What is 3PL?

You don’t need us to tell you that order fulfillment is an important part of the overall sales process. However, as any successful e-commerce brand will attest, there comes a point where trying to handle it all with your in-house team becomes increasingly difficult.

That’s when working with a third-party logistics (3PL) company becomes paramount. What is 3PL? To help you understand the process and discover why working with a company like Tradefull is so important, we’ve put together a guide with all the information you need to know.

What Is Third-Party Logistics (3PL)?

Before we can discuss the various tasks you can outsource, we first need to cover the concept behind it all.

Third-party logistics is when a company outsources their warehousing, inventory management, and fulfillment process to a dedicated third-party provider. 3PL is a concept that’s been around for decades but is currently gaining popularity as the e-commerce industry continues to rise.

Understanding Third-Party Logistics

Now that we’ve defined 3PL, let’s go a little further into what it entails.

Let’s assume you own an online store. You’re looking to order 10,000 gadgets to add to your catalog, but you don’t have anywhere to put them.

In this scenario, a 3PL would arrange for your order to be sent from the manufacturer or distributor to one of their warehouses. From there, they would keep track of how many items you’ve sold through the inventory management process, most likely through some kind of warehouse management system. Plus, they would pick, pack, and send orders to customers when purchases are made.

Sounds pretty slick, doesn’t it? It is — and it’s the reason why having a solid 3PL solution is so important. Not only does it save you time and hassle, but it frees up your staff to handle more pressing tasks.

3PL Fulfillment: The 5-Step Process

If you’re still wondering what each step in the 3PL process typically involves, you’re in luck. Here’s a step-by-step guide on what most logistics companies do for 3PL fulfillment and how it relates to the overall goals of your e-commerce business.

1. Receiving

The first step in 3PL fulfillment is receiving. This is when items physically arrive at the logistics company’s warehouse. After all, they can’t ship orders for you if they don’t have the items on hand.

Generally, there’s a process for this that includes letting the 3PL know ahead of time how many of each item are set to arrive, the dimensions of the products, special packaging information, and so on.

By obtaining these details, the 3PL is able to decide where and how to store the items within their warehouse. In some cases, that might require shifting certain products to other locations within their 3PL network.

Inventory Management

An important aspect of receiving is inventory management. This is where your 3PL keeps track of various elements like what products you have on hand, how many you’ve sold, which products have been in stock the longest, etc.

Working with a 3PL that offers reporting and data about these elements is important, as you should always know what’s coming and going from your inventory — even if you aren’t handling those aspects in-house.

2. Picking

Another facet of 3PL is picking. Your chosen logistics team will take orders as they arrive and pick them from your inventory. The great thing about this is that you don’t have to handle this process in-house, which can save you a ton of time and money in staffing costs.

Furthermore, the picking process with a dedicated 3PL is a lot more streamlined than if you were to do it yourself. The warehouses often have barcode scanners and other equipment and processes that make it super simple and efficient to accurately match packing lists the first time — which in the end prevents misorders and helps improve customer satisfaction.

3. Packing

Once your orders are picked from your available inventory within the 3PL’s warehouse, they’re packed in shipping containers. Depending on the size of the item and whether it could be damaged in transit, this might be something as simple as a padded mailer or as elaborate as an entire wooden crate.

With most 3PL companies, decisions are made in advance as to how orders should be packed. Some even offer the option of including special mailers, business cards, catalogs, or branded materials in shipments to help ensure the end customer has no idea you outsourced your logistics processes.

4. Shipping

In addition to the other steps mentioned above, a 3PL also assists with shipping. This is a huge benefit, as they’re absolute experts when it comes to working with carriers to get the best rates.

Think about this for a moment. When a 3PL works with multiple brands, they likely have hundreds or thousands of shipments going out each day. This means that they’ve already negotiated rates with carriers like USPS, UPS, FedEx, and others. In the end, this saves your e-commerce brand money and gives you peace of mind in knowing that your 3PL is handling the entire thing so you don’t have to.

5. Reverse Logistics

The final aspect you need to know about in 3PL e-commerce processes is reverse logistics, which is the receiving and processing of returned items.

These are products that come back into the warehouse and need to be inspected for damages, repacked, and placed back on the shelves. In some instances, the items themselves might need to be disposed of if they’re not resellable.

With a 3PL, the process is simple. You can even make arrangements for them to contact your customer service team when a return has arrived so that a refund can be swiftly sent to the customer.

What are the benefits of working with 3PL?

After reading about the 3PL process, you can probably already see where your brand could use this type of outsourcing to improve efficiency. But that isn’t all this method has to offer. Here are three of the biggest benefits of working with a 3PL.

You Can Save Time and Money

The biggest reason so many e-commerce brands choose to work with a 3PL is that it can save a considerable amount of time and money. That makes sense, given that you’d have an entire team of experts working on your behalf instead of having to hire in-house staff, pay to maintain a warehouse, and more.

How Dropshipping Can Play a Role

Does your business dropship on behalf of your customers? In that case, working with a 3PL just makes good business sense. By letting a logistics team handle these processes for you, the customer gets the items they ordered more efficiently and at a lower cost than your company or the brand selling the item could do individually.

You Can Leverage Industry Expertise

Another reason to hire an e-commerce 3PL for all of your logistics needs is that you’re able to leverage their industry expertise. These companies make it their business to know everything there is to know about shipping and warehousing.

Plus, they build relationships with carriers so they can always get the best pricing on shipping. As a customer of that 3PL, you’re able to take advantage of this knowledge and these relationships to achieve significant savings.

You Can Expand Your Reach

Finally, a key reason to work with a 3PL is that it allows you to expand your reach. Instead of just shipping from one region, you’re able to utilize multiple locations throughout the country. This allows you to promise faster ship times to customers and get orders out much more quickly.

3PL Warehousing

As a side note, it’s important to point out that most 3PL companies don’t have just a single warehouse. Instead, they work with a network of locations on multiple coasts to ensure items arrive on the customer’s doorstep more quickly and efficiently.

When Do You Need a 3PL?

So how do you tell when you should consider hiring a third-party logistics company? Here are a few scenarios to consider:

Industries or Types of Businesses That Use 3PL

What types of industries and businesses utilize third-party logistics? Really, just about everyone. However, the process is a lot more common with e-commerce brands that sell direct to consumers, high-volume B2B companies, and those companies that aren’t yet big enough to handle their own warehousing.

5 Types of Logistics Providers

To make the process a little more complicated, there are also different types of logistics providers that you need to know about. The most common are 1PL, 2PL, 3PL, and 4PL.

1. 1PL

A one-party logistics company is a business that needs to have goods moved from one location to another. By this definition, most e-commerce brands would be a 1PL. These companies are using their own warehouses and resources to fulfill their shipping and logistics needs.

2. 2PL

In contrast, a 2PL is the company that works to move those items from the starting location to the end location. There are multiple examples of 2PL companies, such as the U.S. Postal Service, FedEx, UPS, etc. Likewise, cargo companies that move large shipments from overseas via airplane, boat, and/or train are also 2PLs.

3. 3PL

We have covered 3PLs above, but it’s important to include here as one of the types of logistics providers. As we mentioned, a 3PL is a third party that you can use to outsource all of warehousing and fulfillment needs.

4. 4PL

A 4PL company is a lot like a traditional 3PL, but they take things a step further. 4PLs work as middlemen between the e-commerce brand and a typical 3PL. The benefit to working with a 4PL is that you can gain access to harder-to-reach 3PLs in varying countries around the globe.

5. Complete E-Commerce Solutions Like Tradefull

Of course, there’s also Tradefull. As a complete e-commerce solution, we offer everything and then some when it comes to your logistics. We’re highly experienced in the online retail industry and can help manage nearly any aspect of your business — from procuring products to warehousing items, sending shipments, gaining access to online marketplaces, and so much more. Think of us as your best business partner who happens to know nearly everything about running a successful e-commerce brand.

6 Tips for Choosing the Best 3PL Company

So how do you choose the best 3PL company for your needs? Here are a few things you’ll want to do in order to select the ideal partner for your business.

1. Evaluate Their Own Logistics Operations

The first step to choosing the right 3PL provider for your e-commerce company is to evaluate their logistics operations. Ask plenty of questions about their warehouse locations and their overall expertise within the industry.

Are they able to offer oversized shipments when you need them? How familiar are they with your particular industry or niche? These are both important things to find out when evaluating whether they’ll be able to handle what you’re asking them to do.

2. Ask About the Costs

Costs are a big factor when it comes to hiring a 3PL. Before signing any contracts, make sure you ask about costs for things like warehouse space, shipping services, packing/picking, custom packing, etc. Be as clear as possible from the beginning to help eliminate any surprises along the way.

3. Set Reporting and Communication Expectations

Some 3PLs offer reporting dashboards, but not all do. You’ll need to make sure you have a way to understand what they’re doing with your items while they’re stored in the 3PL’s warehouse and how they keep track of metrics. Make sure everyone is clear about communication expectations from the very start.

4. Determine Delivery Service Levels

What delivery service levels do they offer? Are they able to provide overnight shipping or next-day service? Or are all packages sent out via one carrier with only ground delivery as an option? By determining their delivery capabilities early on, you can assess whether they’ll be able to meet your needs.

5. Ask About Customer Service Support

Be sure to ask about their customer service support protocols. What happens if there is a problem or you have a question along the way? Whom do you reach out to, and is the 3PL adequately staffed?

6. Look Into Their Tech

Finally, you’ll want to look into their tech. Do they offer e-commerce platform integrations that make it easy to automate orders? Or will you have to take extra steps to make sure all your systems have the same information (which can be a huge pain)? Again, it’s best to explore this ahead of time to help reduce questions or misaligned expectations along the way.

Conclusion

As you can see, working with a 3PL is an excellent way to save time and money as your e-commerce business begins to grow. With the information we’ve provided in this guide, you should be able to make a solid decision on when it makes the most sense to hire a logistics company and what questions to ask before you do.

What is 3PL?

Table of Contents

What Is Third-Party Logistics (3PL)?

Understanding Third-Party Logistics