Logistics, 3PL, and Supply Chain Management – What are They?
You might already be a transportation professional, just getting into the industry or simply curious to learn how it works. Whatever the case, you will want to learn about logistics, 3PL, and supply chain management. Specifically, you will want to understand how these often overlapping terms relate and why they are important.
The term 3PL refers to a “third-party logistics” provider. 3PL is a firm that provides customers with outsourced logistics services for supply chain management functions. So, the services of 3PL fall under the frame of logistics, and logistics is obviously a part of supply chain management.
In some companies, the logistics tasks can overlap with the tasks of the supply chain management. These two areas are sometimes even merged together. However, they are distinct areas encompassing specific activities. Logistics is basically one specialized part of the entire process of supply chain management.
What is supply chain management?
Supply chain management can best be described through the elements of the supply chain process. It’s crucial to keep in mind that the supply chain starts and ends with the customer. When a customer decides to purchase a product, she initiates an entire chain of activities that move the product through the supply chain.
Depending on the product type, the customer’s order incites actions that provide for a timely delivery, or actions related to product manufacturing. The customer’s order then needs to be combined with orders from other customers. This requires undertaking planning actions in terms of manufacturing or delivering all the products ordered.
In case the products need to be manufactured after the order, the next step in the supply chain is to purchase raw materials for production. The purchasing department ensures timely delivery of the materials to the manufacturing site. As soon as the suppliers deliver the raw materials, they are checked for quality and moved to the warehouse.
In accordance with the production plan, the raw materials are used for manufacturing of the product ordered by the customer. Then, the final product is tested and stored back in the warehouse ready for delivery to the customer. The shipping department chooses the most effective method for delivering the product to the customer on time.
To ensure an efficient flow throughout the supply chain process, companies have adopted some methods and technologies for supply chain management. The goal is to generate the highest level of customer satisfaction at the lowest cost. To achieve this goal, companies need to focus on three different levels of supply chain management activities.
1) Strategic management
This level of activities encompasses decisions that concern the entire organization. It includes decisions related to manufacturing and sales, partnerships with suppliers, size and location of manufacturing sites, etc.
2) Tactical management
Tactical supply chain management focuses on adopting best practices for cost-effective solutions. Activities on this level include developing strategies for various parts of the supply chain process.
Tactical management works with logistics in developing cost-effective transportation, develops warehouse strategies for reducing storing inventory costs, it also develops purchasing strategies with favored suppliers, and more…
3) Operational management
This level of management makes daily decisions about product movement along the supply chain. These decisions include taking orders from customers, scheduling production changes, moving products in the warehouse, making purchasing agreements with suppliers, etc.
What is logistics?
Logistics encompasses the activities related to planning, control, and execution of the movement or placement of goods, including some supporting activities. Logistics management is, in fact, one part of supply chain management.
Logistics ensures effective flow and storage of goods, services and related information, between the point of origin and the point of consumption. All the activities within logistics are directed towards meeting the requirements of the customers.
Activities related to customer order fulfillment are one of the starting points in logistics. Since they directly impact delivery, transportation and logistics are essential to completing the orders. Logistics is in charge of traffic and transportation of goods.
This part of the supply chain management is also responsible for storage and warehousing. The logistics department should determine the number of warehouses, their size and location, and the amount of inventory that should be stored in them. These decisions are closely related to transportation and the costs that arise from it.
Transportation speed dictates the level of inventory, and the warehouse capacity needed. So, inventory control is one of the crucial tasks of logistics. The logistics department also performs demand forecasting, as an essential factor in effective inventory control.
Logistics also organizes the handling of materials. This includes the movement of goods from storage to order-picking areas, to dock areas for shipment. Since packaging of goods depends on the method of transport, logistics is also responsible for this part of the supply chain.
In order to ensure adequate market coverage, production planning and logistics operate in close coordination. Since quantities and location of goods purchased affect transportation costs, logistics is often integrated with the purchasing process as well.
Logistics plays an extremely important role in ensuring that customers get the right products, at the right place and at the right time. Being responsible for customer service levels, logistics also includes parts and service support.
What is a 3PL?
3PL, or third-party logistics provider, offers services for managing the logistics within the client’s company. It can also offer a single service, such as warehouse storage, or transportation. In business, it has a broader meaning that can be applied to any service contract that involves storing or shipping things.
The 3PLs that are present on the market have various models and perform various tasks. Some of them specialize in certain industries. Others are specialized in specific logistics areas such as providing logistics software, auditing freight bills, etc.
The main reason that companies use 3PL services is to utilize experts in the field of logistics. They are a partner in providing an effective supply chain. Leaving the logistics activities to a 3PL “partner”, the company can focus on other aspects of the business. However, companies need to put some effort in successfully managing their relationships with a 3PL.