An ecommerce company needs a lot of roles to get its products to customers in a timely and cost-efficient manner. Products need to be procured, transported, logged, unpacked, stored in a warehouse, picked and packed, and then transported to the final destination. And that’s only a superficial view of what happens in the supply chain.
To survive and thrive, an ecommerce store may choose to use third party logistics services. Outsourcing some of these services allows the retailer to focus on what they do best. That might be sourcing just the right products. It might be curating a subscription box. Maybe it’s acquiring new customers or focusing marketing efforts on increasing orders from current customers. The company might be redeploying personnel to concentrate on new initiatives. Outsourcing some of the operations and fulfillment tasks to a 3rd party logistics provider (3PL) allows them the mental space and physical capability to do that. Outsourcing logistics operations can help a company scale and grow and 3pl consulting can help you get the best rates on these logistics services.
What is 3PL?
A 3PL company handles the outsourcing of this logistics service, with an umbrella of warehousing and transportation services. A company can count on a 3PL provider to do the receiving, inventory management, warehousing, picking and packing (order fulfillment service), shipping, and sometimes reverse logistics too. While specific definitions may vary based on the source, the term has been in use since at least the 1980s. During that time, supply chain operations started contracting with outside logistics providers to handle their company’s logistics. Lore has it that the term 3PL was actually registered as a trademark in 1996 by Accenture, but the trademark is no longer valid.
What Does a Third Party Logistics Provider Do?
Drilling down, here are some of the tasks a 3PL service provider might do:
The 3PL receives inventory at the warehouse, unpacking them and doing put-away. The logistics company might use a warehouse receiving order to anticipate the products’ arrival, including unit quantities and descriptions. The inventory might need to be taken off pallets and unboxed, into individual units or larger groupings. They might need barcodes or other sensors put on them. This receiving and put-away process would be logged into a warehouse management system (WMS) if the 3PL uses one.
The 3PL partner stores the items, depending on the arrangements, in bins, shelves, or on a pallet. The inventory might be stored separately from one shipper to another. They could be mixed in but tracked carefully with bar codes and WMS like Amazon does with its fulfillment. A fulfillment center may use public warehousing, meaning it’s shared with other retailers and shippers. A private warehouse is what it sounds like – private for one company.
Picking and packing
Picking and packing is the fulfillment process. Each 3PL service may have different capabilities, so it’s important for an ecommerce business to understand its goals and needs when investigating options. The fulfillment process at the warehouse may involve using robots or cobots to find and pick the items or assist staff in their roles.
With packing options, the packaging materials matter a lot. An item may need protection from breakage, and the inventory packaging should be optimized for DIM weight and the most efficient shipping costs. Also, ecommerce companies selling subscription boxes need more than just kitting; they may want carefully crafted packaging. Some outsourced logistics companies only offer basic packaging like plain cardboard boxes, bubble mailers, or poly mailers. A retailer that wants to make a splash with customers may opt for a logistics operation that can offer a specialized approach.
A 3PL logistics provider will also have different automation capabilities, in terms of receiving orders in their system. To pick and pack, a company needs the order information plus shipping and customer details. If shipping options are prespecified, the warehouse operations will need those too. Using an Excel sheet or printed orders can slow down the shipping process and affect accuracy and supply chain management.
Once the items are picked and packed, they’re ready for shipping. The third party logistics company may have arrangements and discounts with carriers like FedEx, UPS, DHL, and regional carriers. Or they may allow you to use your own contracts for the shipping. The carrier will usually purchase and print shipping labels and arrange for carrier pick-up as part of their role. Their transportation management software may integrate with your own, so you and customers can track packages.
The logistics process with the 3PL company may also include reverse logistics. This is the processing of returns to the warehouse, which involves either restocking or disposal, depending on the contract. A third party logistics company can often print out the return shipping labels and handle the intake of those items.
Types of 3PL Companies
Not all third party logistics providers are the same. Here are various 3PL models:
- Warehouse/distribution-based 3PL: This is the type focused on in this article. These logistics providers offer warehousing and fulfillment, as well as shipping services.
- Shipper-based 3PL: As it sounds, these 3PL operations deal with end-to-end shipping process management, which may include freight consolidation.
- Freight forwarder-based 3PL: Freight-forwarders are middlemen that arrange for freight transportation and other logistics needs.
- Financial-based 3PL: These third party logistics providers focus on the financial angle, with freight auditing and payment services, accounting and monitoring tools, along with inventory management and tracking.
Why Use a 3PL?
Using a 3PL logistics company can help your business scale up. It’s expensive to rent or own a warehouse, but using just the space you need in public warehousing means fewer capital costs. Hiring staff members is also difficult. Even with higher unemployment rates due to COVID-19, not everyone is comfortable working in a warehouse environment, and hiring is time-consuming and expensive. You’ll need to pay worker’s comp insurance, health insurance, and benefits, scaling up your human resources department. The workload may also fluctuate; managing and paying for an employed workforce takes money and company time and energy that could be used to focus on other initiatives.
Here are some common scenarios for when using a 3PL company makes sense:
- You are shipping X number of products per month: the number depends on the company, but the bottom line is that the ecommerce retailer can’t keep up with the orders and customer service is or may be affected.
- You need more space: 3PL warehousing is more efficient in storing products than warehouses or other storage space used by companies doing their own order fulfillment. That leads to lost inventory and wasted hours in storage and searching.
- You need subject matter expertise: the 3PL may have experience and connections your company does not have, adding value to using a logistics model. That might include experience in global logistics, relationships in freight forwarding and freight brokerage, and better carrier discounts.
- You want to increase your customer service: Using a 3PL can help your company offer faster shipping, greater visibility into inventory management, more accurate tracking, and greater efficiency in return logistics. That all means better customer service.
Overall, using a 3PL company is considered by many to be one of the most effective eCommerce shipping best practices as it simplifies the eCommerce order fulfillment process and reduces shipping delays.
How to Get the Most Out of a 3PL Partnership
Choosing the right 3PL provider is the first step and one that will set the stage going forward. If you need (or may need in the future) a distributed warehouse network, ensure that the 3PL you choose has facilities in other locations. A distributed warehouse network allows you to place your inventory closer to your customers, making one or two-day shipping possible and economical. Your company can also stock different inventory in different locations depending on the types of purchases made in those regions, and a good 3PL provider can help with this model and planning.
When choosing a third party logistics provider, a retailer or company’s logistics and efficiency can be heavily impacted by the use of automation and technology. A 3PL with API capabilities integrating with your ecommerce platform allows for a smooth transfer of data, better tracking, and real-time analysis. Using a WMS and inventory management system means your company can track stock levels and replenish supply before there’s a stock-out. Your supply chain management can understand what is selling and what is sitting, to determine pricing options.
This is all to say that finding a 3PL that meets your needs is the primary search criteria. The ecommerce company and 3PL should agree in writing to service levels and a system for working through problems. Appointing a point person at each company for problem-solving enhances the relationship and keeps the companies working together and on the same page.
Companies not currently using a 3PL may not know where to start their RFP process. About 20% of those currently using a 3PL are overpaying for the services. Shipware can help both types of companies find the right 3PL partner and negotiate a contract that improves service levels and saves money. We provide a complimentary assessment for 3PL contract optimization and negotiation. If our services don’t save you money, our service costs you nothing. Call us at 858-879-2020, or contact us on our website to get the process started.