What is 3PL?
3PL or third-party logistics refers to the outsourcing of partial or all of your e-commerce warehousing and fulfillment operations to an external logistics provider that specializes in these services. The 3PL services include warehousing, distribution, picking, labeling, transportation, and fulfillment.
A 3PL essentially acts as an extension of your business operations, handling the logistics functions which you may not be able to execute effectively or efficiently.
Since these 3PL providers have their expertise and streamlined resources in managing logistics processes, they automatically become the best option for ecommerce businesses to outsource warehousing and logistics rather than doing it themselves.
Majorly, Third-party logistics are utilized for customers’ inventory and fulfillment needs through their warehousing and distribution services. These 3PL warehouse providers usually manage stocks for multiple sellers, sometimes including their own, called as Hybrid 3PL.
How Does 3PL Work?
In 3PL or third-party logistics, ecommerce sellers or businesses do not own the warehouse. Instead, it is more of a rented space for your products in 3PL warehouses. They handle the entire logistics chain, from planning and implementing to monitoring and controlling the process.
The 3PL provider acts as an intermediary between the company, suppliers, and customers, ensuring that goods are delivered on time, at the right location, and at the lowest possible cost. The aim is to provide maximum speed and efficiency in the logistics process.
3PL vs 4PL
Like the 3PLs, you may have also come across the term 4PL which stands for Fourth-party logistics. 3PL and 4PL are supply chain management systems that businesses can choose from to outsource their logistics operations.
When comparing 3PL vs 4PL, the 4PLs generally have a more holistic process as compared to 3PLs. 4PL providers act as a single point of contact for the clients to manage their supply chain operations end-to-end.
4PLs act as a management layer who work with many 3PL providers. They act as a link between businesses and logistics providers while 3PLs are more focused on logistics execution. It solely depends on the businesses what they want to choose between 3PL vs 4PL based on their requirements and agenda.
The 3PL Process
Here’s the core 3PL process that can help you understand the depth of order fulfillment operations and the importance of 3PL for ecommerce logistics. The third-party logistics process entails:
Warehouse Receiving
The first step in the 3PL process is warehouse receiving where 3PLs receive the products from their ecommerce clients. The 3PL warehousing will need the inventory for order fulfillment. If your 3PLs have multiple fulfillment centers across a geographic area then it would be best to distribute your inventory across multiple warehouses so that fulfillment becomes faster and easier for customers.
Warehousing & Storage
Upon receiving your product, 3PL companies store it in their fulfillment centers. Since 3PL has multiple clients and products, they manage each SKU according to its dedicated storage space be it a bin, pallet, or shelf.
A well-organized and efficient warehouse storage system can ensure that products are readily accessible when needed, reducing the time it takes to fulfill orders and increasing customer satisfaction. Efficient warehouse storage can help businesses save money by reducing inventory costs and minimizing the risk of damage or theft.
Different fulfillment centers have different storage capacities. Therefore, it is important to make sure while choosing a 3PL warehouse that they have scalable storage capacity to maintain your inventory currently and in near future.
Picking and Packing
Picking and packing is the 3PL process that comes into effect when a customer places an order. Mostly, 3PLs integrate with your seller portal on marketplaces to fetch order details whilst some 3PL companies may require you to upload your order sheets manually.
3PLs then assign the orders to their automated warehouse picking system or team to fetch the products from the warehouse.
Once picked, the items are then moved for packing. Packaging depends on certain factors like the order items, seller preferences, and 3PL warehousing practices. Hopstack mentions that sellers should choose 3PLs which provide quality and customized packaging options.
Shipping Orders
After packaging, the 3PL fulfillment centers will print the shipping labels or the items. From there, some 3PL companies have their predefined carrier partners with whom they ship all orders while other 3PL providers will choose carrier partners depending upon the costs, delivery time, location, etc. Shipping speed may vary depending upon the terms of partnership between sellers and the 3PL companies.
Many 3PL companies even offer same-day shipping to attract more ecommerce clients and get an edge over their competitors. You can explore hundreds of best prep centers from our FBA prep centers directory.
Returns Management
Although customer order returns are high in numbers, not all 3PL fulfillment provides take care or return processing. Third-party logistics will receive your order returns and restock it in your inventory. Not all orders may be restocked, some products might require disposal. Restocking or disposing may depend upon the agreement between the 3PL warehouses and ecommerce business.
Why use 3PL?
Here are some of the key benefits of having a 3PL or third-party logistics company for your logistics fulfillment. A few reasons why businesses might choose to outsource their logistics operations to a 3PL provider. These can include:
Fulfillment Cost Savings
By outsourcing logistics, businesses can often reduce their overhead costs and save money on things like warehouse space, transportation, and labor. Otherwise, you may have to pay different costs for different solutions like inventory management software, distribution, and much more.
Demand Scalability
3PL providers have the resources and expertise to handle fluctuations in demand, allowing businesses to scale up or down as needed without worrying about the logistics. Whereas internally, ecommerce businesses can face huge challenges in scalability due to factors like storage space, labor, etc.
Greater Reach
Third-party logistics providers have a much wider reach through their vast network of carriers and years of experience as compared to the individual ecommerce sellers who are not experienced across a vast geographical area with different cultures and languages.
Compliance Fulfillment
There are numerous regulatory compliance requirements which sellers need to take into account and 3PLs can help you manage compliances on shipments. Logistics and fulfillment compliance failure can lead to penalties and even account suspension on marketplaces.
Logistics Expertise
3PL providers specialize in logistics, so they bring a level of expertise and experience that many businesses don't have in-house. Since the 3PL companies have been in existence for years and have shipped thousands or millions of orders so they have refined their processes.
Focus on Growth
By outsourcing logistics, businesses can focus on their core competencies and strategic initiatives, rather than getting bogged down in the details of logistics operations.
Key 3PL Services
Here are a few services that a 3PL provider should deliver for successful modern warehousing and fulfillment solutions.
1. Inventory Management
Inventory management refers to the process of keeping track of a company's inventory levels, organizing and managing inventory, and ensuring that there is a proper supply of goods and products to meet demand.
Efficient inventory management plays a critical role in any business as it helps in reducing costs, improving cash flow, and increasing profits. By having a clear understanding of their inventory levels, businesses can make informed decisions about when to order new products, how much inventory to keep in stock, and where to store it. This helps in ensuring that products are always available when needed and also helps in avoiding stockouts, overstocking, and wastage.
2. Freight Forwarding
Freight forwarding is the service of arranging and coordinating the transportation of goods from one place to another. This involves managing the logistics of the entire process, including the handling, storage, and transportation of goods. Freight forwarders act as intermediaries between the shippers and carriers, ensuring that the shipment is delivered on time and in good condition.
They also handle all the necessary documentation and customs clearance procedures, making the process hassle-free for the shippers. Freight forwarding plays a crucial role in international trade and helps businesses to expand their reach globally.
3. Expedited Shipping
Expedited shipping refers to a type of shipping service that prioritizes the delivery of packages or parcels. This means that the package is shipped and delivered faster than the standard shipping option. Expedited shipping is essential for businesses that want to provide their customers with faster delivery options, especially during peak seasons or when the product is time-sensitive.
It is also useful for individuals who need to send or receive important packages within a specific timeframe. While expedited shipping may come with an additional cost, it is a worthwhile investment for those who prioritize efficiency and convenience.
4. Reverse (Return) Logistics
Reverse logistics refers to the process of managing the flow of goods and materials from the end consumer back to the manufacturer or seller. This can include activities such as product returns, repairs, refurbishment, and recycling. Effective reverse logistics can provide numerous benefits for companies, including increased customer satisfaction, reduced waste and cost savings.
In today's world, where sustainability and environmental responsibility are becoming increasingly important, the proper management of reverse logistics is crucial for businesses to succeed.
5. Inventory Dispersion
Inventory dispersion refers to distribution of inventory across multiple fulfillment centers in different locations that makes it easier and faster to fulfill the customer orders. Often ecommerce businesses have customers distributed across a wide geographical area.
Thus, having fulfillment centers in multiple locations help 3PL companies to accelerate shipments through fulfilling orders from the nearest warehouses. However, Inventory dispersion might not be as cost effective but when you have a high volume of orders then inventory dispersion plays a crucial role.
6. International Logistics Fulfillment
International fulfillment refers to the process of delivering products to customers living in different countries. With the growing trend of e-commerce, it has become increasingly important for businesses to cater to a global audience.
International fulfillment includes various aspect, such as customs clearance, shipping, and delivery. It requires careful planning and execution to ensure that products are delivered to customers on time and in good condition. Effective international fulfillment can help businesses expand their reach and increase their customer base, leading to increased revenue and growth.
7. Inventory & Shipment Analytics
Analytics nowadays plays an important role in every aspect of business. Similarly, ecommerce businesses and 3PLs can extract a lot of useful insights from their logistics analytics.
Platforms like Hopstack can provide 3PLs with detailed analytics for monthly or yearly reporting. Analytics can provide details on minute elements like avg. daily costs, avg. cost per shipment, client-wise data, and more. 3PLs can use this information to optimize their inventory management, allocate resources efficiently and reduce costs with maximum efficiency.
8. Shipment Kitting & Customizations
We all have come across certain orders where we have received a custom handwritten note from the seller or a value-added gift with the ordered items or a specially packed item - all these are some examples of customized shipments or kitting.
Some of the 3PL companies provide these special packaging and customized order shipping options where sellers can either send their custom notes with all or some of their orders, personalized packaging on orders, or creating a kit of multiple items as special order.
Bonus: Value Added Services by 3PLs
a. Product Disposal
Sometimes, when the customers return the products, these products become unusable and not fit for resale, requiring disposal. Many 3PLs offer value-added services for disposing of damaged items for their business partners. Product disposal might require 3PL expertise since it needs to be done carefully and according to compliance.
b. Customer Support Management
Many 3PLs nowadays provide call center services and inbound email support on behalf of their sellers/business partners. These services might add extra costs to your business, but they are extremely helpful in managing positive brand images and providing order-related resolutions. Since managing customer support internally might not be that effective or seamless.
c. Recurring Subscription Packages
The subscription business is highly popular in the food, beauty, wellness, etc industries. There could be many other industries that use the subscription model. However, the challenge is sending out subscription packages to your customers at the same time every month. 3PLs can take care of recurring subscription packages for you, be it personalized packaging or special items in packages being fulfilled diligently.
How To Choose The Right 3PL provider
Choosing the right 3PL provider is crucial to the success of your logistics operations. Here are some things to consider when selecting a 3PL provider:
Expertise and Experience
Look for a 3PL provider with experience in your industry, as well as a track record of success. Numerous years of experience in logistics and fulfillment solutions helps the 3PL companies to optimize their fulfillment process and increase their speed and efficiency.
Expertise of 3PL in terms of fulfillment centers in different geographical locations or partnership with different carrier companies or marketplace integrations or diversity of services offered can be the crucial factors in selecting which 3PL will be the right partner for your organization.
Smart Warehouse Technology
The right technology in the warehouse can make a big difference in your logistics operations. Look for a 3PL provider with a robust technology platform that can integrate with your own systems.
Smart Warehousing technology refers to the use of advanced tools and systems to manage inventory and streamline operations in a warehouse setting. With the increasing demand for efficient and cost-effective warehousing solutions, automation and digitalization have become essential components of modern warehouse technology.
Warehouse technology includes a range of software, hardware, and equipment such as inventory management systems, barcode scanners, automated storage and retrieval systems, and robotics. By adopting these advanced technologies, warehouses can improve their productivity, accuracy, and speed, leading to better customer satisfaction and increased profits.
Range of Services
There is a long list of services Third-party Logistics offers. And understanding how they can benefit you is essential. You must know what you need beforehand to ensure the most out of a Third-party Logistics partnership. You should not have to choose multiple 3PL providers for something that a single service provider can offer. That is simply counterproductive. Ideally, a third-party logistics provider should effectively manage almost everything from your inbound flow to your outbound flow.
It is also critical to ensure you completely utilize the capabilities of the offerings of the Third-party Logistics service provider. When you do so, you make the entire partnership a seamless experience that maximizes efficiency.
Diverse Warehouse Locations
Nowadays, Ecommerce businesses have spread in each and every corner of the world and every customer wants to receive their ordered items as soon as possible. Therefore, it is essential to have a 3PL provider that has a warehouse presence across different geographical locations.
This way the 3PL with inventory dispersion will lead to faster delivery of shipments from the customer’s nearest warehouse location. It isn’t necessary for you to choose a 3PL with multiple warehouses across the country if you are just serving customers in a limited geographical area.
Omnichannel Capabilities
Implementing Omnichannel Fulfillment is essential if your business has both an online storefront and a retail store. Partnering with a 3PL service provider who understands the Omnichannel Fulfillment model’s challenges is vital.
With multiple touchpoints and fulfillment centers, it is important to ensure the Third-party Logistics partner has the resources and expertise to operate in these complex scenarios. Doing so will help you reduce operating costs and improve customer satisfaction.
Seamless Customer Support
While working with a third-party logistics partner, it is important that 3PL has a responsive and knowledgeable customer support team that can resolve logistical and fulfillment issues instantly without much delays.
There are numerous issues and challenges that can arise while working with 3PL companies like timely order fulfillment, inventory management, restocking, shipment delays, proper reverse logistics, packaging shortcomings, etc. where having a robust customer support team will come in handy to resolve these issues without any hassle. Do check what type of customer service the 3PL provides. Is it 24/7/365? How big is the support team? What is the average response time? And more such questions.
Security and Scalability
Your logistics needs may change over time. Look for a 3PL provider that can be flexible and adapt to changes in your business environment and fulfillment needs. Scalability can be a crucial factor when your business grows over time and it starts receiving 10x or 100x orders so that magnifies the need for more inventory storage and seamless fulfillment at large scale. This is where a 3PL should be flexible and should adapt as you scale.
Moreover, you should also take into account the security standards and practices that a 3PL follows for warehouse safety, warehouse management systems, shipment safety, etc. Since, the security concerns can cause massive damage to your ecommerce logistics operations and lead to losses. Check whether 3PL providers have 24/7 security, backup power systems, technical firewalls, etc.
Integration Ability
When looking for a third-party logistics provider, it is crucial to ensure that both you and your 3PL provider are equipped with the right tools to integrate easily. There is no one-size-fits-all integration strategy, and you will have to do your research and understand where you stand in terms of technology.
Most of the time, you will have to look for a modern warehouse management system that is equipped with easy integration for third-party logistics. Once you do so, both your e-commerce business and the 3PL integration can work harmoniously.
We recommend consulting industry experts to help you understand what suits best for your business.
Order Fulfillment Costs
Costs are one of the biggest defining factors while choosing the right 3PL for your ecommerce logistics. Order fulfillment costs directly affect your profitability so it is essential that the right 3PL warehouse provider offers maximum efficiency and output with minimum costs. The minimum average cost per order you incur the higher your margins are. Make sure you discuss all the associated costs for handling your logistics and fulfillment.
Performance Tracking
Performance is a crucial part of an e-commerce business. Regardless of what tools you choose for your business, they should work in harmony to make the most impact. Performance can be very subjective.
Hence it is critical to measure them using appropriate industry metrics. Third-party Logistics providers should have analytics and reporting modules built within their Warehouse Management and Order Fulfillment Software to track and monitor the performance effectively.
You will have to do your research to find out which Third-party Logistics service provider is high performing and most suitable for your e-commerce business. Some of the Key Performance Indicators (or KPIs) you should prioritize are Order Fulfillment rate, Order Lead time, Order Return rate, and Weekly Throughput.
Does Your Business Need a 3PL Provider?
Outsourcing fulfillment can be beneficial to any kind of ecommerce business - be it small or medium or large. However, that doesn't mean you necessarily need to have third-party logistics or you don’t need to have a third-party logistics provider. Here are some of the key points to outline whether you need a 3PL provider or not for your business.
1. Number of Orders/Month
The need for a 3PL provider is not defined by a specific number of orders per month, but it is more about the capacity of your business to fulfill a certain number of orders per month internally. For some businesses, it can be 100 orders per mont, while for others, the number can be 500 or more.
So, as per your business, you can define how many orders you can fulfill per month internally and if your ecommerce business scales beyond that then you opt to choose for a 3PL. The important thing is to not delay hiring the 3PL provider for too long as issues in fulfillment can lead to losses for your business.
2. Inventory Storage Capacity
Inventory storage becomes a massive concern when your business scales and the number of orders grows beyond your storage capacity. Mostly, businesses store inventory on their own locations but when it reaches their maximum capacity, the option for storage expansion becomes quite challenging.
This is where you look for temporary options like your garage, office, house, etc. But these are not scalable or long-term feasible inventory storage options. So, once you start reaching your maximum storage capacity then it is time for you to look for the right 3PL partner to help you solve your inventory management planning and storage concerns.
3. Enable Expedited Shipping
When you are internally managing order fulfillment, it is highly challenging to ship your orders within 2 days across vast geographical locations. Whereas 3PLs have their expertise in expedited shipping.
If you want to provide 1-day delivery or 2-days delivery then your business needs third-party logistics providers. You can leverage the faster shipping to create an edge over your competitors and other products in the same category.
Different Types of 3PL Pricing Models
We have listed some of the 3PL pricing models to understand the costs of hiring a 3PL provider.
1. Onboarding Fees
The onboarding process for partnering with a 3PL can take weeks to months. Many third-party logistics providers have certain onboarding costs to get started with ecommerce businesses.
2. Warehouse Receiving Costs
These are costs involved in inventory received from suppliers. These costs are charged on inbound receiving. Different 3PLs warehouses have different cost methods like per unit or per pallet or flat rates.
3. Warehouse Storage Costs
Third-party logistics providers charge you for storage space in their warehouse to store your products. Similar to receiving costs, 3PLs warehouses charge you per unit or per shelf or total storage space or per pallet.
4. Picking & Packing Costs
These are the costs which a few 3PL companies charge you for picking items of your order from the warehouse. While packing costs include costs of packaging materials like boxes, wraps, etc.
5. Shipping Costs
Shipping costs are the costs that 3PL companies charge for shipping a customer order from the fulfillment center to the customers. The shipping costs are dependent on geographical locations, order size, and items weight
Additional: Kitting Costs
These are special costs which are charged by 3PLs warehousing for special orders or any multiple inclusions in orders like unboxing, custom gifts, notes, etc.
Hopstack Warehouse Management System For 3PL
We at Hopstack believe modern technology and collaboration can do wonders for e-commerce businesses and Third-party Logistics providers. Hopstack provides a powerful Automated Order Fulfillment and Warehouse Management/Execution System to streamline your entire warehouse workflow.
Hopstack offers a comprehensive WMS for 3PLs to onboard the ecommerce customers seamlessly, connect to different ecommerce marketplaces, hassle-free inventory management, and automated billing along with many other features and possibilities.
If you are an e-commerce business owner or warehouse manager, with Hopstack advanced solutions, you gain the ability to manage your warehouse operations efficiently. If you are a 3PL provider, you get a unified management system for control and order processing. You gain the ability to control and view your clients’ operations from one dashboard.
Schedule a demo to learn more about how Hopstack is transforming e-commerce fulfillment now!
3PL FAQs
What does 3PL and 4PL mean?
3PL or third-party logistics provider offers fulfillment solutions from warehousing to shipping the orders. 4PL or fourth-party logistics provider manages the 3PLs on behalf of their ecommerce clients.
What is an example of 3PL?
The perfect example of 3PLs are the companies who are involved in contractual storage, logistics, and transportation services like couriers, freight forwarding, warehousing, etc. Here’s a list of the 100+ best 3PL warehousing providers.
What is the benefit of 3PL?
The 3PL or Third-party logistics companies help in reducing labor costs, easily manage inventory, help in scalability, provide faster shipping, expand into newer markets, and increase productivity for the ecommerce businesses.
Who uses 3PL services?
3PL services are used by businesses who are looking to outsource their warehousing, prepping, and order fulfillment operations. Third-party logistics companies are experts in delivering these services more efficiently and effectively.
