a 3PL provider, you no longer need to invest in several areas of your business . These include billing, training staff, audits,transportation, technology and warehouse space. 3PL providers can help your business avoid expensive
mistakes – you will have a higher return with lower risk .This can help your business build a global logistical network at a fraction of the cost . 3PL is quicker than in-house fulfilment .
In logistics, software, hardware and equipment are constantly being upgraded.Third party service providers are continuously educating themselves on the latest trends and emerging technologies within the logistics industry . 3PLs employ advanced monitoring and reporting techniques to track and manage your inventory which ensures the most efficient service possible . By outsourcing your logistics services , you have time to concentrate on the other elements of your business .
The flexibility to respond quickly to varying business environments and peak periods as well as fluctuating market trends without major disturbances to distribution operations is a huge benefit of 3PL .
If you decide to use a 3PL business, you must decide which 3PL provider suits your needs . The three types of third party logistics providers are :
These companies use their own warehouses , lorries and personnel to operate their business .
These companies offer the managerial and technological aspects needs to operate the logistics functions of their clients. They do this by using the assets of other companies – they do not necessarily own any assets.
These companies are usually either management or asset based. In general, they supplement their services with the specific needs that are required by their clients .
out major disturbances to distribution operations is a huge benefit of a 3PL business.
Choosing a 3PL business can be difficult – there are so many dynamics involved in making sure you have chosen the right provider before you even begin to work together. Before you start your search for a new 3PL business, ensure that you determine your own needs first. By conducting advanced research on your potential 3PLs that fit your requirements, you will ensure that you have the right provider for your business. By gathering information within the below three areas, you will be able to define your needs:
|Analyse your accounts and look at your current performance.|
|Outline your current supply chain costs.|
|Examine your existing carrier relationships and advances and/or allowances that might be made in the future.|
You then need to ask the 3PL provider for a request for information (RFI). The RFI is a detailed plan that the service provider has for your business. The RFI should include a thorough description of the areas to be outsourced. It should include:
•The scope of the contract
This should include the locations, amenities and departments of the 3PL business.
•The level of performance that is required
•Information on volumes involved
Including the warehouse sizes, the number of deliveries and number of items.
•The logistics tasks that will be undertaken
Including warehousing, transportation, etc.
It’s important that you ask your third party logistics service provider the following important questions before making your final decision:
Editor’s Note: Today’s blog is by our friend Augie Grasis, CEO and founder of FreightorGator. In this blog, Augie discusses the difference between Freight Exchange and a 3PL.
As CEO and founder of FreightorGator, I am often asked how our freight exchange is different from other companies who offer freight services, particularly 3PLs. At a recent cocktail party, my friend asked, “Isn’t your company the same as FreightQuote? I can go online, define my freight, origin and destination, and get a call back right away with a rate. How are you any different?”
While a 3PL and a freight exchange are two things that are so obviously different to industry insiders, they look similar to the outside world. I often like to compare the two approaches to the travel industry: 3PLs are the Travel Agents while a Freight Exchange are akin to an online booking site like Expedia, Travelocity or Orbitz.
To start with, an online freight exchange, like www.freightorgator.com is, literally online. This means that the entire process of quoting, booking, dispatching and tracking your LTL freight is automated and available on the internet. Quoting is real-time, often through direct API connections with carriers. Selection of your desired carrier and booking the shipment is done with one click of the mouse. Dispatch is done in the background through computer connections and you can get updated tracking of your freight anytime by referencing your shipment online.
By contrast, a 3PL experience typically involves human interaction. While some of the steps are internet based, pricing queries typically result in a phone call or email interaction with a rep from the 3PL. The shipping process often involves numerous phone conversations throughout the process.
The type of shipping partner you choose depends on complexity of your shipment. If you are shipping a fragile item, an overseas shipment or an odd size item, you likely will need the support of an experienced professional to make special arrangements. On the other hand, if you are simply shipping a pallet from point A to point B, you will save time and money going through an exchange. The ability to compare prices of leading carriers, book, dispatch and track on your computer without picking up the phone is a far more efficient approach.
Another big difference between a freight exchange and a 3PL is their vastly different business models. A 3PL makes money by adding a markup to the shipment cost charged by the carrier. This markup ranges from 10% to 50% and it is often unknown to the shipper as he receives it as a lump sum bill. Sales reps are incentivized on the margin they are able to build in, which typically results in “margin creep” as your relationship with a 3PL progresses. 3PL’s typically grant credit terms, so payment is net 15 or 30 days by payment of an invoice.
FreightorGator, on the other hand, is fully transparent about what is charged to the shipper. We pass through the actual cost of shipping from the carrier and add a small handling fee of $25, and all costs are itemized so the customer knows exactly where her money is going. Payment is made by credit card at the time the order is booked which results in better prices from the freight carriers who gets paid quickly and points for the credit card holder’s next vacation!
So, which is better? That depends on you and the type of shipment you are making. Do you need a Travel Agent for an around-the-world tour or Expedia for a flight to Chicago? It’s up to you.
When it comes to efficient and cost-effective over the road transportation management, it is absolutely crucial that you be working with a trustworthy 3PL. Understanding the potential value of a 3PL early in the process is crucial to saving money and providing great service.
A 3PL, also sometimes known as a TPL, is a third-party logistics provider. A 3PL helps your organization by providing expertise and best practices that can effectively integrate into your existing supply chain. 3PLs can specialize in various logistical areas and geographic regions.
A 3PL brings with it an existing network of valuable carrier relationships as well as a clear understanding of how to optimize performance on given routes. That being the case, a 3PL’s assistance is ideal for cost control, improving customer experience or expanding routes.
Choosing a 3PL can be challenging, because there are so many factors involved in making sure you have selected the right one before you even begin to work together.
Hard data should be the deciding factor in any new 3PL relationship. Any company that plans to provide freight services to you should be able to indicate the specific ways in which you stand to save money.
Before you start, make sure you understand your own needs before you start the search for a new 3PL by using our handy checklist found here. In order to utilize that checklist fully, first gather the following information from these 3 key areas:
However, this is really only scratching the surface of starting with what you must do as a shipper to get prepared. Another key point before you start is to understand what to expect in a logistics service level agreement contract. We highly encourage you to download our white paper regarding Logistics Service Level Agreement & KPIs to get a clear understanding of what you should expect to see from the 3PL you ultimately choose as your logistics partner.
The following 13 considerations are the next step for you as a shipper after you have your own data and are prepared to know what to look for in a contract. 13 may seem like a lot, but handing over the management of a division in your business, transportation, that can be 60% of your supply chain costs, and anywhere from 4 to 9% of your revenue, is something you should not take lightly.
1. Consider getting outside help: You understand your logistics operations better than anyone else, but you may not understand completely what a 3PL relationship can represent to your operation, and to its profitability. Getting outside help when choosing a 3PL might simplify the process, and reduce staff and time commitment. Seek someone knowledgeable in third-party logistics who can demonstrate experience with a broad scope of outsource operations and providers. A great 3PL consultant and Cerasis blogger we recommend is Chuck Intrieri.
2. Define a clear process for interfacing with potential 3PLs: One of the greatest frustrations reported by individuals who attempt to evaluate third-party logistics providers is that too often no defined process exists. Nobody is clear as to what results are expected and in what order. However, if you understand your own needs using that handy checklist, gather your data, and know what to look for in a contract, you are off to a good start.
3. Consider a maximum of three 3PLs: With or without external assistance, conduct advanced research on potential 3PLs that fit your requirements and do a detailed evaluation of only those entities. If you are dissatisfied with the end result, you can modify the process and investigate others, but trying to evaluate more than three 3PLs thoroughly will prove extremely demanding.
4. Don’t use an RFP: An RFP limits you to functional costs. A good 3PL relationship should result in a quantifiable value significantly more dramatic than any RFP can identify. It is imperative that you choose the 3PL that offers the clearest quantitative value to your company.
5. Institute an internal 3PL evaluation team: This team must include representation from the supply chain/logistics, information technology, sales/marketing, purchasing, and finance departments. Doing this ensures corporate-wide buy-in for your ultimate decision. It also demonstrates the impact logistics has on the broader business and provides insight that will enhance the dollar value represented in the ultimate agreement.
6. Create an enforceable, mutual non-disclosure agreement: Do this before starting formal meetings with your third-party logistics provider candidates; ask your legal department to help. Execute this agreement before you initiate the development of a value proposition.
7. Payment history & financial stability: Having your 3PL suddenly fall apart could be one of the most devastating challenges your company faces. Finding a partner that has proven their financial stability will at least keep your operations from being brought to a screeching halt as you attempt to recover from someone else’s mismanagement.
While evaluating your top logistics candidates, ask for a list of partners and enquire about their history with the provider. Have they consistently made payments? Has their ever been disagreement or lack of follow through from the company?
How a logistics provider handles their partners will be a good indication of how they will handle your business and talking to their partners might give you a clearer picture than talking to their hand-picked list of references.
8. Proven track record: Going beyond the finances of a potential logistics provider, what is their overall track record like? Are they known for being a state of the art company? Do they have multiple long-term clients?
As a service oriented business, the reputation of a logistics provider will speak volumes as to the efficiency and reliability that you can expect.
9. Excellent industry references: The references you have for a logistics provider should not be good or passable; they should be adulatory. For a logistics provider to be worth your time, their clients should hesitate to speak volumes on their security, reliability, and flexibility. Clients should rave about the results they have delivered.
Furthermore, references should be able to speak to the character and culture of the provider. Whether good or service oriented, companies should be delivering a higher value proposition than simple efficiency.
10. Show the impact on sales throughout the process: Nearly all logistics projects are actually marketing projects. When evaluating the true quantitative value proposition of partnering with a 3PL, make sure you note the impact on sales. Often, attaining the lowest costs determined from a traditional RFP can lead to customer service problems, resulting in a negative impact on sales.
11. Insist on regular meetings with senior executives: Any agreement must require that senior executives from the 3PL participate in a quarterly, at minimum, meeting with a multi-department team. Treating the 3PL as an integral part of management, rather than as a vendor, evokes a degree of interest and responsibility in achieving overall corporate goals.
12. Scalability: First and foremost, can the 3PL efficiently scale their operations to fit your changing needs?
Bi-directional scalability directly influences how efficient your supply chain will be. You’re doubtlessly striving to grow your company, but the fact remains that there will be ups and downs to business. Demand might contract for any number of reasons. You need a 3PL that can rapidly scale down the processes within your supply chain.
Conversely, you also need a logistics provider that can handle sudden spikes in demand without skipping a beat. Growing pains happen for everyone, but if you find a 3PL that has already experienced them with another company, you’ll spare yourself the brunt of the problems.
Find a 3PL that already has clients both larger and smaller than your organization. A 3PL that can scale will constantly be making small adjustments, e.g. aggregating or multiplying shipments, as your requirements move in one direction.
13. Clearly define a timetable for handing off responsibilities to the 3PL, and document the responsibilities you will retain in-house: The relationship should not be initiated until this process is put in place.
As the new 3PL relationship is ramped up, communication is crucial. Failure to communication at a given time may lead to ongoing issues with the 3PL relationship, at least until the enterprise has completely gotten used to the new 3PL.
How have you evaluated 3PLs as you were looking towards forging a new relationship? Let us know in the comments section below!
Since the post we did about 3PL vs. 4PL is the most shared post we’ve ever done, we decided to make an infographic about them! If you would like to use the infographic in a blog of your own, just let us know by emailing email@example.com.
Learning the difference between a third party logistics (3PL) and fourth party logistics (4PL) as well as 1PL and 2PL , and the rise of even Fifth Party Logistics (5PLs) is both confusing and highly debated among those in the supply chain industry. It’s also VITAL to know the players as you are selecting your 3PL.
As you know, we covered explaining the various logistics layers in our popular “3PL vs 4PL: What are these PLs, Anyway? Layers of Logistics Explained, offering an academic definition from the Council of Supply Chain Management Professionals’ glossary of a 3PL as “A person who solely receives, holds, or otherwise transports a consumer product in the ordinary course of business but who does not take title to the product.” However, this definition in of itself didn’t start with the 2008 legal definition as set forth by the President, signed into law with HR 4040 on August 14th, 2008. In fact, there is an interesting history and origin of 3PL and third party logistics as covered below in this first part of the two part series.
At the passing of HR 4040, the keeper of the CSCMP glossary, Kate Visek asked why it is important that we in the industry define all of the terms in logistics. She says “Well – they are to the CSCMP and its members because the Glossary is the single most popular item on their website – with close to 200,000 downloads a year. It’s also listed on the FORBES website and has been adopted by the US Post Office as well as many other organizations.”
I would argue further it’s important to define, and legally define some, to mitigate risk and fraud in the industry. Fraud is such as an issue, that coming this October 1st, the FMSCA and DOT are requiring further regulation to fight fraud by increasing the freight broker surety bond to $75,000 with the enforcement of Map-21.
So, before 3PL was legally defined by HR 4040 in 2008, where did the term come from and how did it get to the definition we see today?
While it isn’t immediately clear exactly who coined the term 3PL, its beginnings can be traced to the 70′s and 80′s as companies outsourced more and more logistics services to 3rd parties. Over time these 3rd party logistics service providers (3PLs) expanded their services to cover specific geographies, commodities, modes of transport and integrated their existing warehousing and transportation services, becoming what we now know today as a “3PL”.
Then, in 1996, the term “3PL” was registered by Accenture as a trademark and defined as “A supply chain integrator that assembles and manages the resources, capabilities, and technology of its own organization with those of complementary service providers to deliver a comprehensive supply chain solution.”
The term is no longer registered. The official CSCMP Definition up until HR 4040 was: “A firm which provides multiple logistics services for use by customers. Preferably, these services are integrated, or “bundled” together by the provider. These firms facilitate the movement of parts and materials from suppliers to manufacturers, and finished products from manufacturers to distributors and retailers. Among the services which they provide are transportation, warehousing, cross-docking, inventory management, packaging, and freight forwarding.”
There are countless sources defining third party logistics and here are just a few we have come across throughout our research, but would welcome your definition in the comments below:
As with anything, it’s important we understand where we came from, what the current definitions are, and what we have to achieve in the coming years as an industry.
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