In our post yesterday we covered the increasing use of third party logistics (3PLs) services by shippers to stay more efficient and allow for focus on their core competencies. As a third party logistics services company, Cerasis is always speaking to potential shippers as customers who are well, just plain confused about what the heck is a 3PL company is and then are confused on what sort of third party logistics company they should hire. As a 3PL, we are here to tell you, yes, the industry has created a LOT of confusion!
Today’s post’s goal is to hopefully take off that shroud of confusion for our readers and if you are a shipper, make it easier for you to not only pick the right third party logistics services company for your needs, but more importantly, if you choose one (or several as the rise of several niche logistics providers are on the rise) you can be successful at 3PL implementation.
To many, the definition of third party logistics services or the definition of 3PL, is rather fuzzy and can be ambiguous as there are many definitions, depending on who you ask. Some say “all or a significant part”, while others say “at least one part.”
However, in our opinion, the best explanation of third party logistics services is probably a combination of those two notions, as third party logistics providers are businesses that provide one or many of the following third party logistics services:
Further down in this post, we will then break out the various types of services in a more categorical approach.
Now for a more academic definition. According to the CSCMP Glossary, they define third party logistics services and 3PLs as:
Outsourcing all or much of a company’s logistics operations to a specialized company. The term “3PL” was first used in the early 1970s to identify intermodal marketing companies (IMCs) in transportation contracts. Up to that point, contracts for transportation had featured only two parties, the shipper and the carrier. When IMCs entered the picture—as intermediaries that accepted shipments from the shippers and tendered them to the rail carriers—they became the third party to the contract, the 3PL. Definition has broadened to the point where these days, every company that offers some kind of logistics service for hire calls itself a 3PL.
Preferably, these services are integrated, or “bundled,” together by the provider. Services they provide are transportation, warehousing, cross-docking, inventory management, packaging, and freight forwarding. In 2008 legislation passed declaring that the legal definition of a 3PL is “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.”
Again, depending on who you ask, you will get several different answer on what types of third party logistics services that are out there. To make it even more confusing, different 3PLs can be in only one of these types, or bleed into others. As stated previously, the goal for you as a shipper is to understand your needs and perhaps gather from this handy checklist what your requirements are in order to best assess what type of third party logistics services company you should start looking at hiring.
The following are the characteristics of the different types of third party logistics services:
Transportation Based Third Party Logistics Services
Warehouse/Distribution Based Third Party Logistics Services
Forwarder Based Third Party Logistics Services
Shipper/Management Based Third Party Logistics Services
Financial Based Third Party Logistics Services
Information-based firms Third Party Logistics Services
Not all third party logistics services are created equal when it comes down to the relationship in the way you as a shipper will outsource to them. So, after you understand what a 3PL is and the types of third party logistics services, the following are the different types of levels of outsourcing you can see:
At Cerasis, when our clients outsource to us, we have both a tactical (process elimination and automation, including integrating our TMS with an ERP to make sure you have the correct freight class) as well as a strategic relationship. This means, that some third party logistics services can provide the former two levels of outsourcing stated above. However, in the transactional side, this is usually focused on cost, and in our opinion, for true long term savings, the former two are the focus, and not the first. If you are an ebayer, or making a one time shipment, transacational third party logistics services are for you. If you have a supply chain and make regular shipments, look at the tactical and strategic outsourcing third party logistics services providers.
We hope this helps clear up some confusion. If you have any more to add, let us know in the comments section below!
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