What is 3rd party logistics? How does a 3PL work? For starters, 3PL stands for third-party logistics. Handling logistics on your own can be a daunting and expensive task for scaling ecommerce brands so many work with reputable 3PL companies for fulfillment services. This strategic partnership allows ecommerce businesses to use the expertise and infrastructure of dedicated logistics firms to manage inventory, handle warehousing, execute order fulfillment, and navigate shipments.
This guide will explore how 3PL fulfillment works and how it’s an essential partnership to lower fulfillment costs while improving the shipping operation. Readers will gain insights into:
- The foundational elements of 3PL Fulfillment and its impact on supply chain management.
- The intricate workflow of 3PL operations, from receiving products to the final delivery.
- Key advantages of teaming up with a logistics partner.
- A detailed look at essential functions within 3PL services, encompassing transportation, warehousing, returns processing, and international logistics.
- Criteria for selecting an optimal 3PL provider tailored to your business needs.
- Metrics for measuring the success and effectiveness of your chosen 3PL partner.
Understanding 3PL Fulfillment: Definition and Key Concepts
What is 3PL Fulfillment?
3PL stands for Third-Party Logistics. These are companies that offer comprehensive and even end-to-end supply chain solutions. This can include transportation, warehousing, picking and packing products, kitting, order fulfillment, packaging, freight forwarding, and returns processing.
How Does 3PL Fulfillment Work?
The 3PL fulfillment process works in a systematic way. Here’s how it typically goes:
- You send your products to a 3PL warehouse.
- The 3PL receives your inventory and organizes it for efficient storage.
- When a customer orders online, the information is sent directly to the 3PL.
- The 3PL team picks the ordered items from storage.
- They pack the items to your specifications, ensuring everything is well-protected for shipping.
- The 3PL partners with reliable carriers to get the orders picked up from their facility and delivered to your customers as quickly and cost-effectively as possible.
- Throughout the shipping process, both you and your customer can track the package’s whereabouts using the provided tracking information.
3PL providers manage all stages of fulfillment, such as receiving products from suppliers, storing them in their warehouses, managing inventory levels, picking and packing orders accurately, and coordinating shipments with carriers. They also handle returns processing and manage international logistics if necessary. By leveraging their expertise and resources, 3PL partners enable businesses to focus on other initiatives while achieving cost savings, operational efficiency, and enhanced customer satisfaction.
Why Do Businesses Use 3PL Providers?
A key role of a 3PL is to streamline operations that are often too complex or resource-intensive for ecommerce businesses to handle on their own. There are many challenges in inventory management and teaming up with a 3PL is the most practical solution to improve their fulfillment operations and reduce logistics costs.
From warehousing management to shipping orders or returns, 3PLs handle a wide range of tasks for a smooth and successful online shopping experience. This allows businesses to focus their resources on other critical areas like product development, marketing, and customer service.
Additional Services Offered by 3PLs
The role of 3PLs extends beyond mere storage and delivery. They can provide valuable insights into shipping data and analytics, manage carrier relationships, oversee inventory management, assist with kitting and product assembly, and even handle returns processing and refurbishment.
OWD differs from other typical 3PLs because we also offer US-based call center services to handle customer support. In addition to call center and order fulfillment services, OWD has personalized-to-consumer fulfillment, a fast and easy way to offer product personalization such as custom engravings, embroidery, direct-to-object printing, and greeting cards at checkout. This is something that no other 3PL offers. Our ecommerce personalization software seamlessly connects with 200+ ecommerce integrations, including Shopify, WooCommerce, and Amazon.
If you are interested in learning more about ecommerce personalization, make sure to check out our in-depth guides below:
- What is commerce personalization?
- Benefits of Personalization in Ecommerce
- Best ecommerce Personalization Examples
- Personalization Best Practices
- Ecommerce Personalization Strategies
- Types of Personalization in Ecommerce
Benefits of Outsourcing to a 3PL for Your Ecommerce Operations
When ecommerce companies use Third-Party Logistics (3PL) providers, they gain several advantages that are crucial for growth and staying competitive. Here are the benefits of using 3PLs for ecommerce companies:
1. Cost Savings and Efficiency Gains
By partnering with a 3PL, businesses can:
- Take advantage of economies of scale
- Benefit from better shipping rates negotiated by the 3PL
- Advanced technology systems provided by the 3PL, such as integration support, can be used to streamline operations, which helps reduce overhead costs significantly.
2. Access to Specialized Expertise and Resources
A sufficient 3PL will have decades of experience in logistics and can also offer expertise in areas such as:
- Lot Tracking
- Vendor Compliance
- Freight Transportation
This means that ecommerce operators don’t have to spend time and resources developing these capabilities in-house. They also get access to:
- State-of-the-art warehousing facilities
- Cutting-edge warehouse management systems for inventory tracking
- Customer service support
3. Scalability and Flexibility in Operations
Ecommerce markets can change rapidly, so it’s important to be able to adjust operations quickly. 3PLs have the ability to:
- Handle sudden increases in order volume during peak seasons or promotions without needing to hire temporary staff or invest in additional infrastructure.
- Scale down operations when there is lower demand.
This flexibility ensures that businesses can meet customer needs efficiently at all times.
By focusing on these strategic benefits, ecommerce businesses can:
- Adapt quickly to market changes
- Maintain high levels of service.
The next section will explain the main services offered by 3PLs, showing how these partnerships improve operational capabilities.
Key Functions in 3PL Services
Transportation Services
When you partner with a 3PL, you gain access to a comprehensive transportation network. Here’s a closer look at the transportation solutions that third-party logistics providers deliver:
Full Truckload (FTL) Shipping
- Catering to large shipments, FTL is the go-to option when you have enough products to fill an entire truck.
- This service minimizes handling as the shipment stays in the same truck from origin to destination, reducing the risk of damage.
- Optimal for time-sensitive deliveries due to direct routes without transfers or multiple stops.
Less Than Truckload (LTL) Shipping
- Designed for smaller shipments that don’t require a full truck, LTL shipping is cost-effective, allowing you to pay only for the space used.
- LTL facilitates shipping flexibility, as you can dispatch goods more frequently without waiting to accumulate a full load.
- It’s also an opportunity for consolidation services where your cargo is combined with other shipments heading to the same destination, maximizing efficiency.
3PLs leverage their networks to provide tailored transportation solutions that meet your unique needs. Whether it’s ensuring timely delivery through FTL or optimizing costs with LTL options, 3PLs can help you ship your products faster and at lower rates.
Warehouse Storage and Fulfillment
Beyond transportation, 3PLs cover every part of warehousing and order fulfillment, including:
- Receiving: Efficient handling of inbound shipments with verification against purchase orders and inventory updates.
- Picking: Precise retrieval of products from their specific locations within the warehouse for order fulfillment.
- Packing: Secure packaging of products using suitable materials and techniques to ensure safe transit and delivery.
- Shipping: Timely dispatch of orders through an orchestrated system that selects optimal carriers based on cost and delivery speed.
This systematic approach ensures products are processed accurately and quickly, meeting customer expectations while relieving you of operational burdens.
Returns Processing and Reverse Logistics
An efficient returns management process is vital for customer satisfaction and brand reputation. With 3PLs:
- You benefit from streamlined reverse logistics that efficiently handle returns and exchanges. We provide an automated returns report to give you visibility on who returned what and the condition of the items, while you control the refunds.
- Facilitate quick inspection, restocking, or disposal of returned items per your guidelines.
- Enhanced visibility into returns trends aids in identifying potential product issues or customer concerns early on.
Incorporating these reverse logistics capabilities can significantly improve overall customer experience and loyalty.
International Shipping and Customs Procedures
Global reach requires navigating complex international shipping regulations. A proficient 3PL offers:
- Expertise in managing customs documentation and compliance, ensuring smooth border crossings.
- Strategies like DDP (Delivery Duty Paid) handle duties upfront for seamless deliveries to end customers.
- A variety of international shipping carriers and methods to get packages to customers when they need them.
With these services, businesses can confidently expand their operations internationally without being hindered by logistical complexities. With its three fulfillment centers in the United States and vast selection of shipping options, OWD can facilitate a streamlined international shipping experience.
Value-Added Services
Your 3PL should offer various value-added services that enhance the customer experience and streamline operations. These include:
- Quality Assurance: Ensuring products meet your quality standards before they are shipped.
- Inventory and Cycle Counts: Regular inventory checks to maintain accurate stock levels.
- Lot/Expiration Tracking: Tracking and managing products with specific lot or expiration dates.
- Serial Tracking: Tracking individual units of a product using unique serial numbers.
- Subscription Order Fulfillment: Managing and fulfilling recurring subscription orders.
- Kitting: Creating product bundles or kits to offer to customers.
- Labeling and Repackaging: Custom labeling or repackaging products for specific needs.
- Gift Wrap: Offering gift wrapping services for special occasions.
- Custom Packaging: Designing and implementing custom packaging solutions that align with your brand.
These value-added services can help you stand out in the market and provide a superior experience to your customers.
Warehouse Storage and Fulfillment
Warehouses play a crucial role in ensuring products get from the manufacturer to the customer smoothly. They serve as storage centers for your inventory, keeping your goods safe and ready to be sent out.
Receiving Process
When products arrive at a warehouse, they go through a receiving process. During this step, the products go through a quality inspection, quantities are documented in the 3PLs warehouse management system, and then all SKUs are organized for storage. This is arguably the most important step because it sets the foundation for the entire order fulfillment process.
Picking
After the receiving process, the next step is picking. This is when specific items are chosen from their locations in the warehouse to fulfill customer orders. 3PLs use handheld devices to locate products and scan each shipped item to ensure accuracy. It’s crucial to be accurate during this step so that customers receive exactly what they ordered.
Packing
Once the items have been picked, they move on to the packing phase. Here, they are carefully packaged to ensure safe transportation. Most 3PLs will scan all items for accuracy at the pack as well. Each package is weighed during the packing process so a shipping label can be generated and applied to the shipment. A reliable 3PL provider will offer customized packing solutions that not only protect your products but also showcase your brand with personalized packaging materials. Finally, the packed items are routed to the designated pickup area for the carrier that was assigned.
Shipping
The final stage is shipping, where the packed orders are picked up and sent out to customers. For D2C shipments, ground transportation is typically used. However, experienced 3PLs will also offer full truckload (FTL) and less-than-truckload (LTL) shipping options for your larger B2B shipments.
It’s evident that warehouse storage and order fulfillment involve a complex series of processes that demand accuracy and efficiency. By entrusting these responsibilities to a capable 3PL, you can have peace of mind knowing that your products are being handled by professionals.
Returns Processing and Reverse Logistics
Returns are an inevitable part of the ecommerce business. 3PLs offer comprehensive returns processing and reverse logistics services to help manage product returns more effectively. By combining transportation services and warehouse storage, these providers handle the entire returns process, from receiving the item to restocking or disposing of it.
Here are the key features of this service:
- Efficient Returns Management: 3PLs take care of inspecting returned items, deciding whether to restock or dispose of them and systematically processing the return so you have full visibility.
- Cost-Effective Return Solutions: Products can be returned in a cost-effective way without compromising speed or efficiency. This is typically achieved through ground transportation services such as USPS, UPS, or FedEx. One cost-saving method is offering return shipping labels provided by the 3PL, allowing customers to take advantage of negotiated rates the 3PL has established.
- Improving Customer Loyalty: A smooth returns process is crucial for customer satisfaction. 3PLs enhance this process by not only handling returns quickly and reliably but also providing a comprehensive returns report. This report includes the customer’s name, address, contact information, the reason for the return, and whether the items were damaged or put back into stock. Such detailed reporting helps maintain customer loyalty and ensures a positive experience.
Reverse logistics also involves dispositioning the returned goods. This could include rebagging or retagging, refurbishment, recycling programs, warranty recovery, or proper disposal – all taken care of by your 3PL partner with expertise and precision.
International Shipping and Customs Procedures
Expanding into global markets comes with its own set of challenges, particularly when it comes to international shipping and customs procedures. It can be a complex process to navigate, but with the right partner, your ecommerce business can overcome these obstacles smoothly.
How a 3PL Can Help with International Shipping
Working with a reliable 3PL makes international shipping simple. Here are some ways in which they can support your business:
- Coordinating Logistics: Crossing international borders requires careful logistics coordination. A 3PL can assist in managing the entire process, from selecting the optimal shipping method to handling documentation and customs clearance, so you can comply with international regulations.
- Navigating Customs Procedures: Customs procedures can be intricate, with varying requirements and regulations across different countries. A knowledgeable 3PL can navigate these complexities, ensuring all necessary documents are prepared accurately, minimizing the risk of delays or penalties.
- Enhancing Visibility: Tracking international shipments can be challenging. 3PLs offer trackable shipping methods with preferred customer service lines to contact carriers directly. This ensures real-time visibility into your shipments and allows you to keep your customers informed, addressing any issues promptly.
- Securing Competitive Rates: International shipping costs can significantly impact your profit margins. With their industry connections, 3PLs can help you secure competitive rates for air, ocean, or ground transportation services.
The Importance of Compliance in Import and Export
In addition to navigating the logistics of international shipping, businesses also need to ensure compliance with import and export regulations. Here’s how a 3PL can help:
- Understanding Regulatory Requirements: Different countries have different rules and regulations when it comes to importing and exporting goods. A reputable 3PL has the expertise to navigate these complexities and ensure compliance.
- Preparing Accurate Documentation: One common cause of customs delays and penalties is inaccurate or incomplete commercial invoices. By working with a detail-oriented 3PL, you can minimize the risks.
- Classifying Goods Correctly: Each product has its own classification under the Harmonized System (HS) codes. 3PLs have experience with a multitude of products and can help you accurately classify your goods and ensure the correct HS code is listed on the commercial invoice. This is essential for smooth customs clearance.
- Simplifying Duties and Import Fees: Paying duties and import fees can be confusing for customers, potentially leading to a negative shopping experience. Some 3PLs offer Delivery Duty Paid (DDP) solutions, where these fees are calculated and added to the shopping cart at checkout. This allows customers to pay for the duties and taxes upfront, minimizing returns and ensuring a smoother delivery process.
The Benefits of Working with an Experienced 3PL
Partnering with a 3PL that specializes in international logistics brings several advantages:
- Risk Mitigation: Cross-border transactions come with inherent risks, such as delays, lost shipments, or compliance issues. A seasoned 3PL understands these risks and has strategies in place to mitigate them.
- Efficiency: Trying to manage international shipping and customs procedures on your own can be time-consuming and overwhelming. By outsourcing these tasks to a capable 3PL, you free up valuable time and resources.
- Customer Satisfaction: Customers expect a seamless shopping experience regardless of where they’re located. With a reliable 3PL handling your international operations, you can ensure timely deliveries and hassle-free customs clearance, leading to greater customer satisfaction.
Selecting the Right 3PL Partner for Your Business
In the world of ecommerce, businesses can choose between two main methods for handling their order fulfillment: 3PL and dropshipping. Each method has its own advantages and considerations.
Dropshipping Model
In the dropshipping model, you sell products directly from manufacturers or wholesalers without holding inventory. The supplier is responsible for storing, packing, and shipping products directly to your customers. This model minimizes upfront costs and financial risk as you only pay for products after a customer makes a purchase.
3PL Partnership
On the other hand, partnering with a 3PL company allows you to outsource a wide range of logistics operations beyond just warehousing, fulfillment, and shipping. These services include kitting, returns and refurbishments, custom packaging, lot tracking, personalization, customer service, custom integrations, vendor compliance, and much more.
You buy and store inventory in the 3PL’s facilities, and then they pick, pack, and ship orders on your behalf. This model gives you greater control over your inventory, branding, and customer experience.
When deciding between these two models, think about your:
- Business size
- Product type
- Control over branding and customer experience
- Capital availability
- Long-term growth strategy
Factors to Consider When Choosing a 3PL Partner
When selecting a 3PL company, it’s important to evaluate them based on certain criteria:
- Your specific business needs and objectives
- Their industry expertise and track record
- Technological capabilities
- Geographic coverage
- Scalability
- Cost structure
- Fulfillment center locations
- Product personalization capabilities
The ideal 3PL partner should understand your business goals and provide services that improve your operational efficiency while aligning with your budgetary requirements. Additionally, it’s crucial to consider your future needs. Many businesses outgrow their 3PL sooner than expected or decide to start retail fulfillment, only to find their 3PL doesn’t support EDI. To avoid an expensive and premature move, ensure your 3PL can support both your current operations and future projects.
Measuring Success: Key Performance Indicators (KPIs) for Evaluating 3PL Performance
Evaluating the performance of your 3PL starts with thorough reporting. Customizable dashboards and up-to-date visualizations of your logistics operations will help you determine the effectiveness of your 3PL. That’s why tracking the right Key Performance Indicators (KPIs) will help you know whether you are on the right track.
Here are some critical metrics you should consider:
- Order Accuracy Rate: This measures the number of orders shipped correctly against the total number of orders processed. High accuracy rates reflect a 3PL’s commitment to quality and error reduction.
- Order Fulfillment Speed: This KPI calculates the time taken from order receipt to shipment. Speed in order fulfillment directly impacts customer satisfaction and is essential to compete with big retail capabilities like Amazon Prime. Explore alternatives to Amazon Prime.
- Inventory Accuracy: This metric evaluates how accurately a 3PL maintains your product inventory. Discrepancies can lead to stockouts or overstocking, both impacting your bottom line.
- Return Processing Time: A quick return process reduces customer dissatisfaction and minimizes the time products are out of saleable inventory.
- Cost Per Order: This metric gives insight into the financial efficiency of a 3PL provider by dividing total operational cost by total orders fulfilled.
Remember, selecting KPIs should align with your specific business goals and targets. Regularly monitoring these metrics will help ensure your 3PL partnership is delivering value and supporting your ecommerce objectives effectively.
If You’re Looking for the Right 3PL, You’ve Come to the Right Place
Collaborate with us to achieve significant cost savings, increased efficiency, and higher customer satisfaction. We can facilitate fast two-day or even same-day domestic shipping and quick international shipping so you can reach a global market. Schedule a logistics consultation and our team will help analyze your current fulfillment operating costs, speed, and more. We’ll game plan how we can improve your entire logistics operation.
