How to start a 3PL (Third party Logistics) company?

3PL stands for 3^rd (third) party logistics. If you have an idea to start your own 3PL company you must be aware of what is 3PL and how you provide 3PL services to other companies. In this blog, we are providing information about third-party logistics while giving guidance to start a new 3PL company and more details.

What is 3PL?

3^rd party logistics commonly known as 3PL or TPL.
The simple explanation of 3PL is when considering a company, it is outsourced warehouse and distribution facilities from 3rd party. so the company acts as a client of 3rd party logistics provider. The company(client) does not maintain a logistics department or warehouses. Because that company has outsourced logistical activities from third-party logistics companies.

Firstly, you need to identify factors that you have to consider when starting a 3PL business.

Here list down 6 factors, Let’s explain them one by one.

Need to check warehousing demand that selected area
Investigation about types of warehouse facilities customers need
Analyzing competition in the selected area
Differentiate your 3pl service
Pricing methods and charging
Value-added services you are going to do

1. Need to check warehousing demand in the selected area

Before starting a new 3PL company you need to do research about the demand of the area. If you have already selected land, then you can conduct research regarding the demand for 3PL warehousing. For this, you can be asked from 3PL logistics companies in your area. As well as you can get details from companies who outsource the warehouse and logistics activities in that area.

Another hand you need to choose the companies that are not getting services from 3PL company. Then you need to analyze why they are not moving to outsource. May there are issues related to the area of demand for 3PL services. If there is a demand for 3PL logistics. You have a positive idea of starting a business. Then you need to find customers for your business. If you could find better demand for 3PL services and may you could find customers as a positive point of a start a 3pl business.

Example,

Growing market
Large manufacturers or large-scale distributors
E-commerce business

2. Investigation about types of warehouse facilities customers’ needs

In the second step of the 3PL company starting the process, you need to identify customers expecting requirements from the warehouse. It means clearly identifying what are the facilities and types of warehouses needed for customers. The most essential warehouse for your selected area is a basic type of warehouse or cold storage warehouse. And also need a specialized warehouse for order fulfillment and handling return shipments. Now you can get an idea about the type of warehouse you need to start.

3. Analyzing competition in the selected area

After the analyzing type of warehouse, you can do research about competitors in the market which you like to enter. If there are a lot of competitors in that area means a good sign of availability demand of the market. But for getting a competitive advantage for your business, you need to do something different as well as need to add something for your business to uplift your business.

So, you need to do a better analysis regarding your business and market. When you found there are no warehouses in that area means it may be not demanded the warehouse. It could be a bad sign for starting your business at that area because you may hard to find customers, so it negatively affects your business.

4. Differentiate your 3PL service

For getting a competitive advantage for your business, you need to do something different in service. It can outstand your business among existing businesses. For example, when considering a warehouse facility, you can use pallets instead of the traditional warehousing method. Then you can compete with others with better prices. Price is very important. But the price is not the only thing for 3PL logistics business. Quality of service is the most effective thing for any business.

One method of getting a competitive advantage is providing value-added services or unique services. Then automatically your business out stands among others.

Examples:

you can differentiate your business with e-commerce
You can provide facilities for cold storage cargo or hazardous cargo.
Different from other businesses, you can offer 24 hrs. and 365 days services.

5. Pricing methods and charging

Allocating prices is a very important and very complex thing in a business. You need to provide very close prices with competitors. Make sure that you need to provide better services than others while providing reasonable prices. Otherwise, you will lose customers.

Different methods of pricing,

Pricing according to square footage used
Pricing by number of pallets
Pricing by monthly or annually
Pricing according to the service which had provided
Discounts offered for long term

The invoicing method also needs to be considered. As an example, you need to think about how you are going to invoice customers. It may be monthly or per order.

6. Value-added services you are going to do

Your 3PL service company needs to be the best place for your customers so you need to add more services than the basic service of warehousing and distribution. The below list mentions value-added services that can add to 3PL company.

Examples of value-added services for 3pl company are as below,

Order fulfillment and customer return processing
Inventory management
Consolidation services
Quality controlling
Packaging and labeling services

These kinds of value-added services can get a competitive advantage and are more attractive to your 3pl services.

In conclusion, I would like to say you must try to offer better 3pl service than out of the traditional warehouse facilities. Then as a 3pl service provider, you can go very successful business journey in your business.

When fulfilling the requirements of the customers and providing better service than customers you can attract more customers to your 3pl company, but you must keep in mind you need to provide super service while making a profit. Otherwise, you can’t survive in the industry.

How to start a 3PL business

FAQ

What are the Functions of a 3PL service provider?

Warehouse facilities providing
Inventory management
Freight forwarding services
Shipping and distribution services
Packaging and labeling
Custom clearance for shipments
Order fulfillment and customer returns handling process
Procurement of goods
Route optimization and fleet management
Transportation and distribution services
And more.

Activities of 3PL providers vary with the contract agreement and 3PL company. So all of the above functions are not allowing every 3PL company. It may few of the above or one of the above lists. Please note that the above list is not for all of the tasks related to 3PL providers. Some other functions are available for some 3PL services.

Why do more business use 3PL logistics services?

When answering this question, the simple answer is, the logistics process is a more complicated and more stressful process in a business. For avoiding these stressful logistical activities more companies use 3PL logistics. When outsourcing the logistical process for 3PL companies, businesses can give more attention to their core business process than logistics activities.

For example: when demand is high or not enough storage facilities for a company they find a 3PL service provider. It may be more easy and low cost to the business. So most successful companies are used 3PL services.

Reasons for companies outsourcing logistics activities/finding a 3PL partner?

When your company space is not enough
When you need to enhance delivery efficiency- For example, free 2 days delivery
Handling a lot of shipments in a month

What are the benefits of using 3PL?

Increasing supply chain efficiency
Cost reduces
Saving money and time
Can be access super resources and new technology – technological machines and equipment to handle the warehouse

What are the Disadvantages of 3PL?

Loss control-Out of control in logistics activities by a core company
The initial cost is high

What are the factors need to consider when selecting the right 3pl company for your business?

If your company is looking for 3PL services, you need to get a better idea of the business requirements and options available. Then you can select the most suitable solution for logistics. It should be affordable to your budget. The below list expresses another factor that should know when taking decisions for outsourcing logistics activities.

1. Type of the products

according to your product need to select 3pl service providers. Because 3PL companies vary in the services that they are offering.

For example,

If your goods are perishable, you need cold storage to keep your products.
For Chemical or hazardous goods need specialized storage facilities.
According to the product and requirements, you can select the most suitable 3PL companies. And also you need to find experience and reviews of that 3pl company relevant to your business product.

2. Location or place of the warehouse (3^rd party logistics warehouse)

Distance means cost because more distance incurs more transportation costs. So it is essential for low distance. Need to consider the distance between the manufacturer and the warehouse or the distance from the warehouse to the final customer. It should be a better 3pl warehouse near to manufacture or final customer. it can reduce unnecessary traveling. it saves money as well as time.

3. Availability of value-added services

When selecting a right 3PL partner for your business need to consider available services in addition to warehouse management. According to your requirement for the products,3PL service provider is in a position to fulfill other requirements also. Such as customized packaging and labeling, order fulfillment facilities, reverse logistics facilities, etc.

You must check the availability of special services which you want because all the 3pl companies are not capable of providing all the services which you want. Before agreement, you need to find out their value-added services.

4. Need to check customer reviews and the reputation of the company

After selecting a 3PL partner, you both need to go on a long journey. It is a long-term partnership. You need to contact and coordinate 3PL providers daily basis.so you must select a more flexible and trusted company.3PL provider handling is not an easy thing it should be critical and has more responsibility.

Because in your company one of the core functions is handling by them. So you need to find reviews from the customers. For that, you can talk with the companies which are already customers of that relevant 3PL company. Then you can take a decision regarding selecting that 3pl company.

5. Company’s future plans and strategies

With the 3PL partners, you need to go successful journey in long term. so you need to consider that 3PL supplier is the most suitable partner for your business as well as your future and growth. Sometimes you need to adopt new technologies like software and apps it should be supported 3PL provider system also. It may advantage to your company. For your future growth, your 3pl partner should match your requirements and plans.

7. Technology

When selecting a right 3PL partner for your business need to consider about technologies they used and what your company is using.It should be integrated with both companies’ systems. Before selecting a 3pl partner you ensure that their systems support your company system as well as that both companies work with that system.

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