The Rise of Third-Party Warehousing & Logistics in Distribution: What It Means for the Industry
A few years ago, the idea of outsourcing critical distribution functions to third-party providers would have been unthinkable. However, we are now witnessing a growing trend where large distributors are leveraging third-party logistics (3PL) providers such as DHL, Flintfox, and others to manage specific aspects of their supply chain—ranging from warehouse management to logistics planning and delivery execution.
Why the shift?
Operational expertise, cost efficiency, and streamlined industry best practices. These specialized service providers bring years of experience, automation, and optimization to the table, enabling distributors to focus on core business growth rather than backend logistics challenges.
At Vxceed, we recognize the evolving nature of distribution and have built our Lighthouse platform to be fully modular and adaptable. This ensures that businesses can integrate seamlessly with third-party systems while maintaining full visibility and control over their supply chain.
Let’s take a closer look at two of the most prominent distribution models gaining traction in the industry and how Vxceed’s platform is built to support them.
Model 1: 3PL Manages Warehousing, Lighthouse Oversees Inventory Allocation & Delivery
In this model, inventory remains under the management of a Distributor Management System (DMS), while warehousing operations—such as pick, pack, and ship—are outsourced to a 3PL provider.
How It Works:
- Order Processing: When an order is placed, the DMS allocates inventory and generates a load plan for delivery.
- Route Optimization: Lighthouse optimizes the route and prepares a detailed picking list for warehouse teams.
- Pick, Pack, and Ship: The 3PL provider executes the physical picking, packing, and shipping based on the generated load plan.
- Delivery Execution: Depending on the integration setup, delivery may be handled via the Lighthouse Delivery App (offering full in-transit visibility and real-time recomputation capabilities) or the 3PL’s delivery system (with limited functionalities such as Proof of Delivery and basic tracking).
Potential Limitations
If using the 3PL’s delivery app instead of Lighthouse, handling partial deliveries or ad hoc returns becomes more complex due to limited data-sharing capabilities.
Model 2: 3PL Takes Full Control of Warehousing & Logistics, DMS Acts as Financial Center
In this model, warehouse management, inventory operations, and logistics planning are fully outsourced to a 3PL provider, while the DMS functions primarily as a financial and demand management hub.
How It Works:
- Order Validation: The DMS performs customer financial health checks before forwarding the order to the 3PL.
- 3PL Executes Fulfillment: Stock allocation, load planning, picking, packing, and shipping are managed entirely within the 3PL’s Warehouse Management System (WMS).
- Data Syncing: Once processed, the fulfillment details are sent back to the DMS for billing and dispatch tracking.
- Final Delivery: Orders are dispatched from the warehouse, with DMS overseeing customer financials and demand-side operations.
Advantages of This Model:
- ✅ Best of Both Worlds: A full-fledged WMS optimizes inventory handling, while the DMS ensures smooth demand generation, financial management, and billing.
- ✅ Ideal for Large-Scale Operations: Businesses requiring advanced warehouse automation (e.g., robotic process automation) benefit significantly from this setup.
Potential Limitations:
- ❌ Delayed Inventory Visibility: Since inventory updates depend on data syncs between the two systems, real-time stock accuracy may be compromised.
- ❌ Multiple Systems Required for Operations: Sales teams and management need access to both platforms for comprehensive reporting and reconciliation.
Choosing the Right Model: Flexibility is Key
Every business has unique distribution needs, and there’s no one-size-fits-all solution. Some distributors opt for a hybrid approach, configuring their systems to balance internal and outsourced logistics.
At Vxceed, our Lighthouse platform is designed for flexibility, offering modular configurations that allow businesses to seamlessly integrate with any 3PL provider while maintaining operational efficiency.
Whether you’re looking to optimize inventory allocation, automate warehouse operations, or enhance delivery tracking, Vxceed ensures you have the technology to adapt to an evolving logistics landscape.
If your distribution network is expanding or considering 3PL partnerships, let’s discuss how Lighthouse can help you navigate this transition smoothly.
About the Author
Dheeraj Prabhu is the Product Lead at Vxceed, bringing a unique blend of business acumen, product strategy, and hands-on execution to the table. He plays a pivotal role in ideating, designing, and managing product portfolios, ensuring that every solution is tailored to meet the needs of CPG brands. Outside of work, he wears multiple hats as a quizmaster, event photographer, and an unapologetic gaming enthusiast.
