A business's key measure for its success is how well it scales in response to customer demands. More order means more investment for an organization to boost end-to-end operations. This also includes keeping up with the products' delivery timelines, which requires upping the ante of the logistical leg of a company's supply chain. And to achieve such operational magnitude, enterprises employ 3PL. 3PL stands for third-party logistics, which with their services, provides comprehensive logistics prowess which aids the organization in covering its freight management, warehouse functioning, distribution network & overall order shipping timelines. In this write-up, we will cover the essential aspects of 3PL logistics that fuel the core functioning supply chain.
Table of Contents
What is 3PL?
Every enterprise needs a comprehensive framework that keeps it informed of the actual operation info of the product status, availability & the metrics which directly influence the revenue of the company. So, if one has to define third party logistics in layman's expression, a 3PL warehouse oversees the crucial aspects of supply chain management, from managing the stock of the inventory to keeping up with the order fulfillment metric while also addressing the forecast by aligning the required aspects of freight & the transportation involved. Under the umbrella of third-party logistics, a business can meet all the requirements to manage the simple equation of supply & demand. And 3PL in SCM does the same.
What Are the Different Types of 3PL?
With its key performance orientation guided through managing inventory & shipping-related tasks, a 3PL logistics company can categorize its services based on the organization's requirements. Here's how a third-party service provider presents its offerings to prospective clients.
1. Transportation services
An enterprise's supply chain can seek to plug its transportation needs to ensure that its finished goods reach their destination on time. A 3PL e-commerce fulfillment can leverage its network of carriers or engage its fleet to meet the criteria for its potential client. In some cases, a company would willingly want the external logistics partner to use the assets it already has while syncing in benchmarks of deliveries to be met.
From a consultation point of view, third-party logistics also offers end-to-end transport management services. This can include integrating the entire freight operation through a TMS, a.k.a. Transportation Management System, to sideline heavy manual workflow, tiring repetitive operation flow, which is time-consuming, rhetoric documentation to introduce more visibility & a firm control of the stakeholder and the processes. Such upgrades make for a sound investment as they cascade their impact in the form of a better reporting structure, giving you complete access to day-to-day logistics execution and eventually transforming its efficiency virtues to better return on investment.
2. Warehouse/Distribution services
Some supply chain management need an address to stock their inventory. A 3PL supply chain can take care of the titular aspect covering all the actions of warehouse/distribution from inventory management, storage, return order fulfillment, and inventory availability across various stock centers to maintaining the OTIF metric, which is a crucial barometer to gauge the efficacy of end-to-end supply chain.
3. Finance Services
The more extensive the network is, the bigger the financial intricacies to manage. A 3PL logistics can handle the commercial aspects of the business, from monitoring the payments to the vendors to keeping an accountable ledger covering all the transactions to forecasting the required capital to cover the scalability of operations during seasonal demands of customers.
4. Information Services
Every organization has a framework filled with IT networks, and management sometimes looks for expertise outside the in-house resources to manage the security aspect of the whole operation, including product tracking to real-time tracking, which ensures timely package delivery.
What Are the Functions of Third-Party Logistics?
The role of third party logistics in the supply chain is to make sure that the order fulfillment rate is met day-in, day-out. And, for such an astute & responsive structure to be in place, a 3PL logistics service needs to cover the below core functionalities.
1. Housing Inventory
The starting point for any external vendor providing third-party services is to house inventory in accordance with the stated demand of customers. A 3PL point of contact is responsible for coordinating with the freight partners directly involved in the influx of goods, ensuring that the quality is not compromised while in transit. Many partners provide warehouse management systems to automate the usual workflow while incorporating all the critical working information tagged along.
2. Picking & Packing
The fulcrum between inbound products & shipping, Picking & Packing, involves a workforce in place to align goods meant to be transported on the lines of destination, quantity & delivery timeline. An effective 3PL logistics service does all that while balancing the efficiency & operational cost of the processes involved.
From a 3PL ecommerce fulfillment perspective, timely shipping of the product under the metrics of timeline & cost is directly proportionate to the revenue generated by a business. Considered the most human-centric process under the logistics arm, third party logistics has to comprehend potential carriers, transportation costs, and shipping routes, among others, to design a strategy that matches the scale of the organization with its efficacy.
4. Return Order Management
Managing order flow is two-way traffic. With the boom in the e-commerce industry, the scale of return orders is also growing exponentially. Amongst the services rendered by a third-party partner, streamlining a vetted return order flow & with a transparent policy is of utmost requirement as it directly impacts a company's operation cost.
How Can You Implement 3PL Logistics in Your Supply Chain?
When opting for a third party logistics company, a complete walkthrough must be provided on how an external vendor will fit into an organization's supply chain planning. Here are some fundamental principles when signing a pact with a 3PL logistics company.
1. Do a SWOT Analysis
Always know the key advantages, disadvantages, potential opportunities & risks associated when doing business with a 3PL vendor. Having a thorough insight by placing analytics at the core of decision-making helps supply chain management make better-informed decisions. More than the cost it potentially might save, the process's longevity should be kept in mind when onboarding the titular services.
2. Have a robust selection process
Outline your requirements; make sure that the solutions offered by the 3PL partner plug the supply chain gaps you were aiming to fix. Know what infrastructure benefit their implementation might have on your existing system and if they can deliver on future scalability prospects if/when your business expands. These are a few pointers that should be considered when gauging a potential third-party service.
3. Real-Time Implementation Strategy
Proactive homework by a 3PL supply chain partner works wonders to corroborate the initial plan covering the scope of work. A near-perfect real-time implementation of third-party services can be related to flawless collaboration among various stakeholders. So, to sideline any practical errors, management must align all the required IT support, knowledge upgradation, a service matrix, and customizable procedures to ensure smooth operations post application of third party services.
4. Set proper metrics for performance
Define key performance indicators (KPIs) when entering a service level agreement (SLA) with a 3PL logistics company. This helps in aligning goals & setting markers for end-to-end accountability for third party processes that subsequently achieve pre-defined business objectives. This also gives a proactive edge if & when the management witnesses a performance dip, thus giving scope to course-correct core functionalities at work. Such cyclic performance measurement sets precise criteria for constant evaluation & process evolution.
What Are the Common Challenges Faced in 3PL, and How To Overcome Them?
While 3PL services are considered a boon that technically outsources a lot of the planning headache, every process has its limitations & potential challenges. Here are a few bottlenecks that an enterprise might come across when employing third-party in SCM.
A vital challenge if not automated, 3PL can lack visibility in its operation, more so in cases of last-mile delivery, which requires constant tracking & trace of parcels in transit.
2. Keeping up with the Demand
A sudden demand surge leaves little room for scalability for the logistics model if unprepared; hence, to keep up with the required stock & delivery targets, a third-party service might be faring poorly from asset management to planning & execution.
3. Warehousing Balance Sheet
There are times when demand for one particular product rises while the stock of others plummets big time. Since a warehouse has already invested in the resources, the sudden lack of orders leads to a wastage of resources, ultimately hampering the final balance sheet. Such impromptu events can be better planned for through better-collaborated efforts and intelligent demand forecasting software in place.
Tips on How To Overcome Them
While challenges are always prominent when a supply chain operation is in full swing, a few fundamental designing principles, such as those below, can help set a precedent for a proactive logistic model to help overcome potential bottlenecks.
A business model has to incorporate flexible marketing & financial plans, which makes it more adaptive to customers' fluctuating demand. This opens up avenues for supply chain functioning which drives more growth-oriented results.
Management should be open to the latest technological advancement that helps make business-as-usual activities much more responsive, accountable, visible & scalable. With automated systems like WMS (warehouse management system) & TMS (transport management system), one can witness the acceleration of processes involved in warehousing activities to last-mile delivery.
A supply & demand operational framework positions itself to come good on customer requirements no matter the shortcomings prominent in the system. More importantly, such stability is sought after in case of an impromptu risk which enables much better collaboration & communication across the supply chain factions.
One of the key benefits of the adaptive logistic model is to iron out outdated processes which are not yielding desired outputs. Such restructuring helps create a flexible environment enabling decisions that matter for SCM in the long run. From employing relevant practices to ensuring workforce safety by following the latest guidelines, staying updated with the norms which are globally accepted gives an organization an edge over its competitors.
What Are the Key Performance Indicators (KPIs) Used for Measuring 3PL Performance?
Every investment needs to be gauged by its key performance metrics. And when it comes to evaluating the effectiveness of a 3PL partnership, one can run a checklist of the points below.
1. Inbound Inventory
A significant factor for a logistics service provider to prove its worth is to ensure that the timely stock of required products is done under the designated timeline. The statement holds more merit when managing bulk orders during seasonal demands.
A decisive factor in setting the marker for product shipping, dispatch timelines set the bar for order fulfillment. Though the time taken for dispatch is entirely subjective to the number of orders processed, it helps make prior arrangements to ensure that the final output is closer to the specified targets.
3. Accurate Inventory
Shipping the right product at the right time to the correct destination is the ultimate defining goal for any 3PL logistic service. And for that, the whole order fulfillment process needs to be vetted by avoiding any error while processing inventory-related transactions – this includes regular stock updates and checking product info, among others. Having precise information makes subsequent processes easier to execute.
4. Return Orders Capabilities
Smooth management of return orders sets the hallmark for the ability of a 3PL ecommerce fulfillment service. With the online marketplace seeing a multifold increase in daily transactional status – it becomes imperative for a third party service provider to process return orders on time which is both cost-effective and time-saving.
5. Cost of Operation
All the above key performance metrics require capital to ensure 24x7 functioning. While no process can be bartered with a lesser one, nor does it have any replacement, management can strive for a cost-effective 3PL partnership that doesn't hamper their financial plans in the long run while allowing them room to focus on the other aspects of the business.
Future Outlook and Trends for 3PL Logistics
With the 3PL industry all set to hit USD 2.43 Trillion by 2032, it is expected that many companies to accommodate their diverse business with scalability prospects will get in partnership with a third-party logistics company. Targeting new customer acquisition with faster last-mile delivery services & better return order management, companies will showcase heavy investment in potential 3PL service agreements allowing them to keep up with the presented market opportunities & maintaining their ever-impressive customer satisfaction metrics. The added advantage of outsourcing warehousing activities also enables supply chain management to put perspective on other business factions that collectively drive the enterprise's market share.
In retrospect to the current application and the potential third-party logistics carry in the supply chain world, it is safe to say that global supply & demand will greatly benefit from the 3PL offerings. All the possibilities of expansion & a more superior brand value stand to be achieved with 3SC's 3PL logistics services. Providing end-to-end support from warehouse to inventory management to distribution to reverse order flow to direct-to-home to service – 3SC's third-party logistics aid your growth through its comprehensive solutions, which focus on your ascending plans while keeping the core functionalities of the supply chain accountable, visible, and revenue-driven. To know more, contact us at https://3scsolution.com/contact-us.