Third-party logistics, or 3PL, is the outsourcing of logistics processes from an eCommerce business to a third-party business. 3PLs involve three parties (hence, the 3 in 3PL): your business, the third-party logistics provider (them), and the shipping carrier (like USPS, UPS, DHL, etc.).
Some of the tasks a 3PL can assist with include inventory management, warehousing, or 3PL fulfillment services. By hiring a 3PL for logistics needs, your business can benefit from the expertise and tools they bring to logistics while freeing up time, energy, and employees for other important tasks related to running your eCommerce store.
(4PL) is different from 3PL in that it manages even more for you. A fourth-party logistics provider adds another level of separation between eCommerce shops like yours and the 3PL companies shipping their inventory.
When an eCommerce business contracts with a 4PL, the 4PL company manages and arranges 3PL services, often offering end-to-end entire supply chain management for the eCommerce store, including 3PL services, manufacturing, inventory procurement, and other tasks as needed.
Advantages of 3PLs
Disadvantages of 3PLs
What are 3PL Services?
There are many 3PL service providers that your business can take advantage of. By partnering with the right 3PL, your life can be made easier, your business can run more efficiently, and your customers can be happier with their overall experience with your shop.
Whether you have 100 items in your store or 10,000, you need to have a system in place to manage your inventory. Without inventory management, you will not know which products you are running low on and you may even have a customer place an order for an item you do not have in stock.
A 3PL can sync inventory with your online store so that real-time inventory levels are reflected online and sold-out items are marked as such or removed from the store. Once your 3PL has received and warehoused your items, you can check inventory and know the quantity of each item, color, or size you have and how many items are being sold each day.
It can be challenging for many eCommerce stores that handle their logistics to have multiple warehouse locations, which can help to reduce shipping times for your customers. However, many 3PLs have warehouses across the country, allowing you to have inventory in multiple fulfillment centers with a distributed inventory strategy.
This means that your inventory is closer to your customers in the West, the Midwest, and the East. Instead of shipping from your warehouse in Southern California to a customer in Massachusetts, you might have a warehouse with inventory in New Jersey that can cut that shipping time (and cost) down.
Another benefit of distributed inventory is when there is an extreme weather event. If you have a warehouse in Austin, but another ice storm is crossing Texas and transportation is shutting down, your items can still ship from your Phoenix warehouse.
Freight forwarding is the coordination and shipment of products from one place to another. This shipping often includes crossing international borders, and it can happen with single or multiple carriers.
Sometimes, freight needs to be moved by air, sea, rail, or highway, depending on the goods involved and how quickly they need to get there. A 3PL can help coordinate freight forwarding, including documentation, consolidation, cargo insurance, and customs compliance.
If you sell to both business and consumer customers and utilize a multi-channel logistics approach, 3PLs that provide both business to business and business to consumer (or direct to consumer) services can make your life much easier.
A 3PL can centralize your inventory management and fulfillment services. With order processing through a 3PL, orders can be shipped quickly and accurately, so it is a win-win for your business and your customer.
It’s inevitable – returns are going to happen. A 3PL can manage your returns for you, processing returned orders and handling them in the right way (restocking, disposal, quarantining, etc.). While they handle the return, you will still have full visibility into the return process so you know which items are being returned and how often returns are happening.
In addition to handling the shipment, a 3PL can manage the tracing and tracking process, giving you and your customers insight into where items are at any given moment. Your order system and your customer will receive shipping information, so everyone can see where an order is throughout the order fulfillment process.
A big trend in the eCommerce world is subscriptions and kits. These are customizable inventory items that you can sell on your website under one SKU, but may contain many items or happen regularly for the customer. A few key ways customization can happen with 3PLs are:
Data is how you make decisions for your eCommerce business. Without data from your logistics company or team, you would not be able to have access to information on the stocking levels, supply chain challenges, shipping times, or other information that can help you determine new promotions or offers, new pricing, or new products to offer your customers.
Pick and pack is a process used by 3PLs to prepare and ship orders as they come in. Items are stored in a warehouse, and as orders come in, fulfillment workers go through the warehouse shelves to pull items to fill each order. Those items are then packed and shipped, making fulfillment easier and limiting freight costs.
A 3PL can often offer more shipping options and quicker shipping than businesses can on their own. Customers are wanting their items quicker, and many are expecting affordable or free shipping on top of that. Some of the biggest stores online have free two-day shipping options available, so to stay competitive many eCommerce shops want to offer the same or similar.
With a 3PL, two-day shipping is much more achievable. Established 3PLs have negotiated discounted shipping rates for clients with shipping partners, so you can have more shipping options and faster shipment speeds available for your customers.