Order fulfillment is a crucial part of your online business. So when you reach the big step of outsourcing your fulfillment, it’s important to understand precisely what you’re doing and who you’re handing the lifeline of your business to.
“3PL” is a small term covering a vast range of services, benefits, and considerations. In this guide to 3PLs, we explain everything you need to know before outsourcing your fulfillment, including what a 3PL is, the benefits of using a 3PL, the services to expect, and the potential of the new 3PL model.
What is a 3PL?
A 3PL (short for third-party logistics) is an outsourced service provider that handles your eCommerce logistics for you. You make and take orders through online marketplaces and your eCommerce platform, and a 3PL fulfills them.
- Receiving inbound stock from yourself or your suppliers
- Warehousing stock in one or multiple warehouses
- Picking items for orders
- Packing orders for delivery
- Arranging the shipping of orders to customers
- Processing returns and returning items to stock
Relevant reading: Warehousing 101
What is the difference between 3PL vs. 4PL?
You may have heard the term 4PL (fourth-party logistics). A 4PL differs from a 3PL because it handles your entire supply chain, including finding and managing a 3PL. And, while we’re here, a 2PL handles only the transport of goods.
We should also introduce a new 3PL model here, which we like to call a fulfillment partner. A fulfillment partner overcomes some significant limitations of using a 3PL, but we’ll cover that later. First, let’s talk about traditional 3PLs.
What other services does a 3PL provide?
Third-party logistics providers have had to adapt to the growing needs of eCommerce sellers, resulting in many offering “bolt-on” services to meet these new demands. 3PL services additional to warehousing, picking, packing, shipping can include:
Many 3PLs accommodate international deliveries – arranging the paperwork, tariffs, and shipping carriers.
Inventory management is essential for eCommerce sellers, especially if selling across multiple sales channels. A 3PL uses an inventory management system to track stock levels, sync sales channels, and provide visibility into inventory efficiency and your 3PL’s performance.
Some 3PLs work with expedited shipping carriers to provide faster shipping speeds.
However, if you rely on these speeds to meet fast shipping program requirements, note that the fragmented nature of 3PLs can make it difficult for them to guarantee the shipping speeds required.
Select 3PLs work across multiple warehouses, allowing you to distribute stock across different locations, according to historical demand. This has the added benefit of reducing your shipping costs, too.
Kitting and assembly
Kitting involves bundling two or more products together, and assembly involves putting products together. Depending on how your products arrive from your suppliers, this may be a necessary service.
Cleaning and reworking
Specialized fashion 3PLs offer clearing and reworking services. This involves spot cleaning, steaming, odor removal, and minor repairs to stock that’s traveled a long distance from suppliers.
A white-glove 3PL service is a higher quality service that involves extra care and attention when handling, packing, and delivering goods. High-end brands typically use this for expensive and designer products.
Advantages of working with a 3PL
Working with a 3PL is a popular choice for many eCommerce sellers, especially when growing. The main benefits of working with a 3PL include access to expertise, more time for other priorities, capacity, and more.
A 3PL provides immediate expertise about fulfillment and logistics for the benefit of your business. 3PLs can advise on the most efficient and cost-effective ways to deliver your products while keeping up-to-date with the latest fulfillment trends and technology, so you don’t have to. They can also advise on different areas of growth, such as delivering internationally.
Fulfillment is time-consuming. A 3PL gives you back that time, allowing you to dedicate more attention to business growth and achieving that four-day workweek. The set-up and experience of a 3PL often mean that they can pick and pack far quicker than you can too – increasing efficiencies further.
While a 3PL charges for its services, it can still save you money in the long run. Large 3PLs have economies of scale that bring down prices of packaging, storage, and shipping. As your business grows, you also avoid the costs of directly employing additional staff, renting extra space, or investing in warehouse equipment and technology.
Handling orders and maintaining fast shipping speeds during periods of growth or peak activity (such as the holiday season) is easier with a 3PL. 3PLs have space, staff, and processes to handle high order volumes, in addition to quick access to temporary resources during busy spurts.
Finally, a 3PL has the resources you need to grow. This includes warehouse space, staff, technology, and insights that increase the amount of stock you hold, the number of orders you handle, and the locations you ship.
In essence, a 3PL makes fulfilling orders easier – which is what we all want.
Am I ready for a 3PL? 4 signs to look out for
Handing over your fulfillment operation to a third-party is a big step for your business, and you might question, “am I ready for a 3PL?” Let’s look at the four most common signs that your business is ready to outsource its fulfillment.
High order volumes
A high volume of orders is a good sign you’re ready for a 3PL. Not only will outsourcing a high volume of orders save you considerable time, but the cost-structures of many 3PLs mean that the more stock stored and orders fulfilled, the more cost-effective the service becomes.
If you miss shipping deadlines and deliver orders late, this is a powerful sign that you’re ready to outsource your fulfillment ASAP. A 3PL ensures you meet your advertised shipping speeds and avoid any late deliveries.
Too late? Find out what to do when your deliveries are late.
If you don’t have the physical space to store stock and fulfill orders, or don’t have time alongside your other business tasks, a 3PL will help. You can meet and expand your storage and prep area requirements without worrying about leasing your own warehouse space. And you can spend more time on the business side of your store rather than picking and packing.
Plans for growth
Finally, if you plan to grow your business significantly, the resources of a 3PL can assist that growth seamlessly, without gaps in service as you transfer from in-house to outsourced logistics.
If you can, avoid waiting until you’re overwhelmed by orders before looking to outsource your fulfillment to a 3PL or fulfillment partner, to avoid fatally damaging customer relationships and your reputation.
What to look for in a 3PL
Choosing the right 3PL for your business is crucial because, without the right 3PL, you won’t see any of the benefits mentioned. Six essential qualities to look for in a 3PL are…
1. Technical integrations
It’s important your 3PL technically integrates with your systems and sales channels to enable a seamless transfer of orders, updates, and data. Some 3PLs offer bespoke integrations with your internal systems, although this comes at a cost.
2. Transparent and flexible pricing
The costs of using a 3PL vary greatly, and there are many horror stories about hidden fees, unclear pricing, and unexpected bills. Never enter a 3PL arrangement until you fully understand the costs involved now and as you grow, including the following fees:
- Admin fees, such as setup and account management
- Inbound shipping and receiving
- Packaging materials
- Picking and packing
- Label printing and inserts
3 .Warehouse locations
If you ship across the country, having access to multiple warehouse locations makes it quicker and cheaper to do so. Look for a 3PL that offers a network of warehouses to suit your current and future delivery locations and shipping speeds.
You want a 3PL that can handle your speeds, stock, and order levels now and as you grow. Find out the hours of operation, storage capacity, order processing volumes, and shipping services. This is also an excellent opportunity to ask about daily cutoff times, delivery service levels, and the shipping carriers used.
5. Positive reviews
You already know the power of reviews for your business, and a 3PL is no different. Look for strong reviews and case studies from existing customers and, if possible, speak with customers directly about their experiences.
6. Value-added services
If you require any of the additional services we mentioned above, ensure your potential 3PL offers them and at a reasonable charge. It’s also worth bearing the opposite in mind – if your chosen 3PL provides a white-glove service that you don’t need, make sure you’re not paying for it.
Following the events of 2020, it’s good to ask how a potential 3PL responded to the coronavirus pandemic. Did they maintain service levels and continue deliveries, or did they follow FBA and restrict inbound deliveries and delay orders?
A new 3PL model
Third-party logistics existed long before the eCommerce boom, meaning that many providers weren’t set up to facilitate online orders. These 3PLs have since altered their businesses to provide “bolt-on” services that accommodate online sellers, but don’t necessarily fuel their growth or profit margins.
There are disadvantages of using a 3PL. Some of these include opaque pricing, surprise fees, a disjointed fulfillment process, and long onboarding times. Deliverr has introduced a new model to address these issues while providing breakneck fulfillment speed.
Here’s how Deliverr’s different.
Transparent, all-inclusive pricing
Instead of complicated fees and hidden charges, a fulfillment partner like Deliverr offers transparent, all-inclusive pricing that’s easy to understand and more affordable for your business.
- Fulfillment fee – An all-inclusive fee covering all services between order to door (of your customer).
- Storage fee – A monthly storage fee per cubic foot, per item, per month.
And that’s it: no set-up fee, account management, work orders, or surprise bill at the end of the month.
This makes it far easier to calculate the cost benefits of using a 3PL, as well as your profit margins.
See for yourself: Calculate your Deliverr costs in 20 seconds
Ease of use
3PLs are notoriously difficult to get started with, with long onboarding processes and lengthy account set-ups. The new eCommerce 3PL model gets you started and shipping in a week – using fast sign-up processes and existing sales channel integrations to make it happen. That’s also why you don’t pay a set-up fee – because there isn’t much to set-up.
Fulfillment partners provide you with a dedicated user platform to monitor stock levels, disperse inventory, and add additional sales channels as your business grows.
Finally and most importantly, fulfillment partners such as Deliverr guarantee fast shipping speeds of 2-day and next-day, allowing you to exceed customer expectations and automatically meet fast shipping program requirements.
Why are 2-day shipping speeds so important? See how Huggaroo got a 300% increase in conversions with fast delivery
Most traditional 3PLs were created to serve the in-store retail industry, where shipping speeds aren’t as crucial. While they may offer eCommerce sellers fast picking or shipping carriers, their processes aren’t optimized for speed as a whole – which is what you need to deliver in 2-days or fewer.
This is also why traditional 3PLs can be costly for online retailers because their pricing model suits traditional retailers who have short-term storage requirements and slow but large-volume shipping needs.
In contrast, Deliverr provides nationwide 2-day deliveries and oversees the entire fulfillment process from order to door. This includes using machine learning to disburse your inventory across strategic warehouse locations, state-of-the-art order management systems to download orders in real time, and processes that create efficiencies across every step.
Outsourcing your fulfillment seems like a big risky move, but it has huge potential for your business. Therefore, it’s important to understand everything you can about using a 3PL before taking the jump.
3PLs come with plenty of advantages for you and your business, but many providers follow an outdated fulfillment model not built with eCommerce (or fast shipping) in mind.
A new 3PL model, used by eCommerce fulfillment partners such as Deliverr, overcomes these challenges to provide the benefits of outsourcing your fulfillment while facilitating fast shipping and online growth.