Logistics Service Provider: Definition, Pros & Services They Offer

Virginia Miller

May 30, 2024

In this article

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Logistics is the process of planning, implementing and controlling the efficient, on-time and cost effective flow of goods from point A to point B. In a more general sense, logistics refers to anything that concerns the arrangement or movement of people or things from one place to another. Logistics service providers help businesses move their products across different parts of the world through a number of services they offer such as supply chain management, transportation & warehousing among others. This post will discuss all about what logistics service provider's do and how they can be beneficial for your business.

What is a Logistics Service Provider?

Logistics Service Providers (LSPs), often referred to as third-party logistics (3PL) providers, are outsourced companies that shippers utilize to manage warehousing, distribution, and freight transportation. As a result, LSPs have superior tools, technology, expertise, and services compared to freight brokers, even though they operate under the same FMCSA authority.

LSPs take a "big picture" approach to more complex shipping solutions, leveraging top-tier transportation management systems (TMS) and business intelligence (BI) to optimize their human resources, processes, industry knowledge, and technology.

Benefits of Using a 3PL

Many shippers consider integrating a third-party logistics provider for cost savings, but soon realize there are numerous advantages, including:

Access to cutting-edge TMS technology
Reduced back-office workload
Increased efficiency and cost savings
Leveraging the LSP's carrier network
Improved customer service
Enhanced risk management
Easy business scalability
Quickly develop a superior logistics solution for a competitive edge
Expert knowledge and talent
Improved order-to-cash cycle and ROI

Primary 3PL Services

Many 3PL companies specialize in various supply chain facets and provide a wide array of logistics services. Most logistics services fall under one of the following categories:

Procurement

Procurement refers to the process of ordering and receiving inventory from other areas of the supply chain. 3PL procurement and receiving services may include:

Managing inventory on behalf of customers
Identifying when stock is low and placing orders with suppliers/manufacturers
Arranging for products to be delivered from suppliers/manufacturers to the 3PL warehouse
Receiving inventory into the warehouse for storage until needed elsewhere

Order Fulfillment

Order management, fulfillment, and distribution are core 3PL responsibilities. 3PL order fulfillment services may encompass:

Receiving orders from customers/public
Updating inventory levels when orders come in
Picking ordered items from warehouse storage
Packing items to be shipped out
Arranging shipping to final destination

Order fulfillment can happen at various points in the supply chain, including eCommerce, distribution to 3PL customers, retail, etc.

Warehousing

A key 3PL duty is overseeing the secure storage of inventory until required elsewhere. Warehousing services may include:

Public warehousing allocated by priority, capacity, demand
Contract warehousing preassigned to a customer
Specialist storage of certain items (chemicals, food, etc.)
High-security storage for sensitive goods
Tracking/locating inventory for easy identification
Conducting inventory audits to ensure proper receipt/levels/distribution

Distribution Services

Distribution refers to moving inventory from a provider's warehouse to other supply chain entities or end-consumers. Distribution methods may include:

Drayage, cross-docking, intermodal transport, LTL, FCL, etc.
Fleet optimization through AI mapping/modeling
Tracking goods with GPS/IoT
Consolidating/deconsolidating shipments

Other Common 3PL Services

In addition to the services above, 3PLs frequently offer:

Freight Services: Safely transporting goods domestically and overseas through partnerships with freight forwarders, brokers, carriers, etc.
Transportation: Selecting the optimal transportation modes and routes to deliver inventory quickly and securely.
Reverse Logistics: Managing product returns to minimize friction in the shipping process.
Consolidation/Deconsolidation: Combining multiple shipments into fewer cargo to reduce costs, and breaking down consolidated cargo.

The Value of a 3PL

Partnering with a 3PL like Simpl can provide businesses with end-to-end supply chain solutions, inventory and warehouse management, and other logistics resources to optimize operations. Contact us today at (737) 225-8846 to discuss how we can help!

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FAQs

What are the main services offered by 3PL providers?

The main services offered by 3PL providers include procurement, order fulfillment, warehousing, distribution, transportation, freight services, reverse logistics, consolidation/deconsolidation, and more.

How can working with a 3PL save money?

Working with a 3PL can save money through increased efficiencies, better technology and systems, access to carrier networks, and more. They have expertise to optimize the supply chain.

What industries commonly use 3PL services?

Many industries leverage 3PL services including retail, ecommerce, manufacturing, wholesale, and distribution companies. Any company with complex logistics can benefit.

What is procurement in logistics?

Procurement refers to the ordering and receiving of inventory. 3PLs can manage ordering products from suppliers when inventory levels are low in the warehouse.

What does order fulfillment involve?

Order fulfillment includes receiving orders, picking/packing products from the warehouse, and arranging for shipping and delivery to customers.

How can a 3PL assist with distribution?

3PLs plan optimal transportation routes and modes (LTL, FTL, parcel, etc) to distribute orders from the warehouse to customers or downstream supply chain partners.

What is reverse logistics in 3PL?

Reverse logistics refers to managing product returns back up the supply chain. 3PLs create systems to handle returns to minimize friction and costs.

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