The supply chain is often invisible to consumers, but if you are in the manufacturing or shipping industries, you know how important it is. Indeed, logistics are the backbone of the economy, but choosing the right system can be overwhelming. You probably have a lot of questions about third-party logistics, including how 3PL storage and 3PL transportation work.
The following information below can answer your questions and grant you a thorough understanding of 3PL — including the many benefits it can bring to your business.
What Is 3PL Shipping?
The term "3PL shipping" generally refers to the process that 3rd party logistics companies follow to manage another company’s shipments. It’s important to note that every company for its own unique process.
The following steps represent the most common process for third-party logistics shipping and order fulfillment:
- Order Processing
The shipping process begins when an order is received from a customer and processed by a 3PL partner. Order processing may begin immediately, or it may be delayed until payment is finalized. In either case, a record of the order will be forwarded to the 3PL warehouse space where a company’s merchandise is being stored, and a notification is sent to warehouse staff.
This notification is usually delivered via a handheld device that lists each item in the order. If the warehouse in question is expansive, the list will usually be organized based on the item’s location — or where it is in the warehouse’s bins or totes.
A warehouse employee who receives a notification about an order may then proceed to select the items the customer has ordered. The process of doing so is called “picking,” because it entails going from bin to bin and picking out the items in an order. At this point in the process, accuracy is crucial.
Some 3PL storage warehouses have even transitioned from human pickers and implemented machine-powered pickers to ensure that every item in an order is correct. In warehouses where human pickers still work, they typically use devices that scan a barcode or QR code to ensure that the item that is picked matches the item in an order.
Once the items in an order have been picked, they are ready to be packed. Much like picking, this part of the third-party logistics shipping process has been outsourced to machines in many warehouses. In places where humans still do the job, though, they serve as the final stop for accuracy checks as they review an order’s packing slip and confirm that the picked items are correct.
When an order’s accuracy has been confirmed, a packer can then place the order slip and the items in the shipping receptacle. The order should be packed carefully with stuffing or additional cushioning if there are any items in the order that may be breakable.
Finally, the shipping part of the process occurs. A 3PL partner may take over the remainder of the logistics at this point by taking fulfilled orders to their final destination. A designated 3PL freight carrier will typically pick up orders from the warehouse in bulk, transfer them to a sorting facility, sort them based on their destination, and then forward them to the next shipping partner. Alternatively, if a warehouse coordinates shipping to local recipients, a single third-party logistics shipping partner may handle the shipping and delivery of an order.
How Does 3PL Work?
The third-party logistics shipping process is relatively straightforward, but you might still be wondering how a business secures 3PL storage and transportation services. Contracting with a 3PL partner doesn’t have to be a complex endeavor.
A 3PL relationship can be boiled down to the following four steps:
- Identify Your Needs
The first sign that you may need to enlist a 3PL partner is when you have a need that surpasses your ability. If your eCommerce site is growing exponentially, for example, you might lack the manpower to handle all of its orders and ensure order accuracy. Rather than letting the quality of your orders suffer, you should seriously consider your needs and find a solution that meets those needs.
Many entrepreneurs and small business owners find that they need help with logistics. You’re the expert at your business, but outsourcing order fulfillment to a 3PL partner can be a wise move — especially when the partner in question boasts years of experience, as ShipNetwork, formerly Rakuten Super Logistics does.
- Assess Your Budget
Many businesses object to the idea of outsourcing because of the anticipated cost. You may indeed need to adjust your budget for 3PL storage and shipping services, but it’s also true that doing so may end up boosting your profits. Issues such as the following can cost your customers:
- Slow shipping times
- Order errors
- Inefficient logistics
- Poor packaging
- Unprofessional presentation
If you’re managing your logistics process, you’re wasting valuable time that could be spent on other parts of your business. When it becomes clear that you need a 3PL partner, you should assess your budget and make room for the cost.
- Find the Right 3PL Partner
Your needs and your budget will determine who the right 3PL partner is. Some providers specialize in affordable 3PL storage and warehousing while others focus on 3PL transportation. If you need front-to-back logistics support, the right partner will offer all of these services. Finding the right 3PL partner isn’t just about the cost — it’s also about the breadth of service they can offer.
- Plan for Growth
Once you’ve partnered with a third-party logistics provider, it’s full steam ahead — you can confidently plan for growth and start scaling your business. Hammering out the details of your relationship comes first, though, as you will need to establish a contract with your 3PL partner that defines the terms of the services rendered. Some of the components of the contract should include:
- Agreed upon cost for services.
- Methods of payment accepted.
- Guarantees from either party.
- Mediation protocol for conflict.
These elements will ensure that your business’s relationship with its 3PL provider is grounded in clear expectations. When negotiating a contract, you should prioritize your business’s needs and ensure that important elements such as an accuracy guarantee are included in its terms.
What Should I Look for in a Third-Party Logistics Shipping Partner?
To get the most out of a 3PL partnership, you need to know what to look for. There are plenty of 3PL storage and 3PL transportation providers, but they won’t all be a good fit for your company. You need a partner that’s experienced in every aspect of the logistics industry — and experienced in working with eCommerce companies and entrepreneurs.
When you’re shopping for a shipping partner, look for the following traits:
A Track Record of Success
You want to know that your shipping partner is going to follow through on their promises. The best way to assess the likelihood of this outcome is to ask prospective partners about certain metrics such as order fulfillment rates, average ship times, and client satisfaction. A provider that boasts a track record of success will be able to answer these questions confidently — and provide responses that instill confidence in you, too.
Experience Working With Similar Clients
Although a track record of success is important, it’s not particularly meaningful if the entirety of a 3PL partner’s experience is in dealing with major corporations and you’re a small business owner. In addition to inquiring about a logistics company’s history of achievements, you should ask about what kind of clients they usually partner with. If they’re inexperienced in dealing with companies like yours, it may not be an ideal match.
Infrastructure That’s Adaptable
You should also assess a shipping partner’s infrastructure to gauge whether it’s adaptable to your needs. If you plan on massively growing your business in the next year, for example, will a 3PL provider be able to scale its operations, too? Rather than focusing solely on your current needs, you should look into the future and think about the infrastructure you will need in a few years. Partner with a 3PL storage and shipping provider that can grow with your goals.
Emphasis on Relationships
You might be surprised by just how important relationships are in the 3PL storage and shipping industry. Indeed, connections are a vital resource, and you’ll quickly learn the importance of knowing the right people.
For this reason, you should seek out a 3PL provider that emphasizes relationships — both with clients and with other logistics professionals. When supply chain issues emerge or a mechanical issue slows production, your 3PL partner should already be seeking a solution. In many cases, relationships are the key to overcoming obstacles such as these.
Guaranteed Order Accuracy
Perhaps the most important trait to look for in a 3PL partner is guaranteed order accuracy. Companies such as ShipNetwork offer a 100% guarantee so that you can enjoy peace of mind and your customers can enjoy a complete order.
Unfortunately, guarantees like this aren’t standard across the 3PL industry, and some providers expect their clients to absorb the fallout from order inaccuracies. If you want to keep costs low and keep customers happy, partner with a provider who offers 100% accuracy for orders.
Who Uses Third-Party Logistics Shipping?
What kinds of customers use 3PL storage solutions? The answer is simple — you do! Even if you haven’t yet contracted with a 3PL company for your business’s logistics, you enjoy the benefits of 3PL providers every time you place an order online or shop at the store.
This is because an effective 3PL partner is one of the greatest assets any organization — including these four types — can have at its disposal:
- Small Businesses & Retailers
One of the most important alliances in the logistics world is the one between small business owners and 3PL storage providers. If you sell any kind of material goods, expanding operations should be your ultimate goal — and you can’t accomplish this goal effectively without a 3PL partner to support you.
Retailers and other small business owners frequently partner with 3PL companies so that they can maintain focus on product development, customer service, and other important aspects of their business — not storing stock and shipping orders.
- eCommerce Sites
eCommerce sites are particularly well-suited to a partnership with a 3PL transportation agent. In the age of Amazon, eBay, and Etsy, it’s easier than ever to jump online and start earning income. If your sales start to surpass your stock, though, you’ll quickly need to find a new solution.
Many online sellers and eCommerce sites don’t have the storage space immediately available to house their inventory. A 3PL storage provider can offer the solution you need by storing merchandise and shipping it on your behalf when you receive an order.
- Large Corporations
Many people mistakenly assume that 3PL services are only for small businesses and entrepreneurs who don’t have the resources to manage their own logistics. On the contrary, most major corporations outsource at least some part of their shipping process, confirming that 3PL solutions are well-suited to big companies, too.
One study indicates that nine out of ten Fortune 500 companies contract with a 3PL partner. Big box retailers and major online sellers often find that it’s cost-prohibitive to manage their own logistics — even at such a large scale. Outsourcing to a 3PL company can free up valuable corporate resources and ensure that orders are fulfilled accurately.
- Industry & Education Sectors
Commercial businesses aren’t the only ones that rely on 3PL services to assist in daily operations. Many organizations in the industrial, education and legal fields also use third-party logistics shipping services. A law office, for example, might need secure 3PL transportation services to store documents or transfer files between locations.
Similarly, a school district may contract with a 3PL storage provider to warehouse and distribute textbooks, educational equipment, and classroom furniture. No matter what you need to be shipped, stored, or transported, ShipNetwork can help.
What Is 3PL Storage?
In addition to shipping and logistics services, you can also invest in 3PL storage solutions for your business. 3PL storage typically entails storing a business’s merchandise in a warehouse so that it can be easily picked and packed for orders. Sometimes, though, 3PL storage is also simply used as a secondary source of space.
Both options have advantages such as the following:
Keep Close Control of Inventory
You might not think that entrusting your inventory to another company will afford you greater control over it, but indeed it can. When you allow a 3PL storage expert to manage your merchandise, you can expect close control over inventory management. Most 3PL warehouses come equipped with advanced inventory tracking systems, so you can stay on top of your stock and gain insights into its movement.
Cut Back on Costs of Storage
Entrepreneurs and small eCommerce companies often store their stock at home or in a storage unit. These solutions may make merchandise easily accessible, but they also encroach on your life and absorb valuable space.
If you happen to be renting additional space to store your stock, it can also be a costly expenditure. You don’t want storage expenses to cut into your profits — especially when a storage unit doesn’t offer much security. Instead, invest in 3PL storage solutions to save money and streamline your logistics.
Easily Connect to Distribution Channels
3PL storage options also allow you to seamlessly connect with a network of distribution channels. If you aren’t yet ready to enter a major distribution deal, this perk might not seem relevant to your business — but as you grow your company, your distribution needs will grow, too. A 3PL warehouse will already be a destination for distributors, and you can take advantage of its prime location.
What Are the Pros of 3PL Services?
It’s clear that 3PL services are advantageous to businesses — but what are the specific benefits that you can expect to see if you invest in 3PL storage or 3PL transportation?
The following three pros represent some of the biggest advantages that 3PL can yield:
- Enjoy Major Savings
In addition to the savings you can reap on storage space and supply chain management, 3PL can also empower you to save money by reducing the cost of labor. If you store your merchandise and keep your order fulfillment process in-house, likely, you'll eventually need to hire help as the volume of orders increases beyond what you can handle.
Hiring an employee is costly, though, and it also opens the door to liabilities that you shouldn’t have to handle. Rather than paying to hire new staff members, you can save by investing in an all-in-one 3PL service provider.
- Partner With the Experts
Another important benefit of 3PL is the wealth of experience that a provider can bring to the table. ShipNetwork, for example, offers years of logistical management expertise, so you can be sure that your orders are in the best hands. While you may be able to handle order fulfillment on a small scale, a 3PL provider is familiar with every step of the logistics process, thus making them the better option for any company that anticipates an increase in sales.
- Only Use What You Need
Many small businesses see the need for 3PL but assume that their business is too small for such services. On the contrary, many providers allow clients to customize services and use only what they need.
If you want to find a 3PL storage solution to warehouse your stock — but you don’t have an extensive stock of merchandise yet — you can simply opt for as much warehouse space as you need. Similarly, if you want to take advantage of 3PL transportation, you can find a provider that offers on-demand service that’s scaled to the size of your operations.
Potential Cons of 3PL Services
For all of the advantages that third-party logistics shipping can provide, there may be some disadvantages, too — and some businesses simply aren’t suited to a 3PL model. Consider whether these cons may impact your business.
You Must Trust Your Provider
Trust is the most important part of any relationship, including the relationship between a business and its 3PL partner. This can be a con if you struggle to find a partner where trust is present. Factors such as experience and reputation can help build trust, but at the end of the day, trust is built when a partner follows through on their commitment. It can take time to achieve this level of connection with a 3PL partner.
Subpar Service Reflects Poorly on You
Trust will be eroded quickly, of course, if you partner with a 3PL provider that does not follow through on its promises. If you find that you repeatedly encounter issues with order fulfillment, or you’re hearing reports from customers about items that have been damaged in transit; these mistakes will ultimately reflect poorly on your company — and potentially cause you to lose business. This is why trust is so important — you’re allowing another company to manage your reputation.
Upfront Costs May be Considerable
Some companies find that the setup costs of a 3PL contract can be steep. It’s important to remember that prices vary widely, though, and you should get several quotes from different providers to get a better idea of what you should be paying. Remember, too, that a 3PL partnership is an investment in your company’s future — so the cost that you’re paying upfront will likely pay itself back in the form of long-term savings.
What Is 3PL Warehousing?
Once you find a 3PL partner that you trust, you can move forward with a contract. Most 3PL storage contracts include an arrangement for warehousing your merchandise. This is one of the most important responsibilities of a 3PL partner, but the process is more complex than simply storing your stuff.
Most 3PL warehousing agreements will include these steps:
- Receipt of Your Merchandise
Of course, to store your inventory, you will need to transfer it from your storage to the location of the warehouse. Some 3PL partners offer pick-up services or help to coordinate shipping to make this process easier. The best method will depend on the volume and nature of the merchandise you carry. If your inventory happens to contain oversized, heavy items, for example, truckload delivery may be the best 3PL transportation option.
- Entry Into Inventory System
Once your stock has arrived at the warehouse, it will be entered into the inventory system. If there are already barcodes on each item, these barcodes may be repurposed, but if there are no barcodes, your 3PL partner will likely add them — or, in some cases, a QR code instead. This will allow each item to be scanned into the warehouse’s inventory, and it can then be stored, tracked, and picked easily.
- Placement in Warehouse Bins or Pallets
The kind of storage system a warehouse uses will depend on the kind of merchandise it stores. Some warehouses use pallets to store stock that contains larger items, but most warehouses use bins to store smaller items. When every item in your inventory has been entered into the system, it can then be placed in its appropriate location in the warehouse.
- Coordination of Distribution & Delivery
Finally, merchandise that’s stored in the warehouse is ready to be distributed and delivered to your customers. Your 3PL partner will work with you to develop a plan for the final stretch of the warehousing process. This may include last mile delivery services that are contracted to another company, or your partner may have its 3PL transportation infrastructure to complete the delivery of your orders.
What Is the Difference Between 3PL & 1PL, 2PL, or 4PL?
In addition to 3PL, or third-party logistics, you may hear mentions of 1PL, 2PL, and 4PL. Each of these is a unique form of order fulfillment and shipping that encompasses a different part of the process.
3PL services are the most commonly used form of logistical support for small businesses and entrepreneurs. This type of service is different than others because it includes start-to-finish logistics management for almost any kind of company.
2PL services differ from 3PL services because — as the name suggests — they involve only a second party. This party is typically the entity that’s responsible for transporting an order. A shipping servicer, freight airline, or cargo company, for example, would be considered a 2PL provider. These companies don’t typically get involved in order fulfillment at the warehouse level as a 3PL partner does.
4PL services are the most comprehensive type of logistical support you can invest in — and in many cases, it’s more support than a small business needs. A 4PL provider will manage the entire supply chain, starting even before logistics become a necessity. 4PL partners typically offer analytical services rather than physical labor. This may include data analytics, business strategy planning, management transition assistance, and inventory analysis.
If you pride yourself on being a solopreneur and you want to keep things small, a 1PL system may be the best fit. This option involves only a manufacturer and a distributor, and you would fulfill both roles. This type of arrangement is most common in small eCommerce stores where a business owner makes or acquires their inventory, stores it in their home, and ships it directly to customers.
What Kinds of Distribution Methods Does 3PL Use?
There are many distribution methods that a 3PL partner can employ to get your product from the warehouse to the customer. When you’re negotiating your contract with a 3PL provider, you will have the option to explore international shipping services and other distribution possibilities.
This includes the following:
Truckload distribution is one of the most common means of distributing goods. It simply refers to the process of transporting inventory or orders via ground transportation in a truck. This method is frequently used for items that must travel a long distance. If efficiency is a top priority, though, it usually is not the best mode of transportation. Truckload shipping can take days or weeks to complete, depending on the route and the cargo being carried.
Another common distribution option, less-than-truckload shipping, is used to transport smaller loads via ground transit. These loads don’t comprise an entire truckload of cargo, so they are typically transported along with other LTL cargo loads to collectively fill a truck. This reduces the overall cost of distributing the goods, but it also means that delivery may take longer.
Over Dimensional (OD)
An over-dimensional load is any freight that exceeds the legal limit in a given state — in most cases if it is wider than eight feet. If this is the case, or if the cargo protrudes past the perimeter of a cargo deck, it will require a special form of delivery called over-dimensional distribution. If your business happens to deal in very large objects, you will need to find a 3PL partner who offers this service.
Airborne freight is the best distribution option for same-day delivery and other expedited shipping options. Many airlines specialize exclusively in transporting cargo, and these carriers work directly with 3PL partners to ensure that orders are dispatched and delivered by the date that’s promised to a customer.
How Can Third-Party Logistics Improve Customer Satisfaction?
There are plenty of reasons to invest in 3PL storage and shipping, but perhaps the most important is its ability to boost your clientele’s satisfaction.
Indeed, you’re not the only one who will reap the benefits of 3PL — you can expect to see an increase in repeat customers, too, thanks to these benefits:
On-Time Deliveries, Every Time
When you outsource your logistics to a professional provider, your customers can count on the timely delivery of their orders — every single time. Customers value consistency above all else, and they’ll be eager to place another order if they’re confident that it will arrive on time. If you’re managing your own logistics while trying to oversee your business, you’re probably distracted, and it’s easy to let shipping fall by the wayside. Don’t make your customers upset with delayed deliveries!
More Time for Customer Care
Think of all the free time you’ll have once you outsource your logistics tasks to a 3PL company. All that extra time can be spent investing in customer care and developing your relationships with your clients. As your company grows, it can be easy to become increasingly disconnected from your customers, but this is the foundation of your business. Rather than treating customer care as a task to be delegated, you should enjoy the freedom that 3PL gives you and use it to dive into hands-on customer relations management.
Unless your brand centers on folksy aesthetics and DIY products, you probably want to present a polished façade to your customers. Your packaging and shipping presentation is a huge component of the impression a customer will get. When you work with a 3PL company, you can be confident that it’ll be perfectly professional. A 3PL partner will expertly package your products with the most appropriate material and print a unique shipping label for each order.
Most business owners lack the expertise that’s necessary to replicate this standard of professional packaging, and your customers will appreciate the level of care that’s put into their orders. If you want to take the appearance of your packaging to the next level, you can even invest in customized mailers and other unique details that reinforce your branding and catch customers’ attention.
How do I Become a Third-Party Logistics Company?
Some small business owners who have mastered the distribution process may consider offering 3PL storage and shipping services to other businesses. If this describes you, you’re probably wondering how to start your own 3PL company.
There are a few steps to follow to get started in this field:
- Identify Your Resources
As an aspiring 3PL business owner, you must first assess the resources you have available to jumpstart your company. The 3PL industry is all about resources such as storage space, transportation, and labor — and using them strategically — so you’ll need to honestly assess whether you currently have access to these components of a company. If so, you may be in good shape to proceed, and if not, you will need to create a plan for accessing these resources.
- Assess Your Abilities
The 3PL storage and 3PL transportation industries are saturated with countless professional providers. You will face steep competition as a new provider, but that doesn’t mean that you can’t win clients. You simply need to assess your abilities and identify the service that sets you apart from other 3PL partners. There are several things that a customer might look for when they’re shopping for a 3PL partner, for example:
- Faster shipping speeds
- Exemplary customer service
- Personalized care
- Scaled-to-size services
If you can create a company that offers any of these amenities more effectively than competitors, you can set yourself up for success in this industry.
- Envision Your Customers
Serving a niche group of clients is another effective way to establish your place in the 3PL market. As you’re strategizing the details of your business, you need to create a customer profile that describes who you want to serve, why they need your business, and how you will market to them. Without a specific target demographic, you’ll likely struggle to establish a steady clientele.
- Develop a Business Plan
Once you’ve established access to 3PL storage resources and identified your target customers, you can proceed with writing a business plan. This plan will act as the blueprint for your company, outlining every policy, procedure, and process that informs its daily operations. Your business plan should also include information about your sources of funding, your plan for marketing, and the internal structure of the company.
What Kind of Products are Best Suited to 3PL?
When you contract with a 3PL partner, you need to be sure that they are equipped to handle the type of merchandise you sell. Some providers specialize in 3PL storage for small, lightweight items while others tailor their services to sellers of oversized items.
The following products are ideal for distribution via 3PL services:
Safely shipping a fragile item demands careful packaging and clear labeling so that it does not get damaged in transit. Correctly packaging items like this can be incredibly time-consuming — and even if you spend hours enveloping items in bubble wrap, you may find that they are broken when customers receive them. This can quickly add up to costly losses, and it majorly compromises customer satisfaction, too. A 3PL partner can handle this for you and ensure that fragile merchandise is expertly prepared for shipping.
Heavy & Bulky Items
Shipping an item that’s big and bulky can be just as perilous as shipping fragile items. The size and weight of these products can make them difficult to handle, and this can put them at risk of being damaged in transit. If you sell merchandise such as furniture, large mechanical parts, or oversized décor fixtures, you will likely save exponential time and money by outsourcing your shipping process to a 3PL storage and transportation provider.
Large & Lightweight Items
According to research, the cost of freight in the U.S. has increased by 28% in recent years. Unfortunately, many businesses feel that they have no choice but to pass along the increase to their customers. If you’re shipping items that happen to be large — but are still lightweight — you shouldn’t have to pay a premium simply because of the size of your merchandise. In many cases, a 3PL partner is the most affordable option for shipping such items. This will allow you to keep shipping costs low, which will incentivize customers to buy.
Discover How 3PL Storage & Shipping Can Boost Business
Logistics should never be a source of stress, yet for many business owners, they are. This is especially true if you’re still managing your storage, shipping, and delivery. Contracting a third-party logistics storage company can reduce the burden of this process and help you get back to the business that you love. Whether you specialize in artisanal countertops or small novelty items, the right 3PL partner will know how to warehouse your merchandise efficiently and ship it to customers safely.
ShipNetwork is the premier 3PL transportation provider serving clients throughout the U.S. As leading industry experts, we know how to keep your customers happy. To learn more about how we can help your business grow, call us at (866) 983-7447 or request a quote today.