A Guide to 3PL and How It Can Benefit Your Business

Your eCommerce business is thriving, and soon filling customer orders in-house will no longer be an option. New and experienced businesses alike – in order to continue to grow – can expand their fulfillment strategy and through outsource their fulfillment needs.

When searching for a third-party logistics (3PL) provider, you’ll want to have a good understanding of what they are and how they work before selecting one to manage your logistical challenges.

What is Third-Party Logistics (3PL)

At the most basic level, third-party logistics is the outsourcing of eCommerce logistics processes to a third-party business. By scaling and customizing services, third-party logistics providers – commonly called 3PLs – can meet a variety of needs. It is up to you how much or how little of your operations you wish to outsource.

A 3PL can deliver a single service or multiple services that extend across your supply chain, including inventory management, warehousing, and fulfillment. A 3PL creates value by enhancing many aspects of your business, including operational, financial, and end-user customer satisfaction.

What is the 3PL Order Fulfillment Process?

3PL order fulfillment is the process of receiving goods, then processing and delivering the orders to customers. The process begins with a customer placing an order and ends once they receive it. However, order fulfillment manages the return transaction as well.

So what is the magic that takes place at a 3PL’s eCommerce warehouse once your customer clicks “Submit Order” on your online store? Here’s an overview of the steps involved in the order fulfillment process:

• Receiving inventory shipments—In order for a 3PL to fulfill orders and ship, they need to receive your company’s inventory.
• Inventory storage—Once inventory is received, it is stored in the 3PL’s fulfillment centers. Each item or SKU has a dedicated storage location. It can reside on a shelf, be stored in a bin, or be placed on a pallet. Each 3PL has a different storage capacity.
• Picking—This occurs when a customer places an order. The order is sent to the fulfillment center where the inventory is being stored. Once the location of the item is identified, it is then “picked” out of storage. Each order can vary greatly. The 3PL you choose will need to support all types of orders.
• Packing—After “picking,” the products ordered are organized and moved to packing. The 3PL will work with you during the initial setup process to identify the best way to secure and present your goods. Make sure your 3PL has the necessary technology and operational processes to ensure accurate orders and be able to scale up and down during seasonal demands.
• Shipping—There are a variety of ways to ship a package. Some 3PLs have preferred carriers; others shop around for the best price. An experienced 3PL will lay out a clear strategy and provide savings on shipping costs, faster shipping delivery times, and, as a result, a better overall experience for the customer receiving the package.
• Returns—Whether the customer no longer needed the item, or it was damaged during the shipping process, returns are an expected part of the e- commerce shopping process. You can expect your 3PL to process the return and restock or dispose of the item, depending on the process you created.

In Addition to Fulfillment, What Can a 3PL Provide?

A 3PL’s service options can vary depending on which company you choose to work with. Beyond shipping orders, here are some of the most beneficial services and ways expertise in logistics can help your business:

Professional services and knowledge. Managing a supply chain is a large endeavor and requires expertise at every step to ensure goals are met and your results are optimal. Having a professional 3PL responsible for helping streamline every aspect of the supply chain while bringing their industry knowledge to seamlessly manage processes is invaluable.

Inventory management. Inventory management is a key component of the eCommerce fulfillment process and your overall supply chain. It is much more than just warehousing your products to ship when an order is placed. A 3PL should have the technology to work with your digital storefront and the warehouses that store your products. A real-time view of your inventory at each facility is critical if you want to ensure stock is readily available to ship. With proper integration, a 3PL can provide real-time inventory counts to your digital storefront so customers have a clear view of what is available now and what might have to be back ordered.

Expedited shipping. Customers expect affordable, fast deliveries. Utilizing a 3PL to outsource shipping and fulfillment can help you leverage their size to offer discounts and better shipping options. An experienced 3PL can help you meet customer demands and grow your sales.

Distributed inventory. Most 3PLs have several locations strategically located throughout the U.S. and globally to ensure the quickest and most cost-effective process to move products from your eCommerce business to the seller. Depending on your eCommerce business needs, having products located at various fulfillment centers can facilitate a quicker delivery at a fraction of the cost.

Can My eCommerce Business Benefit by Working with a 3PL?

There are many advantages to working with a third-party logistics provider. The following examples are just a few of the benefits you’ll realize.

• Gain expertise. Supply chain logistics include many facets: fulfillment, warehousing, and shipping, each with its own set of challenges. Partnering with a 3PL allows you direct access to their expertise and connections to streamline your processes.
• Scale operations. When you use a 3PL, you can scale space, labor, and transportation according to your specific industry needs. Additionally, a 3PL can help support spikes in sales during seasonal months.
• Save time and money. Using a 3PL can help to eliminate the need to invest in warehouse space, technology, transportation, and additional employees to carry out the logistics tasks. Offloading these competencies allows you to focus more on your business goals.

How Do I Know That a 3PL is Right for My Business?

There is no key indication that says now is the time to partner with a 3PL, but there are some signs to look for:

1. Increasing costs. Sometimes a company grows faster than anticipated. Growing pains can highlight your logistics struggles. As costs continue to increase, it might be a good time to consider the move to a 3PL.
2. Your inventory has too many obsolete items. The costs associated with carrying inventory can be a large burden on your company’s finances. Low inventory accuracy, lack of visibility, and operational inefficiencies can cause companies to increase their safety stock to balance these issues. Carrying too much stock or not enough of the right items is a financial burden.
3. Customer service is overloaded. As order volumes increase, things can fall through the cracks. When this starts to happen, your customer service complaints increase. What about volume surges with seasonal months? Can you add the labor, equipment, and capacity to support the growth? If not, a 3PL can help.

How Do I Choose a 3PL?

There are numerous third-party logistics providers to choose from and making sure you choose one that fits your business needs is important.

• The right 3PL needs to demonstrate to you they understand how your business runs.
• They should competently show decision makers and their team a better way to run the logistical part of your business.
• Make sure the 3pl communicates the benefits of running your business in the new way.
• Listen to the 3pl articulate the risks and show you their risk mitigation plans when you outsource to their operations

Finding a 3PL that is compatible with your needs and current processes will ensure a more seamless transition. It is imperative, when choosing a 3PL services provider you and your team need to evalute the following areas:

• Process, technical, and industry knowledge
• Track Record
• Contracting Flexibility
• Experience and availability of key personnel
• Cultural fit between the service provider and the enterprise

Finals Thoughts

There is much to consider when choosing a 3PL. Expertise, streamlined supply chains, and the ability to save time and money are just a few of the advantages they provide. Most importantly, it is critical to find one that you trust. A proven 3PL can make a significant impact on your business and will allow you to concentrate your efforts on growing your business and increasing your value to customers. Want a personalized consultation to discover what 3PL solutions can do for your business? Contact PFS today!