First, Second, Third Party Logistics

An individual at Wikipedia asked the following question recently and I thought this would be a good opportunity to clear things up for those who are unfamiliar with the landscape of the 3PL industry:

"If an organization is a Third Party Logistics provider, who is the First and Second party?"

1st Party: The Supplier
2nd Party: The Company buying the product that is being stored or shipped
3rd Party Logistics Provider (3PL): The company that provides warehousing and transportation outsourcing.
4th Party Logistics Provider (4PL): The majority of people would agree that 4PL is little more than logistics consultant speak, but nevertheless here is the official definition courtesy of Accenture:
"A 4PL is an integrator that assembles the resources, capabilities, and technology of its own organization and other organizations to design, build and run comprehensive supply chain solutions."

Why Outsource to a 3PL?

One of the biggest fears about outsourcing your logistics services to a third party provider is the fear of losing control. This of course doesn’t only apply to third party logistics, but to all outsourced services in general and is one that needs to be overcome before entering into a successful 3PL partnership.

Michael Stolarczyk from Exel had the following to say regarding the control factor in a recent article on 3PL outsourcing:

“Let's analyze the "control" issue. If you don't outsource, and it's a slow time at the warehouse, your employees are drinking coffee on your dime. Not so in a cross-utilized third-party logistics (3PL) environment, where labor can be shifted to other contracts during periods of slower activity.

If a major screw-up occurs, you can do two things with your own warehouse employees: scream at them, and fire them.

In an outsourced environment, however, you can still scream at the 3PL and fire them but you also have the option of building penalty clauses and gainsharing programs into your contract to ensure that the 3PL pays you if anything out of the ordinary happens. That option is not available using your own labor. In fact, most companies that outsource warehousing operations find they gain more control than they ever had.”

That is the control that third party logistics gives you that you can’t get by operating dedicated space; “flexibility and scalability.” In a traditional multi-client public warehouse you can scale your warehousing needs based on demand, but with a dedicated distribution center you have fixed costs that take away from your “control” over the situation.