Business

How Does Third-Party Logistics Work?

posted by Chris Valentine

Third-party logistics (TPL or 3PL) businesses are niche outsourcing services that handle any of a number of supply chain and logistics functions for their clients. Some of these companies may focus on very specific areas while others may be able to provide solutions at different parts of a supply and logistics chain.

3PL services can augment or replace in-house logistics departments as well as use their technology to provide a wealth of critical customer information to their clients. These services are now considered to be an integral part of some business models. Drop shippers, for instance, usually use 3PL services to allow them to easily move merchandise from manufacturers in distant locations and have them delivered to customers.

While not the case universally, 3PL services tend to offer services related to one or more of the following:

Procurement

Procurement is the process of getting products or raw materials that a business could sell or convert into other products. 3PL companies can help a business with procurement in several different areas. They may sometimes offer to produce supplies from different sources and deliver them to a business facility or a customer’s address. They could also scout for locations for facilities or for some other purpose as well as secure patents and licenses needed to use certain technologies or operate in specific markets. Whatever the procurement challenge, there is a 3PL service ready to take it on.

Transportation

This is the aspect of logistics most people are familiar with and most 3PL companies either specialize in transportation solutions or are partnered with another company that does. 3PL services use specific knowledge of bulk rates, international contacts, forecasting, real-time inventory monitoring, and other resources to quickly, safely, and affordably transport different goods to different geographic locations.

Fulfillment

Often confused with simple warehousing, fulfillment involves efficiently storing goods meant for different customers in locations that make it simpler to perform the final delivery to the customer.

This type of service is critical for many startups as traditional warehousing can be expensive and beyond the means of many small businesses. Warehouses can be expensive to operate and have associated procurement, maintenance, and staffing costs that have to be paid regardless of whether space is currently being used for storage.

Because 3PLs typically service multiple clients, they can keep the costs associated with warehousing and storage down, putting these critical services well within the reach of smaller businesses. This, in turn, means that even single proprietor businesses can have access to capabilities and wider markets that were typically only available to larger organizations.

Conclusion

3PL companies are part of a critical part of the hidden chain of services that enable us to have fast delivery times and low prices for virtually every product we have access to. They not only contribute to this directly by leveraging their technologies to transport goods to different locations quickly and cheaply, but they also function as a critical part of the procurement and fulfillment processes of different companies, which also allows these businesses to bring prices down while increasing their own profit margins.

Need logistics solutions? Red Stag Fulfillment offers a range of 3PL services, including warehousing and fulfillment and other unique value-adding services. Contact the team at Red Stag today to learn more.

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