Engaging a third-party logistics service (3PL) for fulfillment tasks allows you to collaborate with experts in a crucial area of your business. This partnership enables you to concentrate on marketing, expansion, and customer satisfaction. 3PLs are highly sought after by e-commerce brands as the traditional business model of consumer product companies managing most or all operations internally is not always the most efficient, especially in the realm of e-commerce fulfillment. Numerous e-commerce businesses, often operating on tight budgets, discover that third-party logistics providers can offer significant time and cost savings.
A 3PL provider can store your inventory, handle the picking, packing, and shipping of your products, and serve as an essential bridge between your manufacturing processes and your final consumers. The smooth operation of your order fulfillment processes leads to satisfied customers and business growth. It’s fair to say that outstanding fulfillment is a critical success factor for e-commerce companies. Now let’s understand what 3PL is:
What is 3PL?
Third-party logistics, or 3PL, is the practice of outsourcing logistics and supply chain management functions to external service providers. These providers offer a range of services, including warehousing, transportation, inventory management, and order fulfillment. This allows businesses to streamline operations, reduce costs, and focus on their core competencies.
Key Components of 3PL
Transportation Management: 3PL providers excel in managing transportation networks, ensuring the timely and cost-effective movement of goods. This includes route optimization, carrier selection, and real-time tracking, all of which contribute to a smoother and more reliable supply chain.
Warehousing and Distribution: Efficient warehousing is crucial for inventory management and order fulfillment. 3PL providers offer advanced warehousing solutions, using technology to optimize storage, reduce lead times, and enhance order accuracy.
Order Fulfillment: From order processing to packing and shipping, 3PL providers streamline the fulfillment process. By centralizing these operations, businesses can reduce errors, minimize delays, and provide customers with a seamless purchasing experience.
Customs Brokerage and Freight Audit: These providers act as intermediaries between shippers and carriers in international movements. They work with air freight providers, ocean carriers, and customs officials to ensure cargo complies with the requirements of individual nations.
Inventory Management: This involves the tracking and management of stocked goods, typically in a warehouse setting. It includes tasks such as forecasting inventory needs, maintaining optimal stock levels, and ensuring timely replenishment to prevent stockouts or overstocking.
Picking and Packing: This is the process of locating and pulling the correct items from inventory to fulfill an order (packing), and then preparing those items for shipment (packing). Efficiency and accuracy are crucial in this stage to ensure customer satisfaction.
Shipping and Receiving: This involves the outbound logistics of sending goods to customers (shipping) and the inbound logistics of accepting goods from suppliers (receiving). It includes tasks such as scheduling shipments, managing documentation, and ensuring goods are properly loaded and unloaded.
FTL and LTL Shipping: Full Truckload (FTL) and Less Than Truckload (LTL) are two common shipping methods. FTL is used when the quality of goods is enough to fill an entire truck, while LTL is used when the shipment doesn’t require a full truck and can be combined with other shipments.
Freight Forwarding: This is a service in which a freight forwarder acts as an intermediary between a shipper and various transportation services. The freight forwarder uses their network of carriers logistics and their network of carriers to find the most cost-effective and efficient route for the shipment.
Kitting: This is the process of bundling multiple individual items into a ready-to-ship package, a ‘kit. Kitting can help to reduce shipping costs and lead times and improve the customer unboxing experience.
Reverse Logistics (Returns): This involves the process of handling returned goods. It includes tasks such as inspecting returned items, processing refunds or exchanges, restocking items into inventory, and analyzing return data to identify trends and improve product quality.
Value-Added Services: In addition to these core services, a 3PL company offers value-added services like customized packaging, labeling, return management, and supply chain consulting.
3PL Providers and E-commerce Basics
Third-party logistics (3PL) providers are external companies to which businesses outsource their logistics operations. These providers offer a wide range of services, including warehousing, transportation, inventory management, and order fulfillment. Here are some basics about 3PL in the context of e-commerce:
E-commerce Fulfillment Services: 3PL companies provide e-commerce fulfillment services, taking logistics operations off the hands of e-commerce businesses. This includes storing stocks in a 3PL vendor’s warehouse, with the stock shipped directly from manufacturers. When a customer places an order online, items are then automatically shipped from the 3PL’s warehouse.
Extended E-commerce Solutions: Some 3PL providers also help with extended e-commerce solutions, like data analytics and demand planning. These services can provide valuable insights for businesses to optimize their operations.
Specialization: Each 3PL services company specializes in different types of fulfillment and warehousing. This allows businesses to choose a 3PL provider that best suits their specific needs.
Benefits: Partnering with a 3PL allows a merchant to focus on other aspects of their business, such as product development, marketing, and sales. It also allows businesses to benefit from economies of scale, specialized expertise, and a vast network of carriers and warehousing facilities.
Selection: When selecting a 3PL provider, businesses should consider factors such as the range of services offered, the provider’s expertise and reputation, their network of carriers and warehouses, and their ability to scale with the business.
The use of 3PL providers in e-commerce has grown exponentially, with the 3PL market expected to reach $1.59 trillion by 2028. For any successful e-commerce businesses, 3PLs have been, and will continue to be the secret ingredient that allows them to weather challenges like supply chain crises.
3PL Process
Third-party logistics (3PL) is a business model where a company outsource its logistics operations to a third-party provider. The 3PL provider is responsible for handling customer orders, inventory management, transportation, warehousing, and other related services. Here’s a step-by-step breakdown of the process:
Contracting: The process begins with the client company and the 3PL provider entering into a contract. This contract outlines the services that the 3PL provider will offer, the terms of services, and the cost.
Integration: The 3PL provider integrates their systems with the client’s systems. This allows for seamless communication and real-time updates on inventory levels, order status, and other key metrics.
Inventory Management: The 3PL provider manages the client’s inventory. This includes receiving goods, storing them, and keeping track of their quantity and location.
Order Fulfillment: When a customer places an order, the 3PL provider picks the ordered items from the inventory, packs them, and prepares them for shipment.
Transportation: The 3PL provider arranges for the transportation of the goods to the customer. This could involve multiple modes of transport, depending on the destination.
Delivery and Returns: The 3PL provides ensures that the goods are delivered to the customer on time. They also handle returns and exchanges, if necessary.
Reporting: The 3PL provider provides regular reports to the client on inventory levels, order fulfillment rates, delivery times, and other key performance indicators (KPIs).
By outsourcing logistics to a 3PL provider, companies can focus on their core business activities, while also benefiting from the expertise and resources of the 3PL provider. However, it’s crucial for companies to choose a reliable 3PL provider that can meet their specific needs and deliver high-quality service.
Benefits of 3PL
Third-party logistics (3PL) providers offer several benefits for businesses, especially in supply chain management. Here are some key benefits:
Drive Cost Saving: 3PL firms specialize in logistics and have a more extensive network than your company’s supply chain function. They can offer greater volume discounts to clients, minimizing overhead costs.
Access to Expertise and Experience: 3PL service providers have knowledge and experience in transport documentation, import and export, international compliance, and economic regulations.
Focus on Core Competencies: Outsourcing logistics allows your organization to focus on its core competencies instead of getting involved in the management of non-core but critical functions.
Gain Flexibility and Scalability: 3PL offers enterprises the flexibility and scalability to utilize supply and distribution resources based on current business needs.
Reduces or Eliminates Fleet Expenses: Maintaining a vehicle fleet can be incredibly expensive. A 3PL has already made all of these investments as part of its core business model.
Leverage Benefits of Experience and Expertise: A 3PL can provide a level of knowledge and experience that most companies won’t have access to in-house.
Maximize Speed and Efficiency: As your business grows, a 3PL can handle increased order volume without the need for additional staff.
Are 3PL Services the Same As Order Fulfillment?
Third-party logistics (3PL) and order fulfillment are related but different.
Third-party logistics (3PL) refers to the outsourcing of various logistics processes such as warehousing, fulfillment, and inventory management to a third-party business. These service providers allow e-commerce merchants to accomplish more and automate retail order fulfillment by using the best equipment and infrastructure.
On the other hand, order fulfillment is a part of the supply chain process that involves handling the order fulfillment process from beginning to end, including packaging and shipping items to customers.
The critical difference between a third-party provider and an order fulfillment company is that 3PLs handle the entire supply chain process, while order fulfillment companies only handle the fulfillment part. A fulfillment center offers faster order processing and delivery than a 3PL and can put products directly into customers’ hands. They also offer more services, such as picking, packing, labeling, customer relations, and returns.
How 3PL Services Can Benefit Your E-commerce Business?
Warehousing and Inventory Management: 3PL companies offer storage space where you can store all or parts of your inventory list. This is extremely efficient as you don’t have to invest additional for expansion and reduce storage costs.
Order Processing and Fulfillment: 3PL providers handle almost all functions after order placement, including transportation, storage, picking, packing, and delivery.
Returns Management: 3PLs handle reverse logistics to ensure that returns are processed efficiently and promptly.
Value-Added Services: 3PLs often provide additional services such as custom labeling, which can enhance your brand’s visibility and customer experience.
Focus on Core Business: By outsourcing logistics tasks to a 3PL company, you can focus more on getting customers and offering them the best customer experience.
Cost Reduction: 3PLs are cost-effective as they eliminate the need to secure and rent warehouse space, which is a major investment for most businesses.
Scalability: 3PLs offer scalability, allowing you to easily adjust your logistics needs based on your business growth.
Risk Mitigation: 3PLs reduce risk by handling all aspects of your logistics supply chain, enabling a seamless delivery and processing operation.
What is the Difference Between a 1PL, 3PL, and 4PL Service Provider?
First-party logistics (1PL): This is a simple method of transportation where a company or manufacturer produces and ships a product from one point to another. They do not outsource any of the supply chain. Instead, they handle all elements of logistics management internally, including production, transport, and retrieval.
Third-party logistics (3PL): For more complex logistical needs, a company may turn to a third-party logistics provider. This provider helps a company organize its supply chain while the company retains overall control of its supply chain. By handling shipment, warehousing, reverse logistics, and more, a 3PL service provider helps companies optimize their supply chains1.
Fourth-party logistics (4PL): A fourth-party logistics provider is further involved in logistics management. These providers manage the supply chain in its entirety by designing and implementing supply chain solutions. 4PL providers apply strategies to meet customer demand and help a business grow.
Each level of party logistics serves different purposes, and companies need to understand these differences to manage their complex supply chains effectively.
What are 2PL and 5PL Services?
Second-Party Logistics (2PL): A second-part logistics provider assists businesses by providing transportation solutions. By using trucks, ships, and airlines, 2PL providers move and deliver inventory for different companies. 2PL providers don’t produce goods; they only ship them.
Fifth-Party Logistics: A fifth-party logistics provider offers even more in-depth and comprehensive supply chain management solutions than a 4PL provider. They leverage advanced technology and data analytics to provide businesses with real-time visibility and optimize their operations for maximum efficiency and profitability.
What are the Core Competencies of 3PL Company?
Third-party logistics (3PLs) providers provide several core competencies that add value to supply chain management:
Product: 3PLs assist in sourcing strategies, helping to find suppliers that offer the best value proposition in terms of cost, quality, and reliability. They can influence the distribution strategies of a product, including value-added services like labeling, packaging, returns, etc.
Transport: 3PLs can actively influence the shipping of goods by establishing contracts with transport providers and organizing load units in accordance with distribution requirements (costs, lead time). They also advise on the routing conditions within supply chains, such as frequency and scheduling, and the sequence of ports and distribution centers used.
Value-Added Services: Some 3PLs provide additional logistics services, such as inventory management, kitting, and assembly, postponement packaging, procurement, and others.
By outsourcing logistics functions to a 3PL provider, businesses can focus on their core competencies, such as product development, marketing, and customer service. This improves overall efficiency and allows businesses to allocate resources where they are most needed.
Bottom Line
A survey report states that 64% of 3PL users agree that the use of 3PLs has reduced overall logistics costs. Shared resources and optimized processes contribute to a more cost-effective supply chain. 3PLs handle logistics processes such as warehousing, transportation, inventory management, and order fulfillment, allowing businesses to focus on their core competencies. 3PLs offer a wide range of services and expertise that can alleviate the challenges associated with shipping and logistics. Businesses can leverage specialized resources to identify cost-saving opportunities, achieve better freight visibility, improve customer satisfaction, and scale their operations. Making use of 3PL services can result in on-time deliveries, improved services, accessible customer care services, and reliability on your brand name. This can ultimately result in greater retention of your customers.