If your business is experiencing growing pains, perhaps it’s time to think about leaning on a 3PL provider for support. But before you go about picking a partner, it’s important to have a clear understanding of the process, so you can accurately assess your needs and identify whether prospective partnerships will meet them.
From bulk delivery to smart integrations, becoming aware of each step and how a 3PL can slot into your existing supply chain, will help you create a synergy with your associates and a mutually beneficial, profitable relationship. To get there it all boils down to one pivotal question: how does third party logistics work?
Defining third party logistics
Before we explain how third party logistics work, we want to ensure that everyone is on the same page. So, what are third party logistics (3PL)?
In the simplest terms, 3PL refers to the end-to-end management of a business’s supply chain, covering all aspects of the warehousing and fulfilment process. This allows you, the manager, to concentrate your time on what you do best, whether that’s closing business deals, finding leads or building your brand.
What does a 3PL provider do?
As we’ve established, 3PL providers are there to take the reigns of navigating your delivery and logistics, saving you time and expense in an effort to help the business grow.
However, there are many nuances to the type of support provided and the specific services each may offer. For instance, some 3PL companies specialise in one particular niche, whereas others provide a broader offering.
Here are several examples commonly offered by 3PLs:
- Warehousing and inventory monitoring systems, including the integration of smart technologies.
- Pre-retail solutions such as packaging, tagging and relabelling.
- Packing insights and footage to validate consumer claims.
- Distribution to and from warehousing facilities, intermediaries and consumers.
- Vendor fulfilment tailored to high-street brands, industry sectors and product type.
3PL vs contract logistics vs drop shipping
As the term ‘third party logistics’ is often used interchangeably with contract logistics and drop shipping, it is not unsurprising that some confusion lingers around their differences. In our experience, business owners sometimes confuse them or only have a vague idea of what each entails. Hence why we’re demystifying the distinctions.
Drop shipping
This logistics model is commonly used by ecommerce stores, and contrasts from 3PL in that the business owner, whilst maintaining an online shopfront, does not invest in the inventory. Rather, the store is integrated with an external supplier’s order fulfilment system, allowing for products to be shipped directly from said supplier to the end customer.
Contract logistics
The difference between contract logistics and 3PL is a simple one: contract logistics is concerned with specific elements or stages of the supply chain, whereas 3PL covers all activities along this journey. Contract logistics services will often be specialised, tailorable and designed to embed deeply and efficiently within a business’ existing processes.
Another crucial detail is that contract logistics tends to run on a long-term timeframe or for a set duration, while 3PLs are usually offered on a transactional basis and are oriented around scaling up an enterprise’s operations at a speedy rate, facilitating rapid market entry.
Types of specialised 3PLs
The third party logistics global market racked up an estimated revenue of US$1.31tn in 2024, making it a major driver of economies worldwide.
Distribution models and order fulfilment can easily become complex, and more so than many would expect. From sensitive products requiring temperature-controlled transportation such as frozen food and pharmaceuticals to simple retail goods, there are many considerations and risks to cater to.
So how does third party logistics work across the board? Well, there are many 3PL services on the market, each offering standardised solutions for a particular niche.
Transportation
The 3PL industry is built on a bedrock of cutting-edge transportation, with each 3PL working within the distribution sector. However, some may choose to go above and beyond in this respect, concentrating their expertise in particular areas, requiring a higher degree of training, insurance and state-of-the-art technologies.
With such a narrowed specialism, these types of 3PLs can offer detailed expertise, a wealth of experience and the appropriate equipment to handle higher-risk cargo; for example, a distribution partner focusing on the niche of animal products will have access to the appropriate meat transport vehicles, documentation such as EHC and temperature monitoring systems to ensure product integrity.
Warehousing and fulfilment
Many 3PLs specialise in maintaining efficient warehousing facilities and fulfilment processes, including packaging and shipping returns. Not only do these services optimise product delivery and enhance customer experience, but they can also offer the implementation of real-time analytics and cutting-edge APIs that integrate seamlessly with the most popular online marketplaces to alleviate the administrative burden.
Financial
Ecommerce enterprises on the larger end of the scale may be interested in partnering with a financial 3PL. These companies provide financial services such as accounting and cost control on top of inventory tracking and distribution.
The benefits of 3PL services
Whether you’re understaffed, overburdened, overwhelmed or a combination of the three, outsourcing your supply chain to a third party is a smart option if you are struggling to keep up with a surging demand.
A specialist can help you adapt to peak season rush, streamline existing processes and provide storage space you simply don’t have. For businesses yet to build a robust distribution network, it can be much more cost-effective to invest in a 3PL to support supply chain management than insourcing the work.
In addition to freeing up your time, you can enjoy the peace of mind that your logistics are in the hands of people who have been in the business for years.
Are there any risks?
No distribution network is without risks; however, the secret to successful operations is working to mitigate them long before they affect your supply chain.
When handing the reigns of your distribution over to a third party, the move can feel daunting, particularly in relation to your finances as you dwell on how it might influence your pricing. Partnering with an accredited provider will work to quell any worries – the contracted drivers will know the best routes, allowing them to pass on any fuel savings to you whilst improving lead times.
Then there is the matter of product handling. You may already have established processes unique to your products, thus, it’s prudent you investigate the supplier’s portfolio and whether they have direct experience handling such goods. At this point, you may wish to look into any transport accreditations to ascertain whether best practices and food safety standards are upheld or, indeed, surpassed.
How does third party logistics (3PL) work in practice?
With answered the question – how does a 3PL work? – on paper, but what does this look like in practice?
One of the core purposes of 3PL services is to operate as a seamless extension of your business, taking the complexities of supply chain management off your plate. When you partner with a 3PL provider, they typically begin by integrating their systems with your existing processes. This could involve syncing inventory management software, aligning shipping protocols and establishing communication channels to ensure transparency. From there, the 3PL provider takes charge of logistics operations, often handling everything from receiving goods at their warehouse, storing them appropriately, picking and packing orders, and finally, shipping them to customers.
Advanced 3PL providers may also offer additional services like reverse logistics (handling returns), custom packaging, and real-time analytics, all aimed at improving efficiency and customer satisfaction. With a 3PL provider, you can scale your business, adapt to peak seasons, expand into new markets or manage sudden spikes in demand without having to invest in additional infrastructure or manpower.
A 3PL case study
To provide a real-life example of how a third party distribution model has benefited a brand, let’s take a look at Levi Strauss’ recent shift away from in-house logistics to a 3PL hybrid model.
Levi Strauss & Co. has moved from a fully insourced logistics network to a hybrid model that combines in-house operations with 3PL providers. This change is part of their strategy to reduce costs and boost their direct-to-consumer (DTC) channels. With this integration, Levi’s can optimise its supply chain, enhance efficiency, and better manage inventory levels, all whilst focusing internal resources on growing their DTC business.
The approach has already proven to be effective. Levi’s has seen improved profitability in its direct-to-consumer (DTC) channels and has streamlined operations, thanks to healthier inventory levels and more effective fulfilment processes. The hybrid model allows the company to balance control with flexibility, positioning it for sustainable growth in a rapidly evolving market.
The future of 3PL distribution
Uncertainty is an ever-present condition in the modern logistics world. From the threats posed by climate change and shifting consumer behaviours, the incumbent need to decarbonise transport and the incoming Labour cabinet set to “get Britain moving”, there is much to reflect on.
As supply chain leaders look to leverage traditional and newfangled tactics, the businesses interested in their services must equally adapt and diversify to this evolving sector. This means a greater emphasis on sustainable logistics, increased strategic collaboration and the expansion of advanced technologies and tools like AI and machine learning.
How to select an appropriate 3PL distribution partner
Having perused our guide thus far, you should have a better idea of whether outsourced distribution is right for you and your business. Ready to proceed? Then, we have reached another crucial juncture: selecting your transport partner.
Here, we advise that you begin with thorough research, consideration and planning. Identify the risk factors, product volumes and shipping processes that need to be communicated and which parts of the supply chain require extra care. Passing on this information will ensure that the distribution partner can work to the best of its abilities to meet your expectations.
Moreover, it’s an excellent basis for a transparent, mutually beneficial relationship. With all of the above responsibilities agreed upon and the tools and knowledge accounted for, you can begin the arrangement.
A new chapter
Growth isn’t the worst problem a company can have. All you need to ascertain is the right distribution model going forward, and then you can begin the process of consulting with an appropriate transport partner. To find out more about outsourced distribution, get in touch with our experienced team. The next chapter awaits.