Layer 3 devices can be used to create unique LAN segments. Layer 3 devices allow communication between segments based on Layer 3 addressing, such as IP addressing. Implementation of Layer 3 devices allows for segmentation of the LAN into unique physical and logical networks. Routers also allow for connectivity to wide-area networks (WANs), such as the Internet.

Layer 3 routing determines traffic flow between unique physical network segments based on Layer 3 addressing. A router forwards data packets based on destination addresses. A router does not forward LAN-based broadcasts such as ARP requests. Therefore, the router interface is considered the entry and exit point of a broadcast domain and stops broadcasts from reaching other LAN segments.

Routers provide scalability because they serve as firewalls for broadcasts. They can also provide scalability by dividing networks into subnetworks, or subnets, based on Layer 3 addresses.

When deciding whether to use routers or switches, remember to ask, "What is the problem that is to be solved?" If the problem is related to protocol rather than issues of contention, then routers are the appropriate solution. Routers solve problems with excessive broadcasts, protocols that do not scale well, security issues, and network layer addressing. Routers are more expensive and more difficult to configure than switches.

Figure shows an example of an implementation that has multiple physical networks. All data traffic from Network 1 destined for Network 2 has to go through the router. In this implementation, there are two broadcast domains. The two networks have unique Layer 3 network addressing schemes. In a structured Layer 1 wiring scheme, multiple physical networks are easy to create by patching the horizontal cabling and vertical cabling into the appropriate Layer 2 switch. This can be done using patch cables. This implementation also provides robust security, because all traffic in and out of the LAN must pass through the router.

Once an IP addressing scheme has been developed for a client, it should be clearly documented. A standard convention should be set for addressing important hosts on the network. This addressing scheme should be kept consistent throughout the entire network. Addressing maps provide a snapshot of the network. Creating physical maps of the network helps to troubleshoot the network.

VLAN implementation combines Layer 2 switching and Layer 3 routing technologies to limit both collision domains and broadcast domains. VLANs can also be used to provide security by creating the VLAN groups according to function and by using routers to communicate between VLANs.

A physical port association is used to implement VLAN assignment. Ports P1, P4, and P6 have been assigned to VLAN 1. VLAN 2 has ports P2, P3, and P5. Communication between VLAN 1 and VLAN 2 can occur only through the router. This limits the size of the broadcast domains and uses the router to determine whether VLAN 1 can talk to VLAN 2.