What is 3PL? A guide to third-party logistics

If you run an eCommerce business or sell across multiple channels and fulfil a growing number of orders, there’s a good chance you’ve come across the term 3PL – particularly if you’re considering outsourcing your fulfilment.

But what is 3PL, exactly? What do 3PL companies do and why might you use one?

In this guide, we’ll break down how third-party logistics works, the services a 3PL can provide and the signs that it might be time to bring in a fulfilment partner.

What does 3PL mean?

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

A 3PL provider manages logistics and fulfilment activities on behalf of another business. It’s a broad term, and not all 3PLs provide the same services. In some cases, a 3PL is primarily a transport or shipping company, moving goods from one location to another. Other 3PLs specialise in warehousing and order fulfilment, while some combine several logistics services under one roof.

For eCommerce and multi-channel brands, a fulfilment-focused 3PL can take care of everything from receiving and storing stock to picking, packing and dispatching customer orders, as well as inventory and vendor management, returns and customer support.

Managing all this in-house can become increasingly complex as your business grows, particularly if you expand into new sales channels. You may need to manage orders from your own website, marketplaces, retailers and wholesale customers, alongside changing customer expectations, peaks in demand and international shipping – all while keeping inventory accurate and orders moving.

A 3PL gives you the option to outsource some or all that operational workload to a specialist.

What do 3PL companies do?

Fulfilment is a broad term covering the journey from stock arriving at a warehouse to an order reaching your customer (and potentially coming back again as a return).

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

• Inventory management
• Quality assessment
• Order processing
• Picking and packing
• Customer communication and service
• Returns management and processing
• Warehousing and storage
• Shipping and carrier management
• Kitting and assembly
• Technology integrations and order visibility

Some 3PL providers specialise in some areas, while others offer an end-to-end service. The right approach depends on your business, products, sales channels and the level of support you need.

What are the benefits of using a 3PL?

Why use a 3PL rather than managing fulfilment in-house? For many growing brands, it comes down to access to specialist infrastructure and expertise, greater scalability and more time to focus on the business itself.

A 3PL can save time and help control costs

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

As your business scales, running fulfilment in-house can mean investing in warehouse space, equipment, technology, recruitment and carrier relationships, as well as the time required to manage it all.

Working with a 3PL gives you access to an established fulfilment operation without having to build every element yourself. Because providers typically manage operations for multiple clients, they can also benefit from shared infrastructure, technology, carrier relationships and economies of scale.

That doesn’t mean outsourcing will always be cheaper than doing everything in-house. But for the right business, it can create a more flexible cost base while reducing the operational burden.

Take advantage of industry expertise

You know your products and customers. A good 3PL knows logistics.

By using a 3PL, you can tap into specialist knowledge of fulfilment, warehouse operations, carriers and logistics technology. An experienced provider can also help you respond to changing customer expectations and identify ways to improve your operation.

And by outsourcing fulfilment, you can spend more time concentrating on what you do best: building your brand and selling your products.

A 3PL can support your growth

Outsourcing fulfilment can give your team more capacity to focus on growth. Instead of spending increasing amounts of time managing orders, deliveries, warehouse space and returns, you can concentrate on your customers and commercial goals.

A 3PL can also support growth across multiple sales channels. As you expand from your own website into marketplaces, retail or wholesale, fulfilment becomes more complex, with different order profiles and requirements to manage alongside inventory across every channel. A multi-channel 3PL can bring these operations together, giving you the infrastructure and flexibility to add new channels and increase order volumes without having to continually expand your own fulfilment operation.

Some providers can support international delivery too, helping manage additional complexity around shipping, customs, carriers and returns as you enter new markets.

3PL vs 4PL: what’s the difference?

If you’ve been researching outsourcing logistics, you may also have come across the term 4PL. So, what’s the difference between 3PL vs 4PL?

A 3PL typically handles specific logistics operations on your behalf, such as warehousing, order fulfilment, inventory management and shipping. You retain overall control of your supply chain strategy and relationship with the provider.

A fourth-party logistics provider, or 4PL, usually operates at a broader strategic level. Rather than simply carrying out logistics activities, a 4PL may coordinate multiple logistics providers, technologies and supply chain partners on your behalf.

In short, a 3PL helps execute logistics operations, while a 4PL generally takes greater responsibility for orchestrating the wider supply chain.

For many eCommerce and multi-channel businesses looking to outsource warehousing and fulfilment while retaining strategic control, a 3PL is the most sensible option.

What types of businesses should use a 3PL?

There’s no universal order-volume threshold for outsourcing fulfilment. The right time depends on your products, margins, storage requirements, sales channels, order profile and the capacity of your existing team.

That said, there are some common signs that your current fulfilment setup is beginning to hold you back.

Your order volumes are becoming difficult to manage

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

When volumes are relatively low and predictable, managing fulfilment yourself may make perfect sense. But as orders increase, or become more unpredictable, picking, packing and shipping can start taking too much time, space and resource.

Peak periods can make this particularly obvious. A scalable 3PL can give you additional capacity and resource without requiring you to permanently expand your own warehouse and team.

The question isn’t simply “How many orders do we ship?” It’s whether your existing operation can continue fulfilling them accurately and efficiently as you grow.

You don’t have sufficient warehousing

It’s a familiar story: an eCommerce brand grows quickly and suddenly the spare room, office or existing warehouse no longer has enough space for its inventory.

When stock starts taking over your available space or a lack of storage is limiting growth, a 3PL can manage inventory and warehousing on your behalf.

Warehousing services can include:

• Receiving products directly from your supplier
• Carrying out quality control reviews
• Managing and tracking inventory
• Picking, packing, kitting and assembly
• Preparing orders for different sales channels
• Supporting seasonal or promotional peaks

The right 3PL allows your warehousing operation to scale alongside your business rather than becoming a constraint on growth.

You don’t have the capacity to handle returns

If your business operates in a sector with a high volume of returns (fashion is an obvious example), reverse logistics can quickly become a significant workload.

Returns can involve receiving and inspecting products, updating inventory and processing items for resale or another outcome, all while maintaining a smooth customer experience.

If that workload is stretching your team, a 3PL with dedicated returns management capabilities can take some of the pressure off.

How to pick the right 3PL for your business

If outsourcing sounds like the right next step, how do you choose a 3PL?

Price matters, but it shouldn’t be the only factor. You’re trusting a provider with your stock and a key part of your customer experience, so look closely at how its operation works and whether it can support where your business is heading.

Questions to ask prospective 3PL partners include:

• Does the 3PL provide 24/7 security and how is inventory protected?
• Does it have business continuity plans in place?
• What are the fulfilment and shipping costs, and how does billing work?
• Does it offer multi-channel integration and fulfilment?
• Which eCommerce platforms and marketplaces can it integrate with?
• How will you access inventory and order data?
• Does it offer real-time visibility of the fulfilment journey?
• How does it manage returns and exceptions?
• Can its operation scale during seasonal peaks?
• Can it support future plans such as new channels or international expansion?

The best 3PL relationship isn’t just about handing over your orders. It should give you confidence that your fulfilment operation can keep pace as your business changes and grows.

Could a 3PL be the next step for your business?

There’s no single point at which every business needs to outsource fulfilment. But if warehousing, order processing, shipping or returns are taking increasing amounts of time and resource, or making it harder to scale, it could be worth exploring what a 3PL partner can offer.

At 3PL, we support businesses with flexible fulfilment solutions, from straightforward D2C fulfilment to more complex multi-channel operations. If you’re considering outsourcing and want to understand what that could look like for your business, have a look at our fulfilment services:

Do you exclusively sell directly to end customers? Discover 3PL Direct, our D2C fulfilment service

Or do you sell via multiple channels, such as your own website, marketplaces and retail partners? Discover 3PL Flex, our multi-channel fulfilment service