A third party logistics company is an independentbusiness that specializes in providing a specific type ofservice to a larger client. The majority of companies focus on one aspect of thesupply chain such as shipping. The purpose of a third party logistics provider is toimprove the efficiency of a client and to help controlcosts. This is done through the economics of scale.
Logistics providers like supply chainconsultants and couriers produce over $47billion each year. Areas like transportation and warehousingare growing annually at a rate of between 5and 6 percent. Third party logistics companies perform anumber of different functions.
Many third party logistics providers offer someform of warehousing. This means that a client business can hire thecompany to store products in a controlledfacility that is managed by the provider. This is an attractive option because it removesthe need to lease a warehouse and payemployees who are only tangentially related tothe core business.
The third party provider usually makesextensive capital investments in thewarehouse allowing for increased efficiencythrough modern technologies. Another advantage is that a provider mighthave warehouses in centralized areas thatmake shipping and receiving easier.
A number of third part logistics companiesoffer transportation services. This is one ofthe most common services provided. Transportation involves moving goodsbetween two locations. This could be from acoastal port to a warehouse or from one retailstore to another.
Transportation does not usually include otherservices such as warehousing or consulting. Transportation across different jurisdictions isnormally an invaluable service since localbusinesses do not have the capital to invest intrucks and licenses that would allow for cross-country transport of goods. Many transportation providers have large fleetsof trucks available that can move goods betweenlocations quickly and efficiently.
An increasingly popular type of third partylogistics is fulfillment. This is a version ofwarehousing. Fulfillment means that a provider storesitems in a warehouse and then assemblesdifferent collections of items in a box or othercontainer.
This is how orders are usually filled forecommerce and catalog companies. The warehouse maintains pickers, packersand other employees who can fulfill orderswith a high level of accuracy and speed.
Most will also provide shipping servicesthrough another third party logisticsprovider. Fulfillment providers sometimesinclude value added services such as returnsprocessing.
There are third party logistics companies thatact primarily as consultants. These companies do not maintain assets likea warehouse or a fleet of trucks.
The goal of these companies is to streamlinethe supply chain and sometimes to developan entire efficient supply chain for a newbusiness. Supply chain consultants specialize inremoving waste and overhead from theprocurement, warehousing and transport ofgoods.
The knowledge and experience of theseindividuals usually results in a collection ofasset-based third-party providers who canwork together more efficiently than a groupof random businesses assembled without theassistance of supply chain consultants.