For companies that want to spend most of their time on design, sales, and manufacturing, outsourcing warehouse activity may be a prudent decision.
The term 3PL is an acronym for third party logistics. It refers to a process in which the logistics of one company are outsourced and managed by another company. While the most frequently outsourced logistics activity is transportation, third-party logistics can include warehousing, supply chain management, and order fulfillment.
3PL transportation is widely outsourced around the world. Most companies hire government postal services, commercial shipping companies, and airlines to get their products from the factory to the end customer. When the product is ready for shipment, the 3PL carrier will pick up the package and deliver it to the end customer. Shipping costs are borne by the carrier to the company. By hiring an outside company that specializes in shipping and transportation, businesses can lower overall costs since they don’t need to invest in trucks, planes, trains, or employees to move goods.
A third-party logistics provider may be responsible for managing the storage and distribution of a company’s finished goods.
Warehousing is another commonly outsourced activity for outsourced logistics. For companies that want to spend most of their time on design, sales, and manufacturing, outsourcing warehouse activity may be a prudent decision. The third party logistics company will house both the raw components and the finished goods until the parts are needed for manufacturing or shipping. Usually, a notification is sent to the third-party logistics company to deliver the products. A third-party warehouse reduces the amount of space a business must rent or own and also reduces the number of employees needed.
Supply chain management is the process used by companies to manage their products. This process typically involves an automated ordering system, in which purchasing agents order materials from suppliers and submit orders for raw materials. For many companies, this activity is outsourced to a third-party logistics company and the third-party logistics company’s purchasing professionals handle the ordering process. Products are then delivered as needed to the third-party logistics warehouse or factory.
Order fulfillment is the process of completing an order and delivering it to a customer. When using a third-party logistics company to handle order fulfillment, many companies simply provide a separate ordering system or access to the internal ordering system to the 3PL company. When orders are placed by end customers, the 3PL company confirms the orders, pulls the product from the warehouse, packs the product, and schedules shipment. Depending on the amount of logistics outsourced, the 3PL company may also be responsible for transportation to the end customer.