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If you need to move goods from one place to another, you need logistics services for your business. As a business owner, whether you choose to build in-house logistics capabilities, or outsource logistics operation to an external logistics company, hiring a third-party logistics service provider (3PL) can be beneficial for overall business operations.
While there are several merits of having 3PL services companies undertaking end-to-end logistics management for your business, there are also some challenges. As such, before you hire 3PL services for your business, it’s imperative to understand the benefits, risks associated, and steps to take to avoid logistics inefficiencies.
In this article, we will look at:
- What are third-party logistics services (3PL)
- What the benefits of hiring 3PL companies for your MSME
What is 3PL service?
There’s little doubt that for MSMEs, managing complete operations for inbound and outbound logistics, can be costly, time-consuming, and complex. Logistics outsourcing, primarily to a 3PL service provider is the most suitable option.
3PL services meaning
3PL companies are external entities that manages logistics and order fulfilment for your business – right from receiving, to inventory management and warehousing, packing, delivery and returns (i.e., reverse logistics).
3PL services are the most preferred logistics solutions for eCommerce companies that deal in volumes, same-day deliveries, and pan India door-to-door deliveries. Outsourcing logistics gives you the time and operational feasibility to focus on your core competencies including production, sales, marketing, and other functions, while the 3PL takes up responsibilities for materials handling, warehousing and order fulfilment.
3PL logistics example
3PL logistics companies in India play a pivotal role in the eCommerce and overall supply chain ecosystem. To understand the process of how 3PLs work, let us look at a simple 3PL logistics example.
An online order is placed for festival decorations (e.g., candles, string lights, balloons etc.). At the 3PL warehouse, an agent will:
- Check stock of inventory (e.g., candles, bells, string lights, diyas, balloons, stars, flowers etc.)
- Identify items ordered (candles, string lights, balloons etc.)
- Validate order details (e.g., quantity, type, brand), pack and label the order (i.e., address, invoice)
- Coordinate, check for quality, and get the order shipped (can be via contracted partners if order is in a different city)
- Track delivery status and provide update to merchant
- Schedule pickups in cases of returns (reverse logistics)
What is the difference between 3PL and 4PL companies?
In India, there are several types of logistics companies and service providers. In recent times, along with 3PL providers, 4PL service providers have also become very popular.
A 3PL service provider is one who provides end-to-end logistics and transportation solutions across multiple touch points of the supply chain. Based on their size, they can offer a range of services for order fulfilment including receiving inventory, warehousing, storing, packaging, shipping, distribution, customs management, order tracking, delivery and returns, reports and analytics, and more.
A 4PL service provider is one who manages multiple 3PL companies and oversees their operations. They can be onboarded to bring operational efficiency and add value to the supply chain system, by identifying areas of improvement, analysing processes, and build strategies to reduce costs, time, and optimise resource performance.
Why third party logistics services are good for MSMEs?
Working with 3PL companies can be advantageous for your MSME. These logistics providers are experts and have the skills required to provide exemplary services. Also, they undertake end-to-end responsibility of timely delivery for customer satisfaction.
As a MSME owner, when you partner with a 3PL company, you ensure that your transportation and supply chain needs are managed efficiently and professionally.
Advantages of hiring third-party logistics service providers
- Enjoy cost-efficiency in logistics transportation services:
Managing fleets and trucks, manpower, warehouse infrastructure can be expensive and a hassle. For micro and small businesses it can lead to inefficiencies and quality issues. The 3PLs can help here. They maintain their own infrastructure and charge you for the services you seek and no more. This helps you to save on costs and avoid overspending. Also, considering their wide network and volumes, they almost always offer better rates than what in-house expenses would amount to.
- Focus on core business competencies:
Your business has professionals performing different tasks based on their skills and capabilities. Production, sales and marketing, branding etc. are your core competencies. Similarly, 3PLs are professional logistics providers, and goods transportation is their core competency. When you hire a 3PL company, you get time to focus on your key skills, and outsource logistics to those who can manage it better.
- Leverage benefits of 3PL warehouses:
Renting warehousing space can be expensive. And if you have customers from different locations, transportation can add to the expenses. 3PL providers have their own warehousing facilities (either owned, leased, or rented) in different locations. They also have contracts with freight forwarding companies and carriers. This means, when you outsource logistics services to 3PL companies, they manage inventory, warehousing and storage, and transportation – without you having to invest time or money into it.
- Enhance customer satisfaction:
In many cases, your customers opinion of your brand will be based on the delivery experience. Damaged packages, late deliveries, poor tracking statuses – all of this will affect how your brand is perceived. For a MSME, it’s a smarter move to partner with 3PL service providers to ensure better customer services.
Most professional 3PL providers offer quality packaging (boxes, bubble traps, fragile tags etc.) and/or custom packaging to ensure packages are not damaged; they use GPS enabled vehicles and track status at important touchpoints; they even coordinate with customers for efficient returns management process. This helps to enhance customer experience encouraging repeat orders and sales with your business.
They also have a vigorous feedback mechanism to improve processes and endeavour to improve customer services in logistics.
- Manage shipping including customs for global orders:
If you are considering expanding operations to international markets, collaborating with a 3PL logistics player has its advantages. There are several 3PL logistics companies in India who operate international cargo and fleet operations, and can help with international shipping, customs clearance, taxes and duties, international laws and compliances, and more, saving you the regulatory, shipping, and warehouse logistics difficulties for international trade.
- Scale your business without worry:
It is easy to scale your business when working with 3PLs as you don’t have to invest or worry about warehousing, storage, transportation or any other. 3Pls maintain their own infrastructure, have sub-contractors and network partners, and can add accommodate your business’s growing demand as required.
How to find a 3PL logistics and supply chain partner for your MSME
There is little doubt about the role of 3PL supply chain in overall business operations. With the right team working by your side, errors will be lesser and focus on key deliverables higher. As a MSME owner, there are several challenges that your business already faces – logistics need not be one of them.
Alternatively, follow these steps to find a 3PL partner for your business.
- Evaluate 3PLs capabilities and capacity
Not all 3PLs provide the same quality or type of 3PL services. There are regular 3PL providers who support with basic warehousing and transportation services, while others who can offer value-added services (e.g., custom packaging and labelling). When negotiating with 3PLs, evaluate their capabilities and capacity to scale as per your business needs and expansion plans.
This may also include learning about their history and work experience, their fleet and team size, their warehouse locations and storage capacity, and any other function that would impact their performance.
- Calculate 3PL services costs
When outsourcing logistics services to 3PL companies, calculate the ROI from the exercise. 3PLs are going to charge you for every service they offer – warehousing, packaging, shipping etc. Understand which services to invest in and which can be done in-house.
For instance, if you have sufficient room for warehousing, you can work with 3PLs for logistics transportation services only. Also, considering that logistics costs in India are on the higher side as compared to the global average, it’s recommended to connect with two-three different vendors, or use 3PL services based on location and services offered etc. (i.e., you may use one 3PL for inbound logistics and another for outbound logistics and door-to-door delivery services).
- Understand the level of technology integration
Logistics management today is all about digital technology integration. From basic GPS enabled vehicle tracking, barcode and RFID technology, logistics has moved to advanced IoT, AI, digital twin and drone technology. Considering the importance of 3PL in SCM ensure that you find a partner who uses the right technology (including TMS software and warehouse and inventory management solutions) that can integrate with your processes and systems.
For instance, their inventory tool should be able to integrate with yours, for real-time updates on stock movement (to avoid stockouts, identify deadstock and returns etc.).
- Check overall rating and customer feedback
It is always advisable to partner with a 3PL provider who has positive reviews and ratings. Online reviews and ratings usually speak of the merits and demerits of the provider, which can help you evaluate them better. You may also consult with your peers and associates, to identify relevant 3PL service providers.
In many cases this is a favourable practice as these 3PLs will have the industry experience and know how to work with MSMEs and cater to their requirements. For instance, unlike large enterprises, your transportation requirements may be limited to full-truck load (FTL) or partial-truck load (PTL) services based on orders and seasonal demand.
Wrapping it up: Does you MSME need a 3PL provider
It’s a strategic question – Why get a 3PL for your business – and your decision will impact the future of your business.
The decision to outsource logistics to a third-party should not be done lightly. It involves several aspects of your business, including market reputation, customer loyalty, sales and revenue generation. Though there are several benefits, remember the risks of 3PL services for your business as well.
Seek the expertise of third-party logistics solutions providers for operational efficiencies if you:
- See your business is dealing with large volumes, and your resources are spending valuable time in managing supply chain functions
- Want to reduce overall logistics costs (3PLs can offer better deals and discounts compared to building in-house capabilities)
- Prefer to focus on key business and production activities, and let the experts manage road transportation services
- Keep investments on logistics-based infrastructure low and maintain a small team for overseeing logistics activities and functions
Note: This article has been updated on 06 April, 2023