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What is the Difference Between Contract Logistics and 3PL?

Business outsourcing incorporates work efficiency, innovation, competitiveness, and cost reduction in your operations.

However, there are plenty of outsourcing strategies available. For example, you can opt for contract logistics or 3PL in supply chain management.

Some think these are interchangeable, but they are completely different services.

Contract logistics is a specialist type of outsourcing that manages a small part of your supply chain while you take care of the rest. In contrast, third-party logistics (3PL) is the generalist outsourcing option that handles a large part of your shipping and fulfilment activities.

Read on to learn more about their differences so you’ll know which type of outsourced logistics to invest in.

Contract Logistics vs 3PL: Key Differences

Contract logistics providers focus more on moving goods from point A to point B. One concrete example of contract logistics is a freight forwarder specialising in transportation management.

On the other hand, 3PL companies provide a wide range of services other than product delivery. These include inventory management, warehousing, automated shipping, order fulfilment, and more.

We can see from these brief descriptions that 3PL offers a more detailed end-to-end service than contract logistics. However, choosing between the two still depends on your business needs.

So, to compare contract logistics and 3PL further, we identified specific supply chain tasks or activities that these two concepts share.

Check the following table for a quick side-by-side comparison.

Supply Chain Task/ActivityContract Logistics3PL
Product Delivery and ReturnsProvides product delivery but no packing services or returns managementProvides picking and packing services, returns management, and shipment optimisation
Warehouse ManagementOffers transport of goods onlyOffers complete warehousing solutions and uses WMS
Inventory ManagementOffers transport of goods onlyHas software that allows real-time inventory management and monitoring
Order Fulfilment and Shipment TrackingOffers transport of goods onlyHas highly flexible order fulfilment services with real-time shipment updates

1. Product Delivery and Returns

Contract logistics providers are experts in product delivery, but they do not pack the products for you. They can only arrange transport services and the route of your goods.

Still, it is an ideal outsourcing option for business owners with time to pack their products.

In contrast, 3PLs have a more comprehensive product delivery service. They can pick and pack the items for you, ready for shipping.

One advantage of this is that 3PLs provide the packing materials needed and wrap your items safely and efficiently.

Aside from product delivery, 3PL providers negotiate shipping rates, generate tracking details, and help businesses allocate items based on demand.

2. Warehouse Management

Contract logistics services centre on easy and accurate movement of goods, not so much on warehousing.

On the other hand, 3PLs provide transportation and warehousing services. They will receive stocks from manufacturers or e-commerce companies and then stock the items in their warehouses until their delivery to end customers.

Moreover, they utilise warehouse management systems (WMS) to receive, store, ship, and replenish goods efficiently.

With WMS, merchants also get complete visibility of the fulfilment process. They can easily track what items are on hand, in transit, or for order fulfilment.

3. Inventory Management

As mentioned, the services of contract logistics companies centre on product transport. However, a tech-enabled 3PL provider has the software for managing inventory.

When they integrate their advanced technology into your supply chain operations, you can easily monitor your inventory in real-time. Gathered data will let you manage SKUs and monitor inventory performance.

If you have more control over your inventory, you should be able to move items according to demand and avoid overpaying storage costs due to deadstock.

4. Order Fulfilment and Shipment Tracking

While contract logistics is a good choice for product delivery, they do not provide retail fulfilment services.

Their process is straightforward but lacks the flexibility to bring items to customers at the best cost and speed.

On the other hand, 3PL providers have highly flexible order fulfilment services. They cater to e-commerce and drop shipping companies based on their specific requirements.

Also, they provide real-time shipment notifications. Customers prefer to see their order status, from preparation to actual delivery.

With real-time updates generated by 3PLs, there is a higher opportunity to satisfy and retain your customers.

Considerations When Choosing Contract Logistics vs 3PL

Contract logistics and 3PL providers are two effective but distinct outsourced services. If you’re still struggling to choose between the two, here are some essential things to consider.

Order or sales volume

If your business gets fewer than 250 orders weekly, it’s probably more cost-efficient to let a contract logistics provider handle the delivery while you do most of the legwork.

On the other hand, if you receive 250 or more orders a week, partnering with a 3PL will be suitable for your fulfilment and shipping tasks.

Business size

Choose contract logistics if you are a large company with a pre-existing supply chain staff, technology, and infrastructure. A contract logistics partner can spot supply chain weaknesses and help fix them.

However, small businesses can do away with inventory management, shipping, and fulfilment stress through a reliable 3PL. They can focus and spend on more important tasks at hand than establishing an internal logistics capacity.

Business goals and needs

Hiring a contract logistics partner is good for stretching delivery services as needed. If you already have a supply chain operation in place, a contract logistics provider can act as your support during peak seasons, for example.

That way, you don’t have to worry about investing in new or additional in-house services and staff.

However, if you are growth-oriented and have big dreams for your business, a 3PL partnership is a better route. 3PLs have the assets, advanced systems, and connections that can help grow your business faster.

Moreover, a 3PL partner helps you save money, so you can allocate your resources to other core business activities like marketing to boost sales.

Equip Your Business with the Right Outsourced Logistics

Understanding the differences between contract logistics and 3PL ensures you invest in a supply chain solution that drives efficiency, cost reduction, and business success.

Hopefully, this article was able to show you the pros and cons of these outsourcing options and help you make a decision that aligns well with your objectives.

If you’re still undecided about which one is best for you, our Effective Logistics team can help. Call us on 03 8376 3300 so we can assess and find your ideal supply chain solution.

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