5 KEY BENEFITS OF THIRD-PARTY LOGISTICS 3PL IN SUPPLY CHAIN MANAGEMENT

According to Statista, in the USA alone, the revenue from 3PL is projected to reach $1.31 trillion in 2024. Globally, this figure exceeds $10 trillion. Annually, this number is expected to grow by 2.39% by 2028. However, the USA is not the key region in the 3PL market, as China will remain the leader in supply chain distribution for the next 5 years. But why is this sector so essential for manufacturers and what does 3PL bring to businesses?

What is 3PL Logistics?

As production capacities grow and distribution networks become insufficient, manufacturers and dealers face the problem of excess inventory in warehouses despite ongoing market demand. 3PL partnership helps solve the issue of imbalanced processes by optimizing the supply chain, distributed storage, and even point-of-sale distribution.

Forbes says that in 2024, 20.1% of retail purchases are made online, and by 2027, this figure will reach 23%. Moreover, the annual growth rate of the e-commerce market is 8.8%. In the face of increasing competition, it becomes increasingly challenging for sellers and manufacturers to quickly deliver goods to customers and capture the profits that the market can provide.

Therefore, a 3rd-party logistics provider is a business outsourcing partner that ensures rational growth and development in line with market trends. 3PL in logistics can be provided by a single contractor, who takes on the entire transportation and distribution process in the chain, or by multiple companies, each of which is responsible for its task within SCM. How does 3PL warehousing management work in practice?

Examples of 3PL in E-commerce Business Processes in 2024

Imagine a large manufacturer of children’s clothing. The company produces over three tons of dresses, pants, jackets, and children’s underwear per month at various factories in China and Taiwan.

Previously, the company sold the entire volume through its website and distribution network in the USA. However, the emergence of large marketplaces intensified competition, and now the website attracts fewer buyers.

Based on customer feedback, the company understands that there is demand for the product in the market. However, it needs to showcase and deliver the product to consumers while management focuses on production processes.

This is where 3rd party logistics comes into play. For example, one company may be responsible for building a retail network of stores that showcase the assortment on their websites or regional marketplaces. Another company handles the import of goods from factories to a central regional warehouse. A third company is responsible for delivering large batches to dealer warehouses. The fourth company provides delivery services to small shops and drop shippers.

Thus, several 3PL transport companies may be involved in the chain, or just one contractor, who, through its developed network, performs all tasks for the children’s clothing manufacturer and several other clients.

What specific services can a 3PL supplier provide?

Management of logistics process cost indicators.
Hiring employees and renting or purchasing transport.
Warehouse rental or provision of own spaces.
Planning the needs of the retail network.
Execution of goods receipt plans at warehouses.
Inventory, accounting, sorting of goods, defect fixation, and exchange before providing to the customer.
Third-party logistics warehousing in accordance with product standards.
Product packaging for wholesale shipments.
Order picking and delivery to the retail network or directly to customers.
Handling returns and providing reverse logistics for defects.

Note that if a company creates a regional branch or a separate division for logistics management, it is not 3rd party warehousing, but internal process distribution. Delegating to third-party companies is what defines this model.

But how beneficial is it for businesses to use third-party logistics company services?

5 Key Advantages of Third Party Logistics in Supply Chain Management

Extensive Expertise in Process Building

To ensure a comprehensive set of benefits, providers utilize specialized and expensive 3PL technology. These include specialized IT solutions for optimizing transportation routes, cargo tracking services, warehouse programs for efficient and quick inventory management, and equipment for packaging and labeling goods. Thus, the contractor builds truly efficient processes based on experience and the implementation of cutting-edge solutions. Manufacturers or dealers would take much longer to build such a chain themselves, not to mention the cost.

Cost Reduction and Optimization

Third party logistics companies build supply chains not for one or even ten companies for specific regions. For instance, the cost of shipping goods that cannot fully fill a truck or container will be cheaper due to consolidation with other contractors’ shipments. In the case of self-built logistics, it would either be the company’s own transportation or rental for a dedicated route. Thus, supply chain 3PL allows savings of up to 32% on transportation costs and storage, not to mention other benefits.

Efficient Resource Utilization

This refers to both labor and material resources. Management can use time and key competencies where they excel – in production or marketing – while the contractor handles deliveries. Production areas can focus on producing goods rather than idling under a heap of finished products sent to 3PL logistic provider warehouses.

Flexibility and Scalability of the Business

Using consolidated cargo or additional loading allows large companies not only to save costs but also to build a retail network more flexibly. Thus, by using third-party logistics industry services, businesses can distribute goods in smaller batches without waiting for a larger dealer order to be collected.

Speed and Efficiency

When the operator takes care of all processes related to cargo insurance, shipment consolidation, customs representation, and cargo escorting, logistics operations can be performed 23% faster than when executed by a dedicated company division. Again, this is due to 3PL’s specific competencies, established processes, and allocated resources.

Indeed, a vast number of companies have already recognized the third-party logistics advantages. For example, 86% of Fortune 500 businesses apply the 3PL model for supply chains and logistics problem-solving. You, too, can optimize your company’s operations with HH EXPRESS services. Learn more about opportunities tailored to your industry right now!

Frequently Asked Questions

What is 3PL or Third-Party Logistics?

3PL is a model in the supply chain where collection, storage, consolidation, packaging, labeling, delivery, and return of goods are entrusted to a third-party contractor or the third party.

What is 3PL in supply chain management?

In the supply chain, 3PL involves delegating tasks to third-party companies. Tasks can be delegated to a single operator who performs the entire complex or to several within a subcontracting system.

What are the major benefits of 3PL?

Cost savings on logistics processes, increased speed of supply chain processing, flexibility and scalability of business and transportation processes, increased resource utilization productivity, and improved service quality by transferring expertise from the 3PL company to the client.

Why is 3PL important & when should you use it?

The 3PL model works for large companies with a developed and branched retail network or a large number of individual orders from different regions via dropshipping, where warehouse space is required directly at the service location. Thus, given the constantly growing role of e-commerce in commerce, the use of 3PL is objectively necessary for 80% of medium-sized companies in the markets of Europe, Asia, and America.