Logistics can have a tremendous impact on your business. Poor planning can lead to costly disruptions, lost revenue, and unhappy customers. This is why proper logistics management is crucial.
But whether you’re just learning the ropes or have been in the industry for years, you can agree that coordinating multiple moving parts at once can be a nightmare.
For this very reason, many businesses opt to outsource their logistics needs to a third-party provider, called a 3PL. Partnering with a reliable 3PL can help streamline your operations, improve shipping performance, and keep your clients satisfied.
In this guide, we’ll explain how outsourcing logistics works, what services 3PLs provide, and some tips to know whether outsourcing is the right move for you.
What Is Logistics Outsourcing? (And What Is a 3PL?)
Logistics outsourcing simply means working with third party logistics companies (3PLs) to manage a part or all of your supply chain operations.
Instead of investing in your own warehouses, transportation fleets, and fulfillment teams, you partner with a 3PL that already has these infrastructures, technologies, and expertise in place and functioning.
Depending on your needs, you can hire a 3PL for a single function, such as third-party logistics warehousing, product shipping, or freight forwarding.
Many businesses hand over multiple logistics affairs to a provider, including receiving inventory, storing products, packaging, processing orders, arranging transportation, distributing products, and more.
Experienced 3PLs can handle managing returns and providing detailed performance reports.
In-House Logistics vs Outsourced Logistics
Outsourcing shipping tasks can help businesses save staff and resources while leveraging an established logistics network without having to build one from the ground up.
Here are some of the key differences between in-house and outsourced logistics:
In-House Logistics | Outsourced Logistics |
Company handles all logistics operations internally | Another company (3PL) manages some or all logistics processes |
Requires investment in facilities, equipment, and staff | Use 3PL warehouses, transportation network, and expertise |
The company is responsible for technology, compliance, and hiring operatives | 3PL handles and provides logistics technologies, operational support, and compliance |
The business has control over the entire operations | The client company retains strategic oversight over how the 3PL manages products |
Freight rates may vary based on the shipping volume | Third-party providers help secure competitive pricing with higher overall shipping volume |
Both approaches have their benefits and potential drawbacks.
Whether outsourcing works for you generally depends on your business’s size, shipping volume, budget plans, and how complex your operations are.
What A Third-Party Logistics (3PL) Provider Does
Essentially, a third-party logistics provider acts as an extension of your business. They coordinate movement, storage, and accurate delivery of goods, ensuring everything is where it should be in the supply chain.
Many 3PL providers offer complete logistics solutions.
Products from a manufacturer can be stored, picked and packed, shipped, cleared through customs, and delivered right to the customer’s doorstep. All of this under a single third-party logistics partner.
For those who operate globally, JORI also provides customs clearance and international trade consulting services. This makes complying with import and export regulations easier.
How Outsourcing Logistics Works, Step by Step
Most logistics providers follow a similar workflow. The goal is to move products from suppliers to customers seamlessly without disrupting your daily activities.
Step 1 – Assessing Your Supply Chain Needs
If you’re planning to partner with a 3PL, you must first determine whether a third-party provider can actually add value to your business.
Generally speaking, the larger the company, the more likely it is to benefit from outsourced logistics. As the supply chain becomes more complex, the resources and expertise of 3PLs become increasingly valuable.
However, partnering with a third-party logistics provider isn’t exclusively useful to multi-million-dollar organizations.
If your team struggles with finding secure storage, rising transportation costs, managing hectic delivery times, and exporting products outside the country, partnering with a 3PL can provide a reliable infrastructure.
Expert logistics providers will tailor a strategy to match your supply chain needs.
Step 2 – Onboarding and Systems Integration
Once you and your chosen 3PL agree on the scope of services, the onboarding process can begin. This is where you, with your partner’s support, prepare your systems for a smooth transition.
The third-party provider integrates their technology into your existing processes and systems, such as your enterprise resource planning (ERP) software or warehouse management systems (WMS).
In this stage, the operating procedures are established, alongside reporting expectations, points of contact, and distribution guidelines.
Close cooperation is crucial to ensure everyone understands their day-to-day roles, minimize disruptions, and avoid costly operational issues.
Step 3 – Inventory Receiving and Warehousing
Opting for services that include warehousing means your inventory is shipped directly from the suppliers to the third-party warehouse facilities.
Upon arrival, the items are inspected, counted, and recorded into the warehouse management system. The inventory is typically organized into product types, storage requirements, and order frequency.
With good storage practices, you can rest assured your products are maintained and easily located when orders come in.
Many modern warehouses are now equipped with RFID technology, barcode scanning, and real-time tracking systems for optimal visibility and accuracy. Additionally, 3PL providers regularly perform audits and cycle counts.
Outsourcing logistics services to third-party warehouses may be a great option for businesses with seasonal demands.
Step 4 – Order Processing, Pick and Pack, and 3PL Fulfillment
3PLs usually offer order fulfillment services alongside warehousing and storage.
The fulfillment process starts the moment a customer places an order. Orders are typically forwarded to the warehouse, where staff can locate the items, pick them from the inventory, and pack them for shipment.
Accuracy is particularly important during picking and packing, as the wrong item can result in returns and dissatisfied customers.
Find a third-party logistics partner with robust inventory practices and sufficient quality checks throughout the fulfillment process to avoid these problems.
Step 5 – Freight, Shipping, and Last-Mile Delivery
Packed orders are arranged for transportation. Shipping methods will typically be based on delivery timelines, cargo size, destination, and overall cost.
Delivery may involve truckloads (FTL), less-than-truckloads (LTL), rail, air, or ocean freight.
Third-party logistics providers work with multiple carriers. This means they can plan the best routes, optimize shipping schedules, and negotiate favourable freight rates.
The final step, often called the “last mile”, involves delivering the items from a transport hub to the customer’s homes. It’s also the stage that is most visible to the customer.
The last mile is usually the most expensive step in the supply chain, and efficient carrier management is vital to ensure orders are received in good condition.
Step 6 – Customs Clearance and Cross-Border Compliance
For organizations that regularly move goods in and out of the country, a customs specialist helps ensure that shipments comply with all relevant laws.
Partnering with a third-party logistics provider, however, means you can access customs clearance expertise without having to hire an in-house specialist and adding another full-time salary on your payroll.
They understand which regulations apply to which goods, prepare and submit customs documentation, and communicate with border authorities.
For teams trading with the US and other international markets, a reliable 3PL partner can simplify cross-border compliance.
Step 7 – Returns, Reporting, and Optimization
Logistics doesn’t end when the items are in the customer’s hands.
This is why an effective third-party logistics partner must also be able to manage reverse logistics, handling damaged, returned or exchanged products.
Returned items are generally inspected, restocked, and repaired. In some cases, they may be disposed of or recycled.
A good logistics provider can help streamline the return process, improving customer satisfaction while minimizing costs and protecting your brand reputation.
3PLs monitor key metrics, such as inventory accuracy, shipping costs, and carrier performance, and regularly report their findings. This is a good tool to have to optimize your operations.
What Services Do Third-Party Logistics Companies Provide?
Outsourcing logistics means more than hiring muscles to transport your goods from one location to another.
Modern 3PLs now provide an extensive range of services for multiple stages of the supply chain, all under one roof. By providing a one-stop logistics solution, businesses can simplify their supply chain management.
3PL services can vary from one provider to another, which may include:
Short- and long-term warehousing
Inventory management and tracking
Order fulfillment, picking, packing, and shipping
Freight forwarding
Customs brokerage for compliance
Returns management
Supply chain analytics and reporting
Other value-added services, such as labelling, assembly, repackaging, etc.
Some 3PLs specialize in a particular type of outsourced logistics services, while others deliver comprehensive solutions that cover every stage of the supply chain.
JORI provides logistics and supply chain staff training for partner businesses.
The Benefits of Outsourcing Logistics to a 3PL Provider
There are several good reasons to partner with a third-party logistics provider besides reducing your workload. You can also access tools and support you’re less likely to get with in-house alternatives.
Cost Savings and Economies Of Scale
A reputable 3PL can help you build an efficient, cost-friendly, robust, and scalable supply chain.
Building and operating a logistics network takes time and a substantial financial investment. In addition to warehouses, there is transport equipment, insurance, staffing, and maintenance to consider.
According to the Council of Supply Chain Management Professionals (CSCMP), companies that outsource logistics report an average cost savings of 15% to 20% compared to managing operations in-house.
By partnering with a 3PL, businesses can access an established logistics infrastructure without the expense of building and maintaining one internally. This allows companies to benefit from existing warehouse networks, transportation resources, industry expertise, and economies of scale while reducing overall operational costs.
Scalability and Flexibility
Scalability is a crucial quality for an enterprise. A business must be able to meet growing demands without sacrificing quality or overspending.
A 3PL offers the flexibility to scale logistics to match changing market conditions.
Whether you’re preparing for seasonal sales during the holidays or experiencing growth, a third-party logistics partner can adjust storage, labour, and transportation services accordingly.
Access to Expertise and Technology
Another key benefit of working with a 3PL is the expertise and technology they bring to the table.
Because they specialize in this aspect of the industry, their experience in transportation planning, inventory optimization, customs compliance, specialized handling, and reverse logistics is invaluable.
Instead of investing heavily in sophisticated technologies and lengthy training, a logistics partner gives you immediate access to everything you’ll need.
Improved Supply Chain Efficiency
Partnering with a 3PL helps improve supply chain efficiency by streamlining inventory management, warehousing, transportation, and order fulfillment. With established processes, advanced technology, and industry expertise, a 3PL can reduce delays, improve visibility, minimize costs, and keep products moving efficiently from suppliers to customers. According to CSCMP, “Companies using 3PLs see a 15% improvement in supply chain efficiency.”
Focus On Your Core Business
Time is the most important resource you have. Every second you spend coordinating shipments, resolving returns, and managing customs requirements is time taken away from focusing on business growth.
By outsourcing services, you can enhance focus on your core tasks without worrying about day-to-day logistics challenges.
Faster, More Reliable Delivery
Modern customer expectations include fast, accurate, and reliable order fulfillment and delivery. Service delays and shipping issues can quickly impact customer satisfaction and how customers perceive your business.
With already optimized warehouse operations and systems, and access to a wide variety of carriers, 3PLs can significantly boost delivery speed and accuracy.
The Risks of Outsourcing Logistics (and How to Manage Them)
Like any major business decision, partnering with a 3PL may come with potential drawbacks.
A common concern among entrepreneurs is losing visibility or control over their logistics operations. It can be difficult to detect bottlenecks, delays, and errors before they reach customers.
You may find your ability to implement changes to adapt to a quickly changing business has been limited.
Another serious risk is underperformance. Not all 3PLs are the same, and some may struggle to meet expectations. Late shipments, incorrect or damaged goods, and poor communication can all affect your brand’s reputation.
To mitigate these risks, it’s important to take the time to research and vet third-party providers before committing.
Compare multiple 3PL providers. Assess their credentials, financial situation, customer experience, and operational capabilities to make an informed choice.
Signs It’s Time to Outsource Your Logistics
Not every business needs a 3PL. Some may successfully manage their logistics in-house, particularly if their operations are on a smaller scale and don’t require highly specialized expertise.
But as your operations grow, maintaining warehouses, negotiating freight rates, hiring employees, and maintaining customs compliance may also become increasingly challenging.
Consider outsourcing logistics if you are:
Spending more time managing shipments
Outgrowing your current warehouse capacity
Experiencing storage issues
Handling sensitive products
Noticing an increase in delays and returns
Expanding into new markets
Spending more on logistics
Lacking the technology for a supply chain network
Smaller businesses with fluctuating demands may depend on logistics outsourcing services during peak seasons.
How to Choose the Right 3PL Partner
No two 3PL providers are the same. The level of expertise and services one provides can wildly differ from another.
Choose a partner that understands and has experience with handling, storing, and shipping products similar to yours. Find out the industries they serve and whether their services match what you need.
Consider the technology and visibility, too. Do they have real-time tracking and send regular updates? Are the technologies they’re using compatible with yours?
What about scalability? Would your 3PL choice be able to handle sudden upticks in demand?
Another crucial quality is the support available. A good 3PL partner must be easy to communicate with and ready to answer and resolve any concerns you may face in the future.
While cost is an important consideration, companies should avoid choosing a logistics provider solely based on price. Selecting the cheapest option may lead to service issues, limited capabilities, or a lack of support that can negatively impact your supply chain. Instead, focus on finding a 3PL partner that provides the right balance of expertise, reliability, technology, and value.
Outsourcing Logistics With JORI
JORI is a trusted 3PL that offers comprehensive logistics solutions across Canada and beyond.
Our services include customs brokerage, freight forwarding, warehousing, cross-border logistics, trade consulting, and training. We have warehouses in Calgary and Houston, as well as parts of central and southeast Asia.
We work closely with over a thousand clients to develop logistics solutions tailored to their needs. Contact JORI for a consultation and discover how we can help you grow your business today!
FAQs
What is the difference between a 3PL and a freight forwarder?
A 3PL primarily provides warehousing, inventory, and order fulfillment services, while freight forwarders largely act as shipping brokers. Many 3PLs, like JORI, offer freight forwarding.
What is 3PL in the supply chain?
In the supply chain, 3PLs are companies that provide logistics services that organizations can outsource to help with their operations.
How much does it cost to outsource logistics?
The cost of outsourcing logistics depends on several factors, including the product’s storage requirements, shipping volume, transportation methods, and order complexity.
Can a 3PL provider handle international shipping?
Yes, many 3PL logistics providers coordinate international shipments and provide customs brokerage services to help you trade globally.
