The term 3PL is an acronym for third party logistics. It refers to a process whereby the logistics of a company are outsourced and managed by another company. Though the most commonly outsourced logistics activity is transportation, third party logistics may include warehousing, supply chain management, and order fulfillment.
Transportation 3PL is widely outsourced around the globe. Most businesses contract with government postal services, commercial carriers, and airlines to get their goods from the manufacturing facility to the end customer. When the product is ready to ship, the 3PL carrier will pick up the package and deliver it to the end customer. The shipping costs are then billed by the carrier to the business. By hiring an outside firm that specializes in shipping and transportation, businesses are able to reduce overall costs since there is no need to invest in trucks, planes, trains, or employees to transport the goods.
Warehousing is another activity commonly outsourced to third party logistics. For businesses that want to devote the bulk of their time to design, sales, and manufacturing, outsourcing the warehouse activity may be a prudent move. The third party logistics company will house either raw components or finished products until such time as the parts are needed for manufacture or shipping. Typically, a notification is then sent to the third party logistics company to deliver the goods. A third party warehouse reduces the amount of space a business must lease or own and also reduces the number of employees required.
Supply chain management is the process used by businesses to manage their goods. This process often involves an automated ordering system where purchasing agents order material from suppliers and send purchase orders for raw goods. For many businesses, this activity is outsourced to a third party logistics company and purchasing professionals at the third party logistics company actually handle the ordering process. The goods are then delivered when needed to either the third party logistics warehouse or the manufacturing plant.
Order fulfillment is the process of completing an order and delivering it to a customer. When using a third party logistics company to manage order fulfillment, many businesses simply provide a standalone 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, packages the product, and schedules the shipment. Depending on the amount of outsourced logistics, the 3PL company may also be responsible for transportation to the end customer.