A third-party logistics (3PL) company is an external supplier that performs all or part of a company’s supply chain management. Many 3PLs offer a wide range of services, such as inbound freight, outbound freight, freight consolidation, warehousing, distribution, and order fulfillment. Throughout the last decade, a significant number of 3PLs have entered the marketplace. This is due to the need for companies to become leaner, reduce assets (including headcount) and focus on core business processes. Depending on the type of 3PL, there are additional functions they can serve to help your business. Determining which aligns best with your business goals is essential before beginning your search for a logistics partner.
The three different types of 3PLs
Asset-based firms use their trucks, warehouse, and personnel to operate their business. (UPS or FedEx are examples of asset-based companies). They own their fleet of trucks and offer a comprehensive set of logistics services. Functions typically arrange shipments, customs clearance, shipment visibility, and carrier management/rate management. There are many benefits to working with an asset-based firm. Namely, most asset-based forms give a relatively high level of control over the process. By owning trucks and having in-house carriers, asset-based 3PLs have visibility of the shipment from start to finish. This allows customers to be more informed of any delays or issues immediately and reduce frustration.
There are some downsides to working with an asset-based logistics firm. For example, they have a narrower carrier base since it is internal. They may not be able to cover as many lanes or locations as a non-asset-based firm with a more expansive network.
Non-asset-based firms do not own their trucks or warehouse space. However, they provide outsourced logistics solutions and freight brokerage services and have an extensive network of freight carriers. Since they have such an expansive network of carriers, they likely will be able to quickly move a load. In many cases, they provide a more flexible partnership that covers many customers’ shipping needs. Regardless of what or where they distribute.
Despite not having their own trucks, non-asset-based firms maintain significant control over the logistics process. At PLS Logistics Services, for example, our in-house transportation management system gives both us and our customers great insight throughout the freight’s journey. With PLS PRO, we provide proprietary management, data storage, and reporting. Our technology easily adjusts to your transportation needs, regardless of the complexity.
Warehouse and distribution-based firms are fairly self-explanatory. They are a firm that likely has a warehouse and distribution center experience (Think Caterpillar Logistics). These firms serve many functions for a company and eliminate unnecessary focus for them. Warehouse/distribution firms manage labor and supervision, receiving, storage, and shipping. Outsourcing transportation logistics and storage allows an organization to focus on other parts of its business to continue growing. Using these firms can lower capital investment and reduce the fixed/variable cost ratio.
Financial-based firms provide more than just transportation support for your company. These firms can dig deeper into your supply chain and operations by providing freight payment and auditing, cost accounting and control, tools for monitoring, booking, tracking and tracing, and management inventory (For example, GE Information Services). Functions include inventory finance, distribution finance, payment solutions, and leasing. By opting to use a financial-based 3PL, you have the opportunity to optimize your supply chain and operations. This could come in many forms, including reduced cost of capital, improved cash flow, and reduced capital investment. Using a financial-based 3PL can help alleviate the headache of ensuring you are doing everything you can as an organization to cut costs and become more efficient in your supply chain. Financial-based firms can help you ship confidently if uncertain about aspects of your organization’s supply chain.
Partnering with a 3PL, such as PLS Logistics Services, is an excellent way to cut costs and increase profit. There is no need to invest in a fleet of trucks to save money on your transportation costs. The use of a 3PL can help a business expand into new markets. Businesses can narrow the focus on their core capabilities and let the 3PL provider control the transportation function. But first, a company needs to determine the type of 3PL they want to work with and how they best fit your supply chain needs. To do so, consider the importance of supply chain visibility, your shipping reach throughout the country, and current industry knowledge.