What Is 3PL: A Guide to What Third Party Logistics Companies Do

If you’re an eCommerce company that ships and fulfils a significant number of orders each month, the chances are you’ve heard the term 3PL. Particularly if you’re looking to outsource your fulfilment. But what exactly does 3PL mean? What do 3PL companies do? Keep reading and you’ll find the answers to these questions and more…

What does 3PL mean?

Let’s begin by answering the core question this article seeks to address.

What does 3PL mean?

At its most basic, 3PL stands for third-party logistics.

3PL refers to companies that carry out order fulfilment on behalf of other companies (usually eCommerce companies and other types of retailers).

3PL companies have increased in number in relation to the rise of eCommerce. With the introduction and growth of eCommerce from the late-1990s onwards, more and more 3PLs have cropped up, offering to take care of retailers’ fulfilment requirements.

What do 3PL companies do?

Okay, so 3PLs take care of fulfilment on behalf of eCommerce companies and other retailers.

But, what exactly does fulfilment refer to?

It’s a rather vague term which encompasses an array of different services, processes and functions.

A 3PL company will normally offer at least one (or more) of the following fulfilment services:

• Inventory management.
• Quality assessment.
• Order processing.
• Pick and packing.
• Customer communication and service.
• Returns management and processing.

The most advanced 3PLs will offer all of these services, thus covering the complete end-to-end fulfilment process on behalf of retailers.

What are the benefits of using a 3PL?

Why do eCommerce companies use 3PLs? It’s a question that many smaller or start-up eCommerce companies ask themselves. After all, 3PLs don’t offer their services for free.

However, there are several very good reasons why eCommerce companies use the services of 3PLs. We’ll take you through those reasons below.

3PLs save eCommerce companies time and money

Fulfilment can be a costly business; especially if you try and do it all yourself.

Think about it. Once your eCommerce business reaches a certain scale, you’ll need to pay for a warehouse, warehouse equipment such as forklifts and shelving, specialist software, a picking and packing team, individuals to deal with customer orders, enquiries and complaints and much more.

These costs can quickly add up.

So, it makes sense to outsource your fulfilment to a 3PL.

Fulfilment is the sole focus of a 3PL. It’s literally all they do, all day, every day. So, they’re very good at it. Plus, because 3PLs generally carry out fulfilment on behalf of multiple clients, they benefit from economies of scale, thus carrying out fulfilment at a lower cost than you’d be able to do yourself.

All of which makes it economically sensible to use a 3PL.

Take advantage of industry expertise

The chances are you’re not an expert at logistics, but a 3PL is!

By using a 3PL you’ll be able to leverage their logistics expertise to ensure that your orders are fulfilled properly, on time and securely. Many 3PLs have decades of experience in logistics and fulfilment – they’ll use this experience to ensure you get the best possible fulfilment service.

3PLs, and the individuals that work for them, will also be up-to-date with the latest industry trends, innovations and challenges – things that you’ll probably struggle to know on your own.

Plus, by outsourcing your fulfilment to a third party, you can concentrate on what you do best; marketing and selling your wonderful products.

Remember, you went into business to sell your products – not run a logistics operation!

Finally, 3PL companies will have the networks and contacts with the world of logistics, fulfilment and shipping that you probably don’t. This means they are able to consistently improve things like supply chain efficiency, shipping partners, packaging and more.

A 3PL can boost your growth

Partnering with a high-quality 3PL can also have a tangible impact on your bottom line and your business’ growth.

The primary reason for this is that a 3PL will free you up to concentrate on your business growth goals. Instead of worrying about fulfilling customer orders, tracking deliveries and dealing with returns, you can focus on growth targets safe in the knowledge that your fulfilment is running smoothly and efficiently in the background.

But, there are further reasons why a 3PL can boost your growth…

For example, a 3PL can help you manage multi-channel fulfilment. So, instead of simply selling your goods from your website, you can also use additional sales channels such as Amazon, eBay and others. A good-quality 3PL will be able to manage and fulfil orders from these channels on your behalf.

More markets equals more sales!

And, on that note, some 3PLs can also help you internationalise your eCommerce business. Many eCommerce businesses are put off selling their products internationally because of the challenges associated with customs and shipping.

A good 3PL will be able to handle these challenges for you, allowing you to sell worldwide – and thus growing your business more than you could have without the 3PL!

What types of companies should use a 3PL?

So far so good right?! There are certainly many benefits to using a 3PL. But, should you use one?

Well, let’s find out.

When you’re shipping 250+ orders per week

Scale is arguably the main reason eCommerce companies decide to outsource their fulfilment to a 3PL.

Below a certain volume of orders, it makes sense to carry out your order processing, fulfilment and shipping in-house. Below 250 orders a week, depending on the size of your team and capabilities, it’s probably financially sensible to do everything yourself.

Beyond 250 orders a week and you’re into large scale supply chain management and fulfilment territory. At this point, it’s wise to let the pros take over.

Remember, 3PLs are highly specialised and focused on fulfilment; it’s unlikely you’ll have the same level of knowledge, expertise and insight that they do.

You don’t have sufficient warehousing

We’ve seen it before. An individual starts an eCommerce store in their spare time. It suddenly ‘takes off’ and becomes hugely popular.

All of a sudden that spare room doesn’t quite have the space to store all of the inventory needed to fulfil the sudden surge in orders.

What can they do?!

Well, use a 3PL of course.

Once you find that you don’t have enough space at home or in your office to store all of your inventory, then a 3PL will be able to manage your inventory.

Many 3PLs will do more than simply store your inventory for you. Their warehousing services can include:

• Receiving products directly from your supplier.
• Carrying out quality control reviews to ensure products meet your criteria.
• Distributed warehousing, ensuring your products are stored close to your customers.
• Picking and packing and kitting and assembly.

Choose the right 3PL and you’ll benefit from all of those services and more.

You don’t have the capacity to handle returns

Similarly to the point about scale, if your eCommerce company operates in a vertical which has a high rate of returns e.g. fast fashion, then you may want to outsource your returns processing to a 3PL.

Handling returns is an important part of your business and is a key criteria in customer satisfaction, so it’s important that you get it right.

So, once you reach a volume of returns that is beyond the capacity of your in-house team, choose a 3PL to handle them for you.

How to pick the right 3PL for your eCommerce business

At this point, you might be thinking that outsourcing a 3PL is the right thing for you. But, how do you go about selecting the right one for your eCommerce business?

Below are a few questions you should ask prospective 3PL partners:

• Does the 3PL provide 24/7 security? How is inventory secured and managed to prevent loss/shrinkage?
• Does the 3PL have continuity of business plans in place?
• What are the order fulfilment costs? How does the billing work?
• What are their typical shipping costs? Are these incorporated into the bill, or charged separately?
• Does the 3PL offer multi-channel integration and fulfilment?

Get satisfactory answers to these questions and you’ll be a step closer to finding the right 3PL partner that’ll help you smoothly, efficiently fulfil orders and grow your business.

3PL: the leader in eCommerce fulfilment

If you want to secure the best possible fulfilment services for your business, then speak to 3PL. We are an award-winning third-party logistics provider with an extensive track record of helping eCommerce businesses to grow.

Find out more about outsourcing fulfilment for your eCommerce business today

For more eCommerce business, marketing and fulfilment advice, read the 3PL blog… 

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