As logistics companies grow, new workflows start flowing in and tighter pipelines start building up. Managing them effectively in house works till a certain point - beyond which the piling workload spills over and disrupts key operations.
To avoid such complications, logistics businesses start sharing the workload with companies who specialize in certain aspects. These companies, known as 3PL management systems, handle critical logistics activities like warehouse management, inventory control, order fulfillment, shipping, and more.
What is 3PL Management?
3PL or third party logistics management refers to the practice of outsourcing partial or all operations to one or more external partners. These include movement of goods, inventory control, order fulfillment, and shipping using advanced management tools and systems.
Handing over operational responsibilities to external stakeholders allows internal teams to focus on business critical functions that cannot be outsourced. Doing so helps to streamline a number of complex processes that would otherwise stretch their bandwidth, ultimately impacting customer satisfaction and bottom line.
How 3PL Management Works: End-to-End Process
3PL management differs processes vastly from one company to another depending on the size, complexity, type of goods, regulations, and inventory size. 3PL services providers handle one or multiple facets of the end to end process, but are usually limited to three activities: warehousing, order fulfilment, and tracking inventories.
To paint a clearer picture of how this process works, imagine running an electric good company. On a broad level, this would include:
Managing inventories: Inventory control requires deep visibility into every unit, down to serial numbers. 3PL teams accurately maintain segregation and manage stock aging, slow-moving or problematic items.
Receiving inbound operations: Involves inbound handling for electronics like conducting quality checks and barcode scanning to log damages. Handling sensitive goods requires safe environments - managed by 3PL services.
Order processing: Outbound operations like picking and packing require high precision - these are often tied to serial numbers to minimize mismatches. 3PL manages multi-channel fulfillment across channels while ensuring on time dispatch and real-time tracking of order status.
Shipping and last mile: Shipping electronics requires careful coordination with specialized carriers and insurance-backed shipping methods. 3PL negotiates freight rates, manages exceptions such as lost or damaged shipments, and maintains delivery SLA performance for all channels.
Technology integration: Distribution of goods relies heavily on system integrations. The 3PL’s WMS must sync with the company’s ERP, OMS, marketplaces, and transportation systems to ensure seamless handoffs. This is why technology integration is key to operational visibility.
Logistics companies who outsource responsibilities use one or a combination of the services mentioned above.
Types of 3PL Management Systems
3PL companies offer an array of services depending on your needs. Here are the three main broad categories:
1. Transportation based
These 3PLs focus primarily on moving goods from one place to another. Their core services include freight forwarding, trucking, air cargo, ocean shipping, and courier management. They handle processes such as carrier selection, route optimization, freight consolidation, and delivery SLAs. If your company is already managing warehousing in-house but wants to outsource transportation, this is right for you.
2. Warehouse or Fulfillment based
Also known as space management 3PL, these providers specialize in providing storage facilities, processing orders, dispatching goods, and handling returns. This is the most common type of 3PL used by e-commerce brands, electronics distributors, and omnichannel retailers.
3. Integrated (End-to-End)
Integrated 3PLs help you manage the end to end logistics lifecycle, starting from inbound freight, warehousing, inventory management, order fulfillment, last-mile delivery, all the way to reverse logistics. If you want to avoid dealing with multiple vendors and prefer managing one, this is right for you.
The Benefits of Effective 3PL Management System
3PL management systems offer a multitude of advantages that businesses can realize by delegating parts of the logistics process. These include:
Cost optimization through resource networking
3PL service providers have established relationships with business partners catering to various facets of logistics. This vast connection of resource networks help 3PL services to get bulk discounts for high volumes of order, which can significantly reduce your landing cost. For example, you need not invest in warehouse space, technologies, or transportation.
Apart from utilizing vendor networks, you save costs associated with time and resource deployment required to execute logistics tasks like picking, packing, and shipping.
Access industry expertise
As you scale, new processes, unknown risks, and operational shifts are inevitable. Making right decisions is critical to ensure growth with minimal disruptions.
This is where industry expertise comes handy - specialised experience means a job better done. Skilled professionals don't just steer the company in the right direction, but handle tasks in a nuanced, effective manner, allowing you to focus on tasks that don't require niche understanding.
Higher scalability, better flexibility
Expanding into new regions and geographies can be challenging, especially if you lack adequate resources and don't know how to deploy them strategically. As already outlined, 3PL services offer a network of resources and expertise that helps to expand into new markets in a cost effective way by eliminating the need to set up infrastructure from scratch. In addition, you get the flexibility to use only the services specific to your business, rather than paying for underutilised resources, especially during slow demand periods.
Operational efficiency
Experience and expertise bring efficiency. 3PL partners use the fastest methods, latest technologies, and most cost effective methods to complete a task. Using methods tested on similar businesses helps to execute while reducing error margins.
Moreover, they use sophisticated software to calculate resource requirements, predict risks, and continuously monitor ongoing processes for issues. For example, purchasing advanced WMS, TMS, barcode scanning, automation, and real-time dashboards would bleed the bank for most companies.
Challenges and Risks in 3PL Management
Handing over responsibilities is beneficial but does not come without cons. If you are hiring 3PL service providers, be mindful of these challenges:
Loss of control
While you are overseeing all activities, handing over responsibilities to 3PL vendors means you no longer have direct control. If the vendor mismanages a critical task, you still take the hit: revenue loss or customer dissatisfaction.
Inconsistencies in quality of service
Your 3PL management partner is juggling multiple clients at the same time. More often than not, this may result in bias towards certain customers. For example, during peak seasons, they may prioritize larger clients, which can inadvertently affect your bottom line.
Data security and privacy risks
Logistics data often contains sensitive information such as trade secrets, intellectual property (IP), or competitor strategies. When external teams functioning outside your company firewall access these, data security risks like accidental exposure to unauthorized users or intentional data theft. Depending on the scale of the exposure, a single breach can halt operations for weeks to months.
Poorly integrated tech stack
Seamlessly integrating with third party applications enables cloud services to perform to their fullest potential. Connecting ERP, WMS, eCommerce platform, and forecasting tools to a 3PL’s systems can be messy. Unless done correctly, you will end up with disconnected systems that lack a single source of truth, require manual intervention for tasks that can be automated, and make poor decisions due to data inaccuracy.
Hidden costs
The pricing module shared by your 3PL vendor may look cost effective upfront. However, pricing structures are complex and often hide changes for services you don't need. Peak seasonal surge charges, long term storage penalties, and other variable costs add up to additional expenses. Over time, such charges may exceed in house expenses for high volume orders.
Best Practices for 3PL Management
If you are offering third party logistics services, your success determines your client’s success. Following these standard practices helps in continuously improving your services:
Invest in technology
Technology is continuously evolving and is expensive, but it is probably the highest contributing factor to improve modern logistics. Advanced technologies like AI based forecasting, Autonomous Mobile Robots (AMRs), IoT Sensors, Smart Telemetry, and Blockchain-Based Supply Chain Tracking help in automating processes, reducing cost, and improving customer satisfaction.
Build and maintain vendor relations
As previously outlined, 3PL vendors help in optimizing cost and speeding up processes by utilizing a vast network of partners. The key to continuously improve services is to keep adding new connections and maintain the existing ones. Conduct due diligence processes at a frequency right for you to mitigate potential risks.
Standardize processes
Every warehouse activity starting from receiving, all the way to returns runs on well-documented SOPs. Standardization reduces errors, improves training speed, and scales operations without impacting performance. If you introduce changes in existing processes, follow structured change management.
Implement strong governance practices
3PL relationships start with clearly defined SLAs for inventory accuracy, order accuracy, dispatch timelines, and damage rates. Reinforce these SLAs through weekly ops reviews, monthly performance scorecards, and quarterly business reviews to ensure full accountability and continuous improvement.
Proactively manage exceptions
End to end logistics processes are complex and unpredictable. No matter how advanced your analysis and predictive technologies are, issues like sudden delays, inventory mismatches, or return surges are inevitable.
To minimise losses caused by mishaps, actively monitor processes for early signs. Handle unexpected events by allocating a dedicated expectation management team to ensure on time fixes.
Fareye: The All-in-One 3PL Management System
If you're running a mid-to-large-scale operation with multiple warehouses, diverse carriers, and a need for visibility, reliability, and customer-facing delivery, FarEye delivers a comprehensive suite of capabilities to address these needs.
Positioned as an all-in-one 3PL and logistics platform, FarEye brings together carrier management, route optimization, last-mile delivery, returns, real-time tracking, and control-tower visibility into a single system.
It offers end to end visibility and execution across multiple legs of the supply chain, backed by configurable workflows, strong API integrations, customer-facing tracking, automated notifications, and performance analytics. You can use our services to centralize operations, improve on-time delivery, reduce manual coordination, and manage multiple carriers and geographies from a single dashboard.
FAQs:
1. What is the difference between 3PL and 4PL?
A 3PL executes logistics operations like warehousing, transportation, and fulfillment, whereas a 4PL does manages and optimizes multiple 3PLs as a strategic controller instead of moving goods.
2. How much does 3PL management cost in the US?
3PL costs typically vary based on storage, labor, order volume, and services used. Typical warehousing ranges from $5–$20 per pallet per month. Transportation, returns, and value-added services add to the final landing cost.
3. What types of businesses benefit most from a 3PL?
Businesses like e-commerce brands, electronics distributors, omnichannel retailers, and seasonal businesses benefit the most. Startups also use 3PLs to avoid heavy infrastructure investment.
4. How do I measure my 3PL provider’s performance?
3PL vendor performance is measured using KPIs like inventory accuracy, order accuracy, on-time dispatch, damage rate, and return turnaround time. Cost per order and customer delivery experience are also critical indicators.
5. How do I handle reverse logistics with a 3PL?
The 3PL manages return pickups, inspection, grading, refurbishment, restocking, or disposal. A good reverse logistics system reduces losses, speeds up refund requests, and enhances customer experience.
6. When should a company bring logistics back in-house instead of using a 3PL?
Companies should consider insourcing when volumes are extremely stable, margins are tight, or custom handling is very specialized. It also makes sense when logistics becomes a core competitive advantage.
