What is 3PL?
Originally published on May 9, 2021 by Logiwa Marketing, Updated on October 6, 2023
3PL: Everything You Need to Know About 3PL Companies & Warehouses
Order fulfillment is an essential part of any ecommerce business operation. As your online business grows, so do your fulfillment procedures and warehouse management options, making it much more challenging to tackle in-house logistics operations. In order to expand your fulfillment strategy, you may need to turn to outsource some of these services with the help of a 3PL company. It is crucial to understand what 3PL is, how 3PL providers, and what benefits they may provide for your growing scale. Here is everything you need to know about third-party logistics and the movement behind it.
In our 3PL guide, we’ll help you understand:
- First Things First: What is 3PL?
- Advantages of 3PLs for Ecommerce Businesses
- How Does the 3PL Order Fulfillment Process Work?
- 3PL vs 4PL: What’s the Difference?
- How to Choose the Best 3PL Company: Is my Company Ready for a 3PL Transition?
First Things First: What is 3PL?
3PL stands for third-party logistics, which is usually used interchangeably with fulfillment centers and fulfillment warehouses. 3PL providers offer similar services to fulfillment companies, including warehousing, inventory management, shipping, picking and packing, FLT and LTL, reverse logistics, and kitting and customization.
Working with a high-quality 3PL firm can help you achieve diverse, successful results on your company’s warehousing and fulfillment end. Different 3PL services provide specialized services such as cold fulfillment, storing and shipping hazardous material, or managing the warehousing of bulky, heavy, and high-value products.
Advantages of 3PLs for Ecommerce Businesses
Warehouse automation has never been more in the spotlight, with the majority of corporate companies shifting to home-office employment, therefore making the online shopping and delivery industry even more significant than ever. Most of the 3PL warehousing companies automate the entire fulfillment and logistics process for you, providing you space to focus on more important aspects of your business, such as strategic growth and revenue potential. Removing business owners from the mostly paper-based retail process, 3PL companies help them spend much-needed time growing their business instead of simply moving packages. Here are some of the major pros 3PL fulfillment can offer your company:
Limit your expenses: Working with a 3PL company can help you minimize costs you would otherwise be spending on leasing a warehouse or hiring a full-stack logistics team.
Leave it to the pros: Building your own logistics team sounds great, however, hiring substandard employees and settling for mediocre labor will not go hand in hand with your growing business in the long run. Hiring a 3PL software company and leaving everything in their hands will not only put your mind at ease but will optimize your fulfillment and shipment procedures with the help of experienced and specialized experts.
Request an online 3PL warehouse management system demo and see why thousands of companies are using Logiwa.
Going global has never been easier: If you are planning on expanding your business abroad, a global fulfillment network is a must. The documentation, custom duties, and other legal procedures require a lot of work, which your 3PL company is here for. Outsourcing these operations will make cross-border selling easier and help you improve customer satisfaction internationally.
What is 3PL Order Fulfillment Process?
Although it may sound as too complicated to comprehend, 3PL management is a process far from a mystery. If you are considering hiring a 3PL solutions company for your fulfillment services, you need to know what exactly a 3PL warehouse goes through once your customer places that order. Here are the main steps of a 3PL WMS:
Receiving
Each 3PL company has its unique capacity for receiving inventory and storing goods. A quality 3PL cannot ship orders without inventory, making the receiving stage of the 3PL process a crucial breaking point. This refers to accept inventory and storing it for the company’s benefit.
Warehousing
Once the inventory has been received, the storage process begins, where the 3PL company plans out a storage strategy efficient and fast enough for smooth delivery. With each SKU having its own dedicated storage location, it becomes much easier to locate, place, ship, and send a certain product once the order has been purchased. While all 3PLs have various storage capacities, it is important to land on a 3PL partner that will sufficiently comply with your volume growth and storage needs.
Picking & Packing
These are the core of your order fulfillment steps. When your customers place an order through your website or any other sales channel, this order goes directly to your fulfillment warehouse, where a picker locates the item, a packer selects the ideal box. The shipper then makes sure the order is picked up by the right carrier and is ready to set sail. Again, it is important to note that different 3PL companies have various picking and packing standards. That being said, the most common packing materials usually include unbranded boxes, bubble wraps, poly bags, packing tape, and dunnage. Since you will be working with experienced shippers, you can rest assured that they will be choosing the best packing material suitable for your product, with minimally practical dimensions and maximally protective wrapping. Some 3PL companies include all of these packing materials as a part of their fulfillment management cost, while others choose to charge for each material separately.
Returns
Most of the 3PL companies nowadays offer reverse logistics services as well. In case your customer returns an item by shipping it back, your 3PL will process the return from end to end and make sure to restock it or dispose of the item, depending on your return policy and preference. You can also decide to have your 3PL provider return shipping labels for your customer base. This way, both you and your customer can benefit from the process, eliminating the need to handle returns in-house while offering your customers an easy way to track the status of the returned item.
What is 3PL vs 4PL: What’s the Difference?
You may have come across the term 4PL while researching 3PLs. 4PL is the logistics process that integrates an additional level of separation between the 3PLs and their ecommerce merchants. Also called “double brokering,” the 4PL manages the company’s 3PL services, as well as arranging a third-party logistics service for them on their behalf. 4PL management companies often provide end-to-end 3PL supply chain operations for their client, including inventory procurement and manufacturing. In addition, the 4PL provider also offers more management over the company’s supply chain and more strategic insight on overall fulfillment forecasts. For example, a 4PL can conduct communication with the farmer to manufacture more eggs once your grocery store’s egg supply starts decreasing.
You may also like: Taking on the role of a warehouse, third-party fulfillment services offer a smart cost-effective solution in order fulfillment. You can check our order fulfillment article for more information
How to Choose the Best 3PL Company: Is my Company Ready for a 3PL Transition?
There are numerous variables that can impact the decision on whether to hire a 3PL company that will benefit your business. Here are some of the questions you need to ask yourself if you are wondering whether you are ready for a 3PL transition: Is it financially sensible? Do I have enough resources internally? Will switching to 3PL streamline my efficiency? Once you have received positive answers to all of these questions, it may be time for you to consider hiring a 3PL company and handing over your fulfillment operations to the professionals they are.
If your company is growing much more rapidly than anticipated, things can get out of hand quite quickly, leaving you with unexpectedly risen costs and labor expenses. A 3PL company would be one of the best solutions, in this case, helping you ease the growth pains your business is going through while simultaneously putting your warehouse operations in order. In addition, almost all of the 3PL companies in the market take maximum advantage of the latest technology, therefore integrating these technological and modern benefits to your fulfillment strategies and evolving into an investment for your business, rather than just a third-party outsource partner.
After going through perpetual inventory inaccuracies, fulfillment inefficiencies, poor customer service reviews, and other critical mistakes, many companies find relief in working with a 3PL to enhance their reputation and provide a consistent, predictable business model. With Logiwa’s enhanced 3PL solutions, you too can acquire reliable inventory solutions and benefit from streamlining your flow of goods in order to achieve optimized resource consumption.
FAQs
What is a 3PL?
A 3PL is a 3rd Party Logistics (3PL) company that provides outsourced logistical services for overseeing inventory distribution, warehousing, and order fulfillment operations.
How does a 3PL work?
3PL companies assume responsibility for most of the logistics involved in order fulfillment, including inventory storage, order fulfillment, and shipping. This allows brands, particularly direct-to-consumer brands, to get to market quickly and take advantage of the economies of scale provided by larger warehouse operations. 3PLs may own and operate their own warehouses, or in some cases be non-asset owning firms who broker these services on behalf of their clients.
Why do companies use 3PL?
Using a 3PL can significantly reduce time to market, especially for brands moving to an ecommerce business model. They can also signicantly reduce cost because they allow businesses to take advantage of their technologies and scalability. In other words, they can scale space, labor, and transportation all according to current inventory levels and fluctuating demand.
How do you manage a 3PL?
Managing a 3PL requires extensive knowledge of all aspects of inventory and order fulfillment logistics: from connecting to online stores and manging warehouse operations to shipping products the last mile. Many 3PLs own and operate their own warehouses as part of their fulfillment network, which helps them ensure they have the technology and staff needed to meet the order fulfillment requirements of the clients they serve.
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