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Shipping and logistics operations are an essential part of any business. As a company grows, the complexity and scope of these important steps in the supply chain can become overwhelming. A business considering whether it’s best to start outsourcing its logistics to a 3PL company must first assess the advantages and disadvantages of third-party logistics.
Key Takeaways
Join us as we review the top advantages and disadvantages of outsourcing logistics to a 3PL.
When it comes to businesses that sell products or require raw materials, logistics refers specifically to the storage and movement of items along a supply chain. Logistics services include:
Some companies coordinate their own logistics in-house. Third-party logistics is when a business outsources these responsibilities to another company that specializes in shipping, fulfillment, storage, and other aspects of supply chain management. You might also see 3PL referred to as outsourced logistics.
Outsourcing logistics to a third party has become a more and more popular option with each passing year. This is illustrated in the table below, which includes historical data and market size projections for the global 3Pl business from 2023 to 2027.
How can you decide if a 3PL is right for your company? One of the biggest steps you can take toward answering that question is to weight the pros and cons of third-party logistics.
There are many reasons why a company should look into outside fulfillment and distribution services. You might consider bringing in a 3PL when your business is growing in a way that makes it difficult to keep up with these services internally. You may also want to focus your attention and energy more on your core competencies.
Factors to consider in making the decision to switch to a 3PL provider include:
Smaller businesses and larger ones will prioritize different elements. There’s no one right answer to this question -- rather, it’s about finding out what’s the best logistical solution for your business.
Let’s start with the positives of third party logistics. There are many clear benefits that an outsider operator can bring to your business. They break down into the following 10 advantages:
With those ideas in mind, we can dig more deeply into each of the ways that a 3PL provider can help your company grow.
Third party logistics services might seem expensive at first glance. However, weigh those costs against having your own, expandable infrastructure in place. Consider the significant expenditures you’d need to make in property insurance, fleet maintenance, and all the other attendant fees that come with building a distribution network.
The best 3PL companies justify their costs by maximizing value -- because of the logistical infrastructure they already have in place, you can get more out of your dollar. This saves you money and time in the long run by cutting out inefficient processes.
The top third party logistics providers will have global networks with routes that span the country and warehouses in prime locations, such as near ports of entry. These resources allow 3PLs to consolidate storage and shipments via methods such as LTL shipping, saving money for their clients. The most efficient operations will lead to cost savings for client and provider alike.
Your 3PL provider should also be well-equipped to handle any surprises or hurdles they may encounter while moving products, materials, or other items along a supply chain. These can include emergency logistics situations, such as reacting to road closures in real time.
Since logistics is their core business, 3PLs know the ins and outs of solving problems on the fly. For their clients, this means reducing unforeseen expenses. Meanwhile, in-house logistics requires your company to devote its own energy and resources to addressing any shipping and/or storage issues.
In the competitive logistics field, 3PL providers survive by keeping up with the most advanced technology for inventory management, shipment tracking, automation, and more. Innovators are always coming up with breakthroughs that make processes more efficient and client-friendly.
The range of new technologies relevant to the logistics operations span every step in the supply chain. You may be surprised by the variety of new tools, machines, and software that 3PL providers use to serve their clients. A few examples include:
Having the right tools in place is part of running a successful 3PL: an equally important part is having the know-how to use those tools effectively.
The best third party logistics companies have years of experience handling logistics-related tasks, and a deep understanding of the hurdles that you’ll encounter in moving products or materials.
Rather than forcing yourself to second-guess answers for logistics and supply chain questions in-house, take advantage of the experience developed by companies that focus on logistics tasks.
When you run into problems or issues with your supply chain operations, using a 3PL provider is like having a logistics doctor on call. They’ll be able to assist you with everything from sudden changes in customer ordering patterns to effective returns procedures.
Shipping and logistics isn’t just about determining the best way to carry something from point A to point B. It also means contending with the myriad rules that restrict and regulate the shipment of goods over the road and across borders.
Companies that transport items have to deal with no small number of government regulations. It takes an expert to know how to navigate these rules. While you might have a good handle on the shipping requirements for your items, businesses looking to expand their scope of products are likely to encounter brand-new regulations from government agencies.
A major advantage of enlisting a 3PL company is being able to make use of the logistical infrastructure they already have in place. These providers work with:
When you hire a 3PL provider, they will be able to leverage this network to find the most cost-effective ways of moving your products or materials along the supply chain. If any challenges or hurdles arise, they already have a firm understanding of alternative routes and solutions to satisfy your needs.
One of the main reasons that companies look to outside help for their logistics services is to help their business grow. The network a 3PL provider offers will let a company scale up operations as the need arises.
Rather than dedicating your company’s time and resourcing to setting up your own distribution channels, locating and securing new warehouses and storage facilities, and hiring and training new workers to handle the influx of new shipments, it’s simpler to hire a company that already has these resources in place.
A very small business might be able to handle these services itself. However, as that business grows, addressing that growth will most likely require help from dedicated logistics professionals.
Related: 5 Reasons You Should Outsource Your Order Fulfillment to a 3PL.
A third party logistics company will be able to optimize your inventory and routing management with advanced systems developed through years of learning what works best for clients. Their expertise and consolidation can be used to find options that might not be otherwise available to you.
For instance, consolidating your shipment items with those of the 3PL provider’s other clients can benefit everyone. The 3PL company can coordinate where each item needs to end up and when that should happen, loading products and materials from different shippers with similar timelines and destinations.
Clients won’t need to coordinate an entire route for only their own items, or risk having to hire a full truck instead of just the space they need. These costs end up being shared, reducing expenses for all parties.
The principle is the same when it comes to warehousing. By consolidating inventory from different clients that all require the same storage conditions and location, 3PLs can lower storage costs for everyone involved.
One of the major advantages of 3PL companies is the wide variety of ways they can improve your company’s supply chain processes. While you might approach a 3PL provider with specific needs in mind, you should ask about the other services that the company offers. You might not realize the breadth of ways that a 3PL can add value to your operations.
It’s important to learn about all the possible logistics services relevant to your business model that can expand your reach and improve your processes. Here are just a few 3PL offerings to consider.
With all of these responsibilities being handled by an outside party, we come to the final benefit of working with a 3PL.
Using a 3PL partner means you’ll have more time and energy to focus on your core business. Put simply, logistics is a complicated business in its own right. Doing it right means coordinating a series of complex, overlapping processes across a wide range of workers. To satisfy your customers, these operations have to run smoothly.
Unless logistics are part of your business model, tasking yourself with those responsibilities can be a drain on valuable resources. Shifting the burden to a company that specializes in these services is likely to save you money, time, and frustration in the long term.
After that long list of benefits to 3PL companies, you might think this decision is a no-brainer. It’s true that there’s a strong case to be made for outsourcing your logistics operations. However, some aspects of turning an important part of your business over to an outside operation can seem negative.
The most obvious and frequently cited disadvantage of third party logistics is the loss of complete control over your supply chain operation. Handling these services internally allows a company’s decision-makers to have the final say in all matters, allowing them to customize their routes, strategies, systems, and technology to their particular needs.
With 3PL providers, you are limited by what an outside company can offer. Even if the 3PL company has everything you need today, as your business grows and changes, they might not be equipped to take on new demands that you have. You never want to feel like your business’s potential is being constrained by a business partner.
As previously mentioned, a 3PL’s wide networks of routes and warehouses make it likely that they can satisfy your company’s needs. However, internal logistics might be the way to go if you have very specific requirements.
When you tap a 3PL company to take on your logistics responsibilities, you’re not only giving up control: you’re separating yourself from those who are doing the work of moving your products or materials along the supply chain. If situations arise where you need important information or have to convey something to the people on the ground, you’ll need to be able to coordinate with your 3PL to gather and disseminate information.
With in-house logistics, there are no barriers in the communications channels -- you can reach the people responsible for every step in the supply chain directly. However, a good 3PL will be able to demonstrate how they keep up communication and transparency despite the added layer of insulation from your customers.
At a minimum, a 3PL should be able to provide the following:
Don’t hesitate to request references -- or, better yet, get a referral from a fellow business owner. Poor communication can be a major impediment to smooth supply chain operations.
When using third party logistics, not only are you a step removed in terms of communication, you might a step removed from the physical items you’re receiving and distributing. While you might have previously used warehouses near your own headquarters, a 3PL might find it advantageous to store your items elsewhere to make the best use of its established routes.
In most cases, this should not pose issues. But, for those who take a hands-on approach to managing their business, such a separation from your items might create more anxiety than it eliminates.
In order for your business and the 3PL company to keep up consistent communication and visibility, your computer and technology systems need to be interoperable. A highly advanced inventory management platform doesn’t matter if you aren’t able to access it easily. This is why the best 3PLs use warehouse management software designed to interface with popular ecommerce platforms.
Integrating your systems with the 3PL service provider is an essential step to keep in mind when considering your logistics options. However, in terms of disadvantages, this is short-term. Once you go through integration, it’s not likely to be an issue again unless you or your 3PL make significant platform changes.
After a full rundown of the advantages and disadvantages of third party logistics, the decision of whether to hire a 3PL provider can still seem difficult to make. How do you decide what factors are most important to you?
If your business is a rapidly growing startup, we recommend to look into a 3PL company. In this situation, your rate of production will likely outpace your ability to quickly adjust your in-house logistics operations. Additionally, you will want to focus your energy and resources on continuing to scale up. Let an experienced 3PL provider worry about keeping up with your blossoming success.
For some smaller businesses just starting out, it may be wise to handle your own storage and shipment needs at first. Outsourcing your logistics might be too big of a commitment if you only send out a few dozen packages a week.
However, if you are a small but established business, there’s no reason that you can’t benefit from the stability, consistency, and efficiency of third party logistics.
Once you’ve decided to move forward with a 3PL, it’s time to find the best fit for your business. You need a 3PL provider that emphasizes prompt service, communication and peace of mind. Fulfillment and Distribution has the solutions you need to take your business to the next level.
Whether you need someone to handle:
Fulfillment and Distribution has the infrastructure, network, and team to get the job done. We focus on customer service, promising, and delivering hands-on support and real-time visibility.
Get started today by reaching a Fulfillment and Distribution representative-- just call (866) 989-3082 or submit a contact form online today!
