What Is Third-Party Logistics (3PL)?
Also known as: 3PL, third party logistics provider, contract logistics
Definition
Third-party logistics (3PL) means outsourcing warehousing, transportation or order fulfillment to a specialist provider. The manufacturer's ERP stays the system of record for orders and cost, and exchanges inventory, shipment and receipt data with the 3PL.
Third-Party Logistics (3PL) Explained
Scope varies. A 3PL may only store and ship finished goods, or it may handle returns, kitting, labelling, customs brokerage and freight booking. The more it does, the more of your master data and order flow it needs.
Integration is the hard part. Orders and advance receipts go to the provider, and shipment confirmations, inventory snapshots and adjustments come back. This runs through EDI (such as 940/945 warehouse shipping order and advice), flat files, APIs or the provider's portal. Mapping item codes, units of measure and lot numbers must match on both sides.
In the ERP the 3PL appears as an external warehouse or consignment-style location. Infor LN supports multiple warehouses and sites, SyteLine uses warehouses and locations, and NetSuite uses locations flagged as third-party. Inventory there is still owned by you and valued in your books, so adjustments need approval and reconciliation.
A simpler tool may do. If volumes are small, a provider portal plus a daily file import can be adequate before building real-time interfaces.
Why It Matters
- Outsourcing converts fixed warehouse cost to variable but moves control to an interface.
- Inventory held off-site is a frequent source of unexplained book-to-physical gaps.
- Customer service depends on the speed of shipment confirmation coming back.
- Contract terms on damage, accuracy and cycle counts need data from the ERP to be enforced.
In Practice
A manufacturer ships 800 SKUs to a regional 3PL. Each night the 3PL sends an inventory snapshot. A reconciliation job compares it to the ERP location balance and flags variances over a set tolerance, so a lost pallet is discovered within a day instead of at year-end count.
Frequently Asked Questions
What is the difference between 3PL and 4PL?
A 3PL executes logistics services. A 4PL manages and coordinates several providers and the overall supply chain design on your behalf.
How does a 3PL connect to my ERP?
Typically by EDI, API or file exchange for orders, receipts, shipments and inventory. The provider's WMS is usually the system of record for bin-level stock.
Who owns inventory at a 3PL?
You do, unless the contract says otherwise. It stays on your balance sheet and should be reconciled to the provider's counts regularly.
Related Terms
EDI (Electronic Data Interchange)
EDI (Electronic Data Interchange) is the computer-to-computer exchange of business documents such as purchase orders, invoices, and shipping notices between trading partners in a standardized structured format, without human intervention.
Cycle Counting
Cycle counting is the practice of continuously verifying inventory accuracy by counting a small subset of items each day or week, rather than shutting down for one annual wall-to-wall physical inventory.
Consignment Inventory
Consignment inventory is stock physically held by one party, such as a manufacturer or retailer, but legally owned by the supplier until it is consumed or sold. Ownership and the liability transfer at the point of use or sale.
Bill of Lading (BOL)
A bill of lading (BOL) is the document a carrier issues to confirm it received goods for shipment. It acts as a receipt, a contract of carriage and, in some forms, a document of title. ERPs print it from the shipping transaction.
Inventory Shrinkage
Inventory shrinkage is the difference between inventory recorded in the system and what is physically present, caused by theft, damage, spoilage, counting or transaction errors, and unrecorded scrap. It is measured at cost or as a percent of sales.
Working with Third-Party Logistics (3PL) in a live environment? Our engineers do this every day - and our AI agents automate most of it.