What is 3PL? A guide to third-party logistics

With thousands of UK retailers searching for 3PL-related queries each month, outsourcing third-party logistics is a popular strategic move. In this article we cover the benefits and drawbacks of 3PL, examples of best practice and what’s involved, helping you determine whether outsourcing is the right solution for your business.

But first of all, what is a 3PL and what does it mean? 3PL stands for ‘third-party logistics’ and refers to the process of entrusting a separate commercial entity (another business) to take care of your logistics processes. These processes include importing goods, reworking, warehousing/storage, picking, packing and distribution. An end-to-end provider such as Whistl will offer a wide range of services which can be added, including contact centre solutions, mail management, product sampling, print advertising services and even cross-border import and export support.

How does third-party logistics work?

Entrusting another business to take care of your end-to-end eCommerce logistics such as receiving, storing, picking, packing, distribution, returns and customer service is a highly-involved process.

• Setting up with a third party logistics provider - The first stage is for the retailer to meet with the logistics company so that the 3PL can review the retailer’s technical infrastructure, product range, delivery requirements and if there are any other unmet needs they may have. The third party will consider the client’s business objectives and how the 3PL can help them meet their growth goals.
• Integrated third party logistics - The second stage of how a 3PL works is the implementation process. This is when the logistics company’s IT team deals with the retailer’s technical department to ensure their sales channels are integrated with the 3PL’s own warehouse management system (WMS). This ensures both parties have transparency of stock levels, returns rates, customer queries, picking and packing speed and accuracy. Some providers go one step further and offer inventory management and reverse logistics to ensure the retailer avoids under- or over-stocking, so that they can minimise waste and their carbon footprint.
• Once systems and processes are working in harmony, the retailer or retailer’s supplier (second-party) will ship stock to the 3PL, at which point the logistics firm will begin to determine the most appropriate storage locations, picking and packing methods. The benefit of utilising a WMS is that stock locations can be optimised based on which product types (SKUs) are most popular.
• When an order is made, this generates a pick sheet, or if paperless, updates the warehouse team’s barcode scanners, allowing them to determine the pick location of the product. The product is then taken to the packing area at which point the shipping label is applied and ready for collection by the parcel carrier.

What are the different types of 3PL?

Third-party logistics companies fall into four different key categories:

• Transportation-based 3PLs - With a core competency in the transportation of products, these can also offer a broader range of logistics services. They can either leverage the vehicles and sites of other firms or utilise their own.
• Warehousing and distribution-based 3PLs - Specialising in all aspects of storage and distribution, many warehousing-optimised 3PLs also help retailers with the importing and exporting of goods.
• Freight forwarders - 3PLs who specialise in freight forwarding typically leverage third-party assets and work as an intermediary between the initial shipping location (third or first party) and the carrier hub.
• Managed transportation 3PLs - Specialising in end-to-end logistics services, managed transportation providers specialise in delivery management and often offer a wider range of fulfilment solutions.

What are the latest trends in the 3PL market?

Recently there has been a rapid growth in demand for third-party warehousing, which has led to the market adapting with increased efficiencies such as microwarehousing, splitting inventory across different warehouse locations, crowdsourcing fulfilment and automated storage and retrieval systems. Consumer demands for speed, accuracy and sustainability have encouraged retailers and 3PLs to innovate with greener supply chains through reverse logistics, and investment in robotics.

When is the right time to outsource with a 3PL provider?

While outsourcing with a third-party provider is a big commitment, it isn’t as capital-intensive as investing in a warehousing facility. As your online sales grow you will naturally reach a point at which carrying out your order processing in-house becomes overwhelming; your building and staff resources will be stretched. The best way to determine the right time to outsource is to compare the cost of doing it yourself with outsourcing, and also consider the extra time you and your team will have to work on other areas of running your business, while a specialist takes care of picking and packing your orders.

What is 4PL, or fourth party logistics?

While a 3PL focuses on logistics, a 4PL takes care of the entire supply chain. While an eCommerce department or the retailer’s founders would act as a central point of contact for a 3PL, usually a 4PL would act as a central point of contact. Knowing whether to work with a third or fourth party depends on the level of control you require and whether you need to develop certain elements of your logistics, or your entire supply chain.

Is third-party logistics the same as eCommerce freight forwarding?

No, a freight forwarder typically focuses on moving goods from one location to another, whereas a 3PL will take care of the storage, picking, packing and distribution of goods.

Some actionable tips to help you make that decision

At Whistl we provide outsourced third-party logistics solutions to mid-market retailers and brands in a range of industry sectors. Before you decide whether to outsource key logistics processes, your entire supply chain or retain these processes in-house, we recommend that you consider your long-term goals, current digital maturity and assess your seasonality of demand. Take a close look at your customer feedback and if there are any gaps in service quality that could be helped by faster and more accurate order fulfilment, then outsourcing with a 3PL may be a viable option.

Get in touch with our team today to learn more about Whistl’s third-party logistics solutions.