Does Your Business Need a Third Party Logistics Provider

Third party provider

Traditionally, there were only two parties involve in a logistic transaction – one is the producer (sender or consignor)/retailer (receiver or consignee) and the other one is Transport Company (carrier). In 1970s a new entity by the name of logistics provider entered into the scene. Its main job was to take the shipment or goods from the producer or sender and book a mode of transport and handover the goods to carrier or transport company for transportation. As there middlemen do not hold any title to the goods they were sending, they were called a third party logistic provider. With the passage of time they have started offering bundled services including one or more out of – packaging, transportation, movement, storage and distribution.

The 3PL is defined as a firm that provides multiple logistics services for use by customers. Preferably, these services are integrated, or bundled together, by the provider. Among the services 3PLs provide are transportation, warehousing, cross-docking, inventory management, packaging and freight forwarding.

How beneficial may it be to hire a third party logistics provider for your company? Following is a list of advantages that come with their services. Read along:

  • Reduction of Logistic Costs: Logistic cost comprises a significant part of total cost of product. 3PL helps in reduction of logistics cost to a significant extent.
  • Concentration of Core Competency: The firm opting for such services can concentrate their energy on expanding their production activity by outsourcing logistics operations to specialist firms.
  • Less Blockage of Money in Inventory: 3PL handles inventory in a way that it ensures keeping minimum inventory thus freeing money blocked in it.
  • Technological Flexibility: 3PL uses latest technology and software to coordinate the logistics activities and operations of an organization. They provide flexibility to the whole logistics system.
  • Pooling of Shipments: 3PL consolidates and pool the small shipments of various suppliers or retailers from the same area. In this way they reduce overall cost of transportation which otherwise is not possible if a supplier or retailer is operating on an individual basis.

However, if logistics operations are given to an outside service provider, it is natural that he will execute operations as per his philosophy and style. It may not be consistent with the producer’s philosophy. Outsourcing logistics operations to one or more third party logistics provider makes an entity dependent on them.

It is important to recognize the services of a 3PL, but does it benefit your business in the long is what you need to decide.