Third-party logistics (3PL) refers to the outsourcing of a company’s warehousing and distribution operations. For example, a manufacturer may make shampoo, but use a third-party logistics provider to fulfill customer orders for that shampoo. The third-party logistics provider typically charges the manufacturer for storage space they consume and for the number of outbound shipments they complete each month. In other words, a 3PL is a service-based provider.
The fact that 3PLs usually work with a variety of clients can make their work especially challenging. They assume the risk of warehousing product, and if a certain product doesn’t sell as well as anticipated, the warehouse space storing it is unavailable to other customers. That means 3PLs need effective warehouse management systems that include storage management monitoring and billing for to each client.
Client billing must also address the transaction rate required to service a client’s receiving and put away volumes. Other billing considerations must include value add services, inventory control and robust reporting.
To optimize storage space, they must keep products from different clients segregated, but not necessarily physically close together. In addition, customer order workflows need to be combined with the entirety of the facility’s workflow. Generally, 3PLs want to maximize automation and optimize management so they can run warehouse and distribution operations as efficiently as possible.