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Why you should not do without logistics consulting
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Third-Party-Logistics (3PL) Logistics outsourcing made easy: A guide to the different types
It wasn't too long ago that the coronavirus pandemic really shook up supply chains and caused companies to take a closer look at their supply chains.
Supply difficulties for certain products such as semiconductors have affected entire industries and led to many companies relocating their production or warehousing facilities from Asia back to Germany. The supply bottlenecks have also made us acutely aware of how dependent not only manufacturers but also we as consumers are on the services provided by transportation service providers.
In everyday life, we mostly encounter so-called 3PLs on the highway. 3PL is the abbreviation for “Third Party Logistics Provider”. But these logistics service providers don't just transport goods from A to B.
These 3PLs take on much more - not just transport, but also warehousing, customs clearance or so-called value-added services such as labeling or pre-assembly or even the handling of returns. A manufacturing company or e-commerce provider can therefore outsource a whole range of different logistics services.
Customs formalities? Packaging? Returns processing? The 3PL takes care – and not just of transportation
The logistics service provider Fiege, for example, advertises its services on its website with the following slogan:
“As a full-service provider, we take care of incoming goods, storage, picking and packing, returns management, shipping and many other e-commerce services.”
Fiege therefore explicitly addresses those e-commerce companies that do not want to take care of all these things themselves and therefore want to outsource them. This has the advantage that the company can focus on its actual core competence.
The automotive company, the pharmaceutical producer or the fast-growing e-commerce company does not have to keep its own people on hand to take care of warehouse management or keep up to date with export laws. The “doing” and the organization of the transport processes will therefore usually be handled by the 3PL, which takes over route planning via TMS, manages transport capacity utilization and overall ensures that its customer's goods reach their destination with as little delay as possible.
Advantage of outsourcing logistics services to 3PL
Supply chains are becoming increasingly complex and global companies in particular are outsourcing the management of their supply chain. For such companies, the question of “to outsource or not?” is usually easy to answer in view of complex supply and procurement networks that may even have to be managed across several continents.
The situation is different if a company is expanding and has previously organized everything itself. At some point, the management will have to consider how many internal resources are tied up with the challenges of day-to-day logistics and when it makes sense to outsource control so that the company's own employees can concentrate on the actual tasks.
Especially when the company is growing rapidly and reaches new target groups with a new product and discovers new markets for itself, it makes sense to get a partner who is familiar with this profession and delivers the goods to the customer on time and without errors, and in such a way that all legal regulations are complied with at the same time.
We have already reported on the advantages and disadvantages of outsourcing and when it might make sense to think about insourcing in our blog post ”Insourcing vs. outsourcing: is there a turnaround?”
So when we talk about logistics service providers, we usually mean the 3PLs. These are those whose core competence lies in managing transports and handling them themselves with their own trucks. A 3PL owns or rents its own logistics space, where it handles warehousing for one or more of its customers. Sometimes, however, you also hear of 1PL (very rare), 2PL (rare), 4PL and 5PL (“dreams of the future”).
1PL and 2PL: What are these abbreviations all about?
In short, they describe the level of outsourcing of logistics services. In the case of 1PL (first-party logistics), this level is zero percent, as the manufacturing company organizes its own transport and does not commission an external service provider. It owns its own trucks or vans to deliver the goods to its own customers and has its own warehouse capacity where the goods are stored after production.
The 2PL (second-party logistics) refers to the freight forwarder or shipping company that is commissioned by the manufacturing company to handle its transportation. The transport partner is usually specialized in one type of transport, be it truck transport, shipping or air freight. Courier, express and parcel services, the so-called CEP service providers, fall under the category of 2PL.
Giving up control of the supply chain?
A company that works with a 3PL also outsources certain things - that's true. The 3PL takes responsibility for the day-to-day organization and optimization of the supply chain. Nevertheless, the manufacturing company or e-commerce provider can still maintain transparency over its supply chain by having access to the transportation management system.
Not every company wants to give up knowledge and control of its supply networks completely. Most large SMEs and global players will continue to have their own logistics team, which coordinates closely with the 3PL and can also intervene if necessary. As a rule, the manufacturer's supply chain managers are always up to date on what is happening in their procurement or supply network via TMS.
Do you have questions about managing your supply chain and working with a 3PL?
Our experts will be happy to answer your questions!
