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Third-Party Logistics Services & Organizations Defined

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Third-party logistics (abbreviated as 3PL, or TPL) in logistics and supply chain management is a company's use of third-party organizations to contract out aspects of its distribution, warehousing, and satisfaction services.

Third-party logistics suppliers usually concentrate on integrated operations of warehousing and transportation services that can be scaled and tailored to consumers' needs, based on market conditions, to meet the demands and delivery service requirements for their items. Services often extend beyond logistics to consist of value-added services connected to the production or procurement of products, such as services that integrate parts of the supply chain. A provider of such integrated services is referenced as a third-party supply chain management provider (3PSCM), or as a supply chain management service provider (SCMSP). 3PL targets specific functions within supply management, such as warehousing, transport, or raw material provision.

The global 3PL market reached $75 billion in 2014, and grew to $157 billion in the United States; need development for 3PL services in the United States (7.4% YoY) surpassed the development of the United States economy in 2014. As of 2014, 80 percent of all Fortune 500 business and 96 percent of Fortune 100 used some kind of 3PL services.

Third-Party Logistics Types


Third-party logistics companies consist of freight forwarders, carrier business, and other business incorporating & using subcontracted logistics and transport services. Hertz and Alfredsson (2003) explain four classifications of 3PL service providers:

Requirement 3PL Provider: this is the most basic type of a 3PL provider. They would perform activities such as choice and pack warehousing, and distribution (company) the most standard functions of logistics. For a bulk of these companies, the 3PL function is not quite their main activity.
Service Developer: this kind of 3PL supplier will provide its consumers advanced value-added services such as tracking and tracing, cross-docking, specific packaging, or offering an unique security system. A solid IT structure and a focus on economies of scale and scope will enable this type of 3PL provider to perform these types of tasks.

The Client Adapter: this kind of 3PL provider comes in at the demand of the consumer and essentially takes control of complete control of the business's logistics activities. The 3PL supplier improves logistics significantly but does not develop a new service. The consumer base for this kind of 3PL supplier is typically quite small.

The Client Designer: this is the highest level that a 3PL provider can obtain with respect to its processes and activities. This occurs when the 3PL company incorporates itself with the consumer and takes control of their whole logistics function. These companies will have few consumers but will carry out substantial and comprehensive jobs for them.

Outsourcing might include a subset of an operation's logistics, leaving some items or operating actions untouched because the in-house logistics is able to do the work better or cheaper than an external supplier. Another essential point is the client orientation of the 3PL service provider. The company needs to fit the structures and requirements of the company. This fit is more crucial than the pure expense savings, as a survey of 3PL service providers proves: The customer orientation in type of versatility to changing consumer requirements, dependability and the flexibility of third-party logistics suppliers were discussed as much more crucial than pure cost savings.

Lead Logistics Providers


3PL companies without their own possessions are called lead logistics suppliers. Lead logistics suppliers have the advantage that they have actually specialized industry proficiency integrated with low overhead costs, however lower negotiating power and less resources than a third-party supplier has actually based upon generally huge company size, an excellent client base and established network systems.

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