Logistics service provider: definition, advantages and selection criteria
To save time and money, outsourcing logistics has become a real asset for many companies, particularly in the ecommerce sector. Provided you choose the logistics service provider that best suits your needs. What are the different types of logistics provider? And above all, how do you choose the right one?
What is a logistics service provider?
A logistics service provider (LSP) is a company that specializes in supply chain management services for your business. They can handle part or all of your logistics, depending on your needs.
The main objective of a logistics service provider is to optimize your logistics operations by providing its expertise, tools and partner networks, so that you can concentrate on your core business and improve the efficiency of your logistics (and therefore the satisfaction of your end customers).
Their role can impact different stages of the supply chain:
- Warehousing and inventory management: the logistics provider generally takes charge of receiving your stock and storing it in its dedicated areas. This warehousing comes with real-time inventory tracking, enabling you to analyze the status of your stock at any time and return goods accordingly, to avoid stock-outs.
- Packaging and order preparation: the logistics department can also help you prepare shipments. This means providing the right packaging, preparing each product for shipment, including order tracking.
- Dispatch and transport : We send parcels, with fast turnaround times and order tracking, taking into account any fuel surcharges.
- Returns management and customer service: When a customer has a delivery-related request, your service provider can help, freeing up valuable time for you. Similarly, if a customer wishes to return a product for an exchange or refund, this can be handled by your service provider, who will receive and process the return.
- Tracking orders: LSPs manage and fulfill every new orders, from packaging to transportation, through an integration with your enterprise resource planning system.
Additional services can also be added, such as insurance for lost or damaged parcels, or re-shelving of customer returns.
The different types of logistics service provider
Logistics providers are divided into five categories, each offering a different degree of service and integration.
1PL (First Party Logistics)
1PL providers are transport agencies that send your goods from point A to point B. This delivery service is the first form of logistics outsourcing.
2PL (Second Party Logistics)
A 2PL provider offers an additional level of service, managing both transport and product storage.
3PL (Third Party Logistics)
3PL providers offer a much more comprehensive level of service, including order preparation in addition to transport and storage. They can also provide more advanced services such as product returns management and after-sales logistics.
4PL (Fourth Party Logistics)
A 4PL provider acts as a system integrator, managing a company’s entire supply chain. It acts as a strategic partner, aiming to optimize every stage of the supply chain. Whereas a 3PL provider manages the execution of logistics tasks, a 4PL provider involves a more strategic, long-term relationship. In fact, 4PLs generally subcontract the technical side to several 3PL providers, so that they can concentrate on strategy.
5PL (Fifth Party Logistics)
A 5PL provider aims to optimize a company’s logistics like a 4PL, but on a larger scale, using technology and data to create integrated, efficient supply chain networks. In particular, they aim to automate flows by taking huge amounts of data into account, such as trend forecasts, and manage the entire supply chain of their customers, usually multinationals or companies in the industrial sector.
The most common logistics service providers are generally 3PLs and 4PLs, as they allow logistics outsourcing to be set up quickly while remaining accessible to all company sizes.
And what about freight forwarders?
A freight forwarder acts as an intermediary between shippers and transportation services like air freight, sea freight, road, or rail. The role of a freight forwarder is to arrange the transportation of goods from one destination to another efficiently and cost-effectively. Their main difference with an LSP is that their service is limited to transportation, whereas an LSP adds other additional services such as customer service, parcel returns and storage.
The advantages of using a logistics service provider
Improved customer experience
Too long delivery times, charges too high, parcels never received or in poor condition... The delivery stage can cause numerous problems that can damage your customers' experience. There's a risk that you'll lose your customer for good. Worse, they can complain about it to others, giving you a bad reputation. Indeed, up to 30% or more of customers may leave a negative review or complain online after a bad delivery experience.
It's therefore vital to offer satisfactory delivery solutions to avoid seeing your image deteriorate. And competitive delivery can even become a lever for differentiation, by offering fast turnaround times and efficient tracking!
Reduce your logistics costs
Contrary to what you might think, outsourcing your logistics often means making savings in this area!
In fact, it reduces your investment needs: you avoid buying or leasing your own storage space and transport vehicles. Logistics service providers also have their own network of partners from whom they benefit from preferential rates, which you as a customer can take advantage of.
Greater flexibility
Throughout the year, your logistics needs evolve: sales, high and low seasons, Black Friday... And from year to year, your needs are bound to grow (or so we hope!) A service provider will be able to adapt and support you as your business and logistics needs evolve, allowing you to scale up or down depending on the period.
Benefit from their advanced technology
LSPs are in the logistics business for a long time and they often use advanced technology and software to the benefit of the businesses they work with. Their solutions enable you to monitor data on your stock levels in real time, as well as the progress of your orders and deliveries, helping you to optimize your logistics, improve your operations and processes and reduce cost.
Save considerable time
When you're just starting out, you can still manage your own order dispatch. But once you've reached a certain level of activity, it becomes more and more time-consuming. Not to mention the questions and returns from your customers to deal with, and your right to go on vacation without wondering who will be sending out the orders!
Outsourcing your logistics means you can focus on your core business: product development, marketing and sales, while ensuring that the logistics aspect is handled by experts in the field.
The advantages of using a logistics service provider for your customers
Outsourcing your logistics also helps you offer your customers a better experience. Here are just a few of the benefits for them:
Better order tracking
Parcel tracking is an important component of the delivery experience, and one that many buyers expect. A client appreciate being able to track the progress of their delivery. This service is generally provided by LSPs, reassuring your customers.
Better management of customer returns
Returns for refunds or exchanges are increasingly common in e-commerce, and present a new challenge for sellers. An LSP can help you manage these reverse logistics to maintain high customer satisfaction while remaining profitable on the business side.
Quality after-sales service
In the event of delivery problems or questions, your customers can turn to your service providers, who deploy a dedicated team to answer them. Their response time will certainly be faster than if you handled it yourself, and your customers will be all the happier for it.
Faster and more affordable delivery
On top of it, the savings you make on your billing with an LSP will enable you to offer more affordable and therefore more attractive delivery services, while at the same time providing a more efficient and therefore faster service.
Self-shipping vs. working with a logistic service provider
Although shipping your own orders is convenient and easy at the start of your e-commerce adventure, this task can quickly become time-consuming and a source of expenditure that's hard to control.
Indeed, managing your own logistics means internalizing the costs of storage, transport, insurance and truck fuel. Over and above the costs, it's also a considerable investment in terms of time. Processing new orders, packing your products, shipping your parcels... all these tasks take time away from your core business.
By working with a logistics provider, you benefit from reduced costs thanks to its network of partners, and you free up precious time!
How to choose the right logistics provider?
Before calling on a partner for your e-logistics, it's important to determine your needs carefully.
Stock management and merchandise storage, order preparation, parcel dispatch, customer service in the event of product returns... Drawing up precise specifications for the tasks you wish to entrust to a third-party company is a good way to get a clearer picture. And to find the logistics service provider who can meet all your needs.
Let's take a look at the different criteria to explore.
Services offered
We're here to assess whether the level of service offered by the service provider is up to scratch your expectations and those of your customers.
- Shipping methods : what are your customers' preferences? Your logistics service provider may offer a range of services, such as express delivery or shipment in point relais. The more shipping options he offers, the more convenient it will be for your customers.
- Delivery times: Make sure the service provider can meet the delivery times you promise your customers. For example, with Rakuten Fulfillment Network, 99.8% of orders placed before 2pm are delivered within 24 hours.
- Shipment traceability: Make sure that the service provider offers real-time tracking tools so that you can monitor the status of your stocks and orders, and so that your customers can track the shipment of their products.
This may also include other criteria such as international delivery capabilities and insurance in case of damaged or lost packages.
You also need to think about any criteria related to the practicality of storing your products. These may include :
- Storage capacity: Evaluate the provider's storage capacity in relation to your current and future needs. Make sure they can handle your growing inventory.
- Warehouse locations: The logistics provider's geographical proximity to your customers can influence shipping costs and delivery times. A central warehouse location can be advantageous for reaching a large number of customers quickly.
- Inventory management: Make sure the logistics provider is able to monitor your stock levels in real time, and notify you when they are close to zero, to avoid stock-outs.
Buyer experience
What care is taken to ensure your customers' experience when using this service provider?
- After-sales service: Does the service provider offer an after-sales service to deal with any logistical problems encountered by your customers? Such a service frees you from a time-consuming aspect of logistics.
- Customer returns management: Understand how the service provider handles product returns and exchanges. For example, Rakuten Fulfillment Network facilitates the management of your customer returns, including tracking and receipt of returns, product inspection and restocking.
Seller experience
Finally, will this service be convenient to use on your end? Here are a few criteria to help you decide.
- Customer service: The quality of customer service is crucial. Make sure the provider is responsive, can resolve your problems quickly and offers good customer support.
- Scalability: Look for a provider who can adapt to your changing needs. They must be able to handle peaks in demand during busy periods.
- Integration with your ecommerce platform: Make sure the service provider can easily integrate with your online sales system and/or your various marketplaces for smooth communication of orders.
- Minimum volume: If you're just starting out in e-commerce, check that the service provider accepts order volumes your company's size.
- Experience in the ecommerce sector: Make sure the logistics provider has experience in dealing with the specific specific needs of e-commerce companies. They should understand the speed, flexibility and handling of seasonal peaks.
- Costs and pricing structure : Compare the rates and charges of different LSPs. Make sure you understand the billing structure, including hidden costs (if any), such as inactive storage charges or return fees. For example, with Rakuten Fulfillment Network you benefit from a simple pricing structure with no hidden costs.
Choosing the right logistics provider is crucial to the success of a company's supply chain. Between full-service, specialized, integrated or technology-based providers, each type offers specific benefits tailored to different business needs and objectives. Taking the time to choose the right partner, who understands your objectives and is committed to achieving them, is an investment that can significantly improve your company's efficiency, responsiveness and competitiveness.