In summary, a 3PL is a third party logistics provider. A 3PL company targets a particular function or a group of functions in supply management, such as warehousing, transportation, inventory management, etc.
According to the Council of Supply Chain Management Professionals, 3PL is defined as "a firm that provides multiple logistics services for use by customers. Preferably, these services are integrated, or bundled together, by the provider. Among the services 3PLs provide are transportation, warehousing, cross-docking, inventory management, packaging, and freight forwarding."
A standard 3PL Provider servicing the apparel industry would typically perform activities such as, pick and pack, warehousing, and distribution. Essentially they would handle the most basic functions of logistics.
A third-party logistics provider can be abbreviated 3PL or sometimes as TPL. These companies are firms that provide service to their customers of outsourced (or "third party") logistics services for part, or all of their supply chain management functions. A third party is basically someone or a company who may be indirectly involved but is not a principal party to an arrangement or transaction. In other words, they do not work directly for your company, but they provide your company with a specific services.
Fashion companies using a 3PL have advantages and disadvantages.
Advantages to using a third party provider:
As logistics is the core competence of third party logistics providers. They possess better know how and a greater expertise. If you are dealing with a large 3PL, their specialized knowledge combined with their global network will provide advantages in regarding to cost efficiencies and management efficiencies. In addition, large scale service providers typically would have the proper equipment and the IT systems that are appropriated. They may also update and adapt to new requirement of their customers, so that they are able to meet the instructions from suppliers and buyers.
If most or all operative functions of the clothing companies logistics are outsourced to a 3PL provider it means there is less or no need for the company to own its own warehouse or transport facilities. This significantly helps lowering the amount of capital required for the business. This is particularly beneficial if a company has high variations (fluctuations) in warehouse capacity utilization. If your business is not using all the space in a warehouse because of a bad capacity utilization ratio it will most certainly reduce the company’s profitability.
As already mentioned, third party logistics providers typically specialize in integrated operations including warehousing and transportation services that can be scaled and customized to customers' needs based on market conditions. In regard to the fashion industry, if a company is using a 3PL warehouse to store their clothing shipments, they can reserve space in the warehouse based upon their specific needs. If business is slow, the clothing company can possibly negotiate a smaller amount of space (fewer pallet positions). If that same clothing company owned their own warehouse, they would be responsible for the space in the entire building.
Another key benefit is the fact that the outsourcing of logistics department activities permits the apparel company to focus more on their core business. It is much better to focus on product design, merchandising, manufacturing garments, selling to buyers, etc. The less time spent on dealing with warehousing issues the more time a fashion designer can spend perfecting their product.
Dis-advantages to using a third party provider:
The one key concern would be that your business could potentially have loss of control. If you would like to be 100% in control of every single aspect of your fashion business, using a 3PL would cost you a bit of control. You would most definitely have a major say in what happens, but you would have to rely on information being fed to you by another company.
One particular disadvantage is the loss of control a client has by working with third party logistics. Eminently in outbound logistics when the 3PL provider completely assumes the communication and interacting with a firm's customer or supplier.
Another potential concern may be the compatibility of the IT systems. The client and service provider most likely maintain to separate systems. However, often times the two systems need to be able to communicate with one another. The systems can be successful but this also has room for error and concern if not carefully planned.
All in all, Apparel Search believes that utilizing a 3PL is beneficial for many fashion companies. However, each company is unique and should be evaluated accordingly.
Below is for reference:
First party logistics providers (1PL) are single service providers in a specific geographic area that specialize in certain goods or shipping methods.
Second party logistics providers (2PL) are service providers which provide their specialized logistics services in a larger (national) geographical area than the 1PL do.
Additional links of possible interest regarding this subject:
Have you ever asked yourself, “what is a distribution center?”. If yes, you can read about that as well. Learn more about warehousing issues for the apparel industry.
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