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The 3PL model and its benefits

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The 3PL model and its benefits

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Many organizations do not have enough resources to efficiently manage all their merchandise in the warehouse and dispatch processes. Because of this, a good solution is to outsource logistics and rely on a 3PL operator.

According to an empirical study by Business Technology Labs, companies that outsource their services have a better performance than their peers that do not, with savings of between 25% and 40%, and also with advantages in time to market and labor talent.

For that reason, in this blog, we will analyze all the advantages, challenges, and disadvantages that you should take into account when looking at outsourcing your logistics management.

What is 3PL in logistics?

The 3PL (Third Party Logistics) model, also known as third-party logistics or outsourced logistics, as its name suggests, refers to services in which a company hires a provider to carry out its logistics, such as warehousing, order picking, or trucking. 

In this way, the 3PL service provider becomes responsible for managing the company’s products and delivering them to the final recipient, acting as an intermediary between the company and its customers. 

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The meaning of 1PL, 2PL, 3PL, 4PL, 5PL…

Logistics operators are classified according to the logistics tasks they perform in the company. For their classification, the term Party Logistics or PL (meaning “logistics providers”) is used and is accompanied by a number denoting the services offered:

1PL (First Party Logistics): transportation is outsourced through agencies that take care of the fleets and drivers needed to transport the goods. Companies maintain control of their warehouses. 

2PL (Second Party Logistics): in addition to transport, the logistics operator is also responsible for warehousing. However, management remains on the side of the contracting company, which organizes the fleet and material flows.

3PL (Third Party Logistics): logistics operators are responsible for transport and warehousing and the management and organization of both activities. 

4PL (Fourth Party Logistics): these are logistics operators that act as consultants and auditors of the 3PL, to validate, optimize, and improve the activity. They do not have a logistics infrastructure but only provide consultancy.

5PL (Fifth Party Logistics): they carry out a total integration of the services offered by 3PLs and 4PLs.

What type of logistics provider do you need? The answer varies depending on your ability to internalize logistics sustainably. In other words, a small company is more likely to require a 5PL provider, while a large company usually opts for a 1PL provider because it has sufficient resources to manage its warehouses. 

Advantages and disadvantages of working with 3PL operators

Currently, it is clear that efficiently managing the logistics of a distribution center or warehouse  requires a lot of time and effort, so many companies prefer to focus that time and energy on growing other areas of the company. 

In that sense, working with a 3PL operator means not having to assume the cost of land, structure, and personnel, all of which are economically advantageous in the short term.

This type of operator usually has a network of warehousing centers, which allows them to keep items closer to the end lead and deliver orders faster at much lower prices.

On the other hand, 3PL operators also have some disadvantages related to the limited control that the company has over the logistics function. This can lead to over-reliance on contract logistics operators, thus missing potential opportunities to improve service and/or reduce costs. In addition, the cost of working with a 3PL can exceed the cost of in-house logistics in the long run when activity is high.

Choosing a 3PL company

Price: The cost of the logistic operator’s work depends on the type of goods, the type of shipment (urgent or not), and its destination.

Scalability: It is necessary to evaluate the capacity of the logistics operator to adapt to your logistics needs. The ability to respond effectively to increased activity is key to sustainable business growth. 

Technology: Rely on logistics operators that use technology and automation to run your processes, including warehousing, order picking, and fulfillment. 

Reputation: Your 3PL operator’s references should be excellent. While providing efficient service, it should have solid financial stability.

Selecting the right 3PL provider can be vital to the future of your business. For this reason, it is necessary to weigh all the variables and not be guided only by the best economic scenario.

You are a 3PL operator, but you don’t know how to manage your warehouse?

From a logistics operator’s point of view, your warehouse must, first and foremost, be multifunctional. Of course, many logistics operators equip facilities according to the needs of specific leads, but in general, they tend to be warehouses that manage SKUs for multiple customers.

 This means that they must be able to adapt to multiple business strategies, with each organization determining the type of product rotation based on its priorities. In this sense, when there is a large variety of references and a high turnover rate, pallet racking is the most convenient solution, as it allows direct access to all the merchandise. On the other hand, automated storage systems are increasingly used by 3PL operators because, in addition to high performance, they guarantee safety and control in all operations. 

The importance of WMS in the 3PL model

For 3PL operators, the management of goods is equally or even more important than warehousing and subsequent distribution. Management in a 3PL warehouse requires not only WMS-related functions such as traceability, inventory management, or bin allocation but also detailed control over the logistics of all your leads, knowing which processes each lead needs and when.

Also, you must be able to work for several companies in one or more warehouses, efficiently manage multiple references, and coordinate shipments through different shipping agencies integrated into the software.

A WMS, in particular VGS’s Warehouse Management System WMS Copernico, provides the logistics operator with all these competencies that are indispensable for the success of any 3PL operator. 

We are reliable suppliers with extensive experience installing storage systems in logistics centers of all types. If you are a logistics operator and need help choosing the warehouse solution that best suits your needs, do not hesitate to contact us so that an expert can offer you a personalized and competitive solution for your company.

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