What Is First Party Logistics (1PL)? A Simple Introduction

by Vector | Oct 8, 2020 12:00:00 AM

What Is First Party Logistics (1PL)? A Simple Introduction

October 8, 2020
What Is First Party Logistics (1PL)? A Simple Introduction

Supply chains can be diverse. After all, companies have many ways to move items from one point to the next.

Some operations can be quite complex, with numerous agencies involved in the order fulfillment and delivery process. Or, operations can be simple, with just one company running everything.

For the purposes of this post, we’ll focus on one of the simplest supply chain systems: a first-party logistics provider (1PL). Keep reading to learn what 1PL is, what kind of businesses use it, the pros of cons of 1PL, and what you can do to optimize your 1PL operations.

What Is 1PL?

A 1PL provider is a person or company that owns cargo and controls the resources necessary to transport items from point to point without having to rely on another organization. As such, a 1PL provider is technically the consignor in a shipping arrangement.

One example of a 1PL provider is a farm that uses its own vehicles to transport products to local stores. What’s more, a food manufacturer may use its own fleet of trucks to ship items to partnering locations. In both cases, the manufacturer is fully responsible for shipments, as well as the items being taken from one place to the next.

In addition to 1PL providers, there can be first-, second-, third-, fourth- and fifth-party providers, each with varying levels of responsibility and complexity.

It’s safe to say that 1PL shipping is somewhat rare today. In large part, that’s because it’s highly resource intensive and can be quite risky (more on that below).

Who Uses 1PL?

Small, medium, and large businesses use 1PL. They have the resources to transport items, and they prefer to keep shipping in-house rather than outsource operations to third-party logistics providers.  

A business in just about any industry can use a 1PL model. You'll often find it at companies that have local customers. Some large enterprises that have the means to purchase and manage their own fleets use 1PL, too.

Pros and Cons of 1PL

Now that you have a better idea of what 1PL is, let’s turn our attention to the pros and cons of using this logistics model.

Pro: More Flexibility

A 1PL model can eliminate the need to work with third-party shipping partners. This gives companies total flexibility over scheduling and transporting items. Shippers can retain full control over shipping, resulting in a system that is easier to manage and ostensibly more efficient.

Pro: Reduced Complexity

In addition to having more flexibility, businesses can also reduce shipping complexity when using a 1PL model. Companies won’t have to worry about relying on other organizations to show up on time and deliver products safely and reliably. This can make it easier to ensure shipments stay on schedule.

Pro: Better Customer Service

Even when working with a trusted vendor, it can be difficult to ensure an optimal customer experience. That’s because it involves trusting someone else’s drivers to transport items and deal with consignees (in other words, receiving parties).

But when a company uses a 1PL model, it can at least rest assured knowing that its drivers are delivering items. In turn, this makes it easier to establish and enforce acceptable shipping standards and best practices for customer service.

If 1PL has so many advantages, why doesn't everybody use it? Let's look at some of its disadvantages.

Con: Limited Scalability

Businesses that use 1PL models need to ensure they have the transportation resources in place to expand and meet fluctuating customer demands. But scaling a fleet can be extremely expensive, especially for small to medium-sized businesses. Often, businesses need to work around their limited resources when shipping items to customers because they lack the ability to expand their operations on their own.

Con: Greater Risk

One of the benefits to using a second-party shipping provider (2PL) is that the vendor will always be bound by a service-level agreement (SLA). This means that they’ll have to adhere to another company’s specific policies and guidelines in order to get paid. This can usually benefit a consignor. After all, the point of an SLA is to guarantee quality and reliability.

Using a 1PL model carries far greater risk. In large part, this is because there's no third-party agency to rely on for shipping. This means the company has to be ready to handle all impromptu challenges that may arise. Some of these include staffing shortages and vehicle malfunctions. If something goes wrong and delays transit to a customer, there's nobody else to blame but the company itself.

Con: More Backend Management

Keeping shipping in-house and using a 1PL model can be a massive undertaking depending on the size and scope of a business. Business administrators are often surprised to learn how expensive and time-consuming transportation and logistics can be. In fact, successful 1PL programs may require hiring a full-time transportation and logistics department, no matter how big your company is.

How to Streamline 1PL Shipments

As you can see, there are many things to consider if you're managing a 1PL operation—from backend warehouse management to customer relations. And for this reason, businesses running 1PL operations need to be highly organized and in constant communication with stakeholders and customers. Otherwise, things could get messy fast.

To avoid this fate, companies need to consider migrating beyond traditional paper-based tracking and reporting systems and spreadsheets, which can result in slow and inefficient reporting and communications. If your organization is using a 1PL model, consider modernizing your operations with digital apps.

By moving to modern digital solutions, 1PL companies can enjoy a number of benefits, which we’ll briefly examine next.

Faster Issue Resolutions

Customer service issues like damaged and returned items need to be processed rapidly to avoid complaints and reduce churn. For the best results, drivers need to communicate with warehouse personnel and managers to resolve problems quickly.

Mobile apps can enable instant communication. This supports faster customer resolutions and a stronger overall customer experience. On top of that, this instant communication can help you build customer loyalty, leading to better reviews and more sales over time.

Instant Payments

When collecting paper invoices, businesses need to wait for the item to return to the warehouse. Unfortunately, this can take hours or days in some cases, which hurts cash flow.

Mobile billing apps can enable drivers to collect and process invoices instantly, resulting in faster payments with less hassle.

As a bonus, apps can eliminate paperwork, making it faster and easier for delivery crews to complete deliveries.

Real-Time Adjustments

Delivery routes can change throughout the day, depending on item availability, customer preferences, and shifting priorities. Drivers need to maintain constant communication with warehouse personnel to stay informed and updated about delivery changes.

By investing in a mobile app, you can accomplish this by sending schedule updates and critical communications to drivers.

Vector offers a variety of mobile apps that companies can use to streamline shipping operations. For example, Vector enables contactless pickup and delivery, mobile capture, imaging and billing, and custom forms and workflows.

This post was written by Justin Reynolds. Justin is a freelance writer who enjoys telling stories about how technology, science, and creativity can help workers be more productive. In his spare time, he likes seeing or playing live music, hiking, and traveling.

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