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What is 3PL: Definition and Differences in Logistics

What is 3PL fulfillment, and how does this logistics model differ from 1PL, 2PL, and 4PL? In this article, we explain everything you need to know about 3PL.

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Contents

Chapter 01 – What is 3PL Fulfillment?
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Chapter 02 – Demarcations – 4PL vs. 3PL vs. 2PL vs. 1PL
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Chapter 03 – What is a Third Party Logistics Provider (3PL Provider)?
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Chapter 04 – How to choose the right 3PL provider?
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Chapter 05 – Who is a good fit for a 3PL provider?
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What is 3PL Fulfillment?

Various fulfillment models in logistics are classified as in-house fulfillment and outsourcing of logistics services. These models are abbreviated as 1PL, 2PL, 3PL, 4PL or 5PL.

“PL” stands for “Party Logistics” and indicates how many parties are involved in the logistics processes. The degree of outsourcing increases with the number of parties involved.

In the 1PL model, the retailer takes on the entire range of logistics tasks itself. They take care of warehousing, order picking, shipping, and the return shipment of their products internally.

The 5PL (Fifth Party Logistics) model is a highly outsourced form of fulfillment. The 5PL service providers take over the strategic management of logistics and the rest of the supply chain, including production.

3PL – Third Party Logistics providers – are positioned in the middle of the spectrum and take over the processes relating to warehousing, order picking, and transportation. The 3PL provider contributes its own assets, e.g. warehouses and shipping vehicles.

Differences – 4PL vs. 3PL vs. 2PL vs. 1PL

1PL – First Party Logistics

The company stores and transports its goods itself.

That makes the company independent but limits its capacity and flexibility.

2PL – Second Party Logistics

The 2PL provider handles the transportation of goods to the end customer and may also offer basic warehousing services.

3PL – Third Party Logistics

A third-party logistics provider is an external logistics provider.

It handles the entire logistics process, including goods receipt, storage, order picking, shipping, and returns management.

4PL – Fourth Party Logistics

Like a 3PL provider, a 4PL provider is an external logistics service provider.

However, a 4PL coordinates all logistics processes via a curated network of logistics service providers and, unlike a 3PL, does not contribute resources such as warehouses or transport vehicles.

That is the largest difference between 3PL and 4PL providers.

What Is A Third Party Logistics Provider (3PL Provider)?

When working with a 3PL, an external logistics service provider takes over the entire order fulfillment. This means the third-party logistics provider handles the warehousing, order picking, and all other fulfillment services.

The third-party logistics partner contributes its expertise from the logistics industry and the infrastructure with the necessary software to optimize the logistics processes and supply chain management for its customers.

In contrast to the 4PL, the 3PL provider has its own assets, such as warehouses or warehouse employees.

Third-party logistics service providers can differ greatly in services, technologies, and capacities.

Some service providers only have a single warehouse, use outdated technologies, and do not offer any individual services in addition to their standard services.

Other third-party logistics providers are more modern, operate in different countries, and offer a wide range of services. Ultimately, the individual requirements of an external partner are always decisive when choosing the right logistics partner.

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Advantages Of The 3PL Model

The 3PL model is characterized by a higher degree of outsourcing of fulfillment processes than first and second-party logistics models. This outsourcing has several advantages for merchants who use the services of the 3PL provider.

Cost efficiency

Outsourcing to a 3PL offers the advantage that retailers do not have to tie up capital to handle their operations.

By outsourcing to a third-party logistics provider, companies can reduce their expenses for warehousing, order picking, and transportation. The costs for internal warehouse employees are also lower.

Thanks to their extensive network, third-party logistics providers usually have better negotiating leverage and can offer volume discounts. That reduces the fulfillment costs per order for individual customers.

Flexibility and scalability

The e-commerce industry is characterized by predictable or spontaneous market fluctuations that make it necessary to increase resources. With an external service provider, companies can react quicker to changes and take advantage of economies of scale.

Gaining expertise

A third-party logistics provider offers companies access to in-depth industry knowledge and expertise. That is particularly useful if the company’s own logistics department is small or if logistics has previously been organized in a rather rudimentary way.

3PL providers can also offer valuable know-how and logistical support when expanding into international markets or other sales channels. That can prevent delays and long lead times.

Focus on the core business

By outsourcing the logistics infrastructure to an external provider, merchants can focus on the most important thing: their core business.

While the 3PL provider takes control of fulfillment, more internal capacity and capital can be used for product development or marketing, for example.

Advantages of a 3pl model

Disadvantages Of The 3PL Model

Every logistics model also has disadvantages. Ultimately, choosing the suitable model depends on various factors and the needs structure of your company.

In the case of the 3PL model, the task of control, in particular, is one of the “downsides” as essential core processes have to be outsourced.

As a result, quality assurance no longer depends solely on internal processes but also includes factors beyond the control of the company placing the order.

If the 3PL provider takes over the supply chain, it controls shipping and returns management.

In the event of errors, e.g. unreliable deliveries, end customers hold the merchant responsible, not the 3PL service provider. Customer relationships and image can suffer as a result.

That makes it all the more important to ensure the highest quality of service and smooth communication when selecting a 3PL partner.

What Special Services Does A 3PL Service Provider Offer?

  1. Incoming goods: The 3PL service provider receives the goods at the warehouse
  2. Storage: The 3PL provider stores the goods in the warehouse
  3. Picking: The products are picked and packed
  4. Packaging: The order is packaged according to the merchant’s specifications
  5. Shipping: The 3PL service provider takes care of collection and shipping by the selected shipping service provider
  6. Returns: Returns are accepted, inspected, classified, processed, and reclaimed at the warehouse

How To Choose The Right 3PL Provider

Which logistics service provider best suits your company depends on several factors. Below there are a few important criteria for choosing the right 3PL provider.

One of the most important criteria when choosing your logistics partner is the extent to which they can grow with you, your plans, and your requirements.


Scalability

Think ahead to the future and choose a provider that can offer you sufficient storage capacity, flexibility in expanding distribution channels, and, if necessary, internationalization options.


Skills and specific expertise

Check whether the third-party logistics provider can meet your specific needs in handling your products and services.

Whether multi-carrier fulfillment, track & trace, or returns logistics – your 3PL partner should be able to meet your requirements and have the relevant expertise for your industry.


Technical expertise and integration

The use of technologies that can be used to automate tedious manual processes, for example, distinguishes your 3PL provider as a modern logistics service provider.

Especially if your company wants to make data-driven decisions, you should make sure that the third-party logistics provider can enable integrations with all your e-commerce platforms.


Image and service quality

Pay attention to the service provider’s image in the industry and how its service quality is rated. The 3PL partner should be able to meet your requirements and guarantee a high standard of quality.

Still not sure who to work with?

Choosing the right fulfillment partner is crucial, but with suitable support, the decision making process doesn’t have to be complicated.

everstox offers a platform that combines B2C and B2B fulfillment, multi-carrier shipping, and modern software to simplify logistics and provide expert advice for a stress-free decision.

Our logistics experts will be happy to take a look at your current set-up without any obligation and give you free consultation.

4PL | Den richtigen 4PL Anbieter finden

Frequently asked questions about 3PL in logistics

What is 3PL?

3PL, or Third Party Logistics, refers to order processing by a third-party logistics provider that covers all processes for companies, from warehousing and inventory management to shipping and handling returns.

What special logistics services does a 3PL offer?

A 3PL company handles all aspects of the fulfillment process, more specifically:

  • Warehousing and inventory management
  • Order fulfillment, including order acceptance, picking, packing, and shipping
  • Transportation and delivery
  • Returns management
What does a 3PL cost?

The costs for the fulfillment services of a 3PL provider can vary greatly depending on your requirements.

Rates can vary depending on the order volume, inventory, scope of the required services, and geographical reach.

In general, it is always advisable to create a shortlist of suitable logistics providers and to obtain several individual quotes.

When do I need a 4PL service provider for my business?

Which service provider is best suited to your company depends on various factors.

In general, scaling companies with multiple sales channels and major growth ambitions qualify for collaboration with a 4PL provider rather than a 3PL provider.

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