Did you know that third-party logistics is just one way of outsourcing your logistics?
In fact, there are at least 4 levels of outsourcing that offer different kinds of services for your supply chain. There’s one that only provides transportation and storage. Another gives you the whole package—from customer service to inventory to picking and packing and more.
And it’s crucial that you choose the right one, as efficient logistics will increasingly become the norm—especially for eCommerce brands. With the right logistics partner, you reduce cost per order, increase the value you give to customers, and get to focus on managing your business.
More importantly, you become more competitive in an increasingly crowded eCommerce market.
In this article, we discuss the differences in logistics providers for you to know which one is better for your company.
4 Types of Logistics Outsourcing
Now, your company probably can’t meet demand by itself. You have to outsource to a third-party logistics provider. Below, we’ve detailed the different levels of logistics outsourcing to consider depending on your company’s situation.
What is 1PL?
1PL or First-Party Logistics is when a company stores and transports the goods without outside help, also known as in-house fulfillment. Small companies often use this strategy, as their volumes and requirements are still small enough to be self-sufficient. Their production and distribution are also usually done locally.
In summary, it’s best for small companies.
What is 2PL?
2PL or Second-Party Logistics is a company’s first step in outsourcing logistics. 2PL providers will handle inventory and transportation on your company’s behalf. The catch is that 2PL companies are often limited to giving standard services within your company’s region.
So, it’s best for growing companies.
What is 3PL?
3PL or Third Party Logistics is when a company outsources its logistics to an external operator. The 3PL provider becomes a middleman between you and your customers, handling everything from preparing orders to cross-docking, managing inventory in a 3PL warehouse, delivering goods, and more.
As you might have guessed, this is best for established companies.
What is 4PL?
4PL or Fourth-Party Logistics is when a company outsources its supply chain management and planning. A 4PL company will design, optimize, and manage your supply chain while working alongside a 3PL that’ll handle physical transport, warehouse activities, and more.
In summary, it’s best for global enterprises.
How to Choose the Right Party Logistics for You
So, how do you choose the right “level” of logistics outsourcing?
There are three key considerations:
1. Know what’s at stake.
It doesn’t matter what industry you’re in. Logistics becomes increasingly more complex the bigger your company grows. As a result, you spend way more time than you prefer dealing with logistics, taking resources away from your core business activities.
So, start weighing the pros and cons of an outsourcing logistics partner.
You want to make sure that you don’t skimp on being flexible and reactive just because your company needs more manpower and expertise to keep up. At the same time, your logistics must remain capable of following the customers’ demands.
2. Balance cost and quality.
They say that you get what you pay for. And it’s not any different with outsourcing logistics and fulfillment.
If you work with a low-cost logistics provider, you risk getting into questionable safety standards, non-compliance with regulations, poor execution, inefficient supply chain, and unpredictable delivery times. All these put your business on the line.
But if you work with a reliable logistic partner that improves your stock management, product traceability, and overall efficiency of warehouse operations, you will get the best value for your business. It also means you will have to lower ullage rates (broken or stolen products), more visibility on your operations, and consistently available products on shelves—in-store or online.
3. Get a partner, not a supplier.
A logistics provider should align with your business development and growth. Your goal is to work with professionals that’ll be your partner—not a stranger.
They should have a handle on your entire logistics process, provide tailored services to meet your customers’ demands, and help you achieve objectives by planning, designing, and implementing solutions that’ll evolve alongside your company.
They should be capable enough that you are comfortable signing long-term contracts with them. Most providers will require that.
Outsourcing Logistics & Expand Your Company’s Capabilities
Ultimately, the key is to find a logistics partner rather than a mere supplier. Look for logistic providers that align with your business development and growth, capable of offering tailored services and long-term planning to evolve with your company.
Outsourcing logistics should enhance your capabilities, allowing you to focus on what you do best while leaving the transportation and management of goods with professionals.
Looking for a reliable 3PL company to work with?
At San Legend, we help eCommerce businesses scale their brands and break into new markets by providing customized, agile, and forward-thinking third-party logistics solutions. Reach out today to see how we can help.