eCommerce has gained popularity across the world, and the growth has been seen even more since the start of the pandemic. Many people now search for a product online and may never even step into a brick-and-mortar store to buy it. With that, eCommerce stores have grown and expanded to new states and countries. But this growth has led to some unique challenges for business owners. To keep up with demand, some business owners need to expand their storage area, hire workers to ship orders, and manage order fulfillment or returns at record speed.
With this rise in online shopping has come an increase in services to support eCommerce businesses. A 3PL, or third-party logistics, is one of the logistics service providers for the eCommerce industry. While 3PLs are not new, they have expanded as eCommerce grew. The term, which has been around for decades, refers to the logistics services that all businesses have to deal with.
In this guide, we’ll cover what 3PL is, what the services look like, and how your eCommerce store can benefit from finding the right 3PL partner.
What Does 3PL Mean?
Third-party logistics, or 3PL, is the outsourcing of logistics processes from an eCommerce business to a third-party business. 3PLs involve three parties (hence, the 3 in 3PL): your business, the third-party logistics provider (them), and the shipping carrier (like USPS, UPS, DHL, etc.).
Some of the tasks a 3PL can assist with include inventory management, warehousing, or 3PL fulfillment services. By hiring a 3PL for logistics needs, your business can benefit from the expertise and tools they bring to logistics while freeing up time, energy, and employees for other important tasks related to running your eCommerce store.
How 4PL Is Different From 3PL
(4PL) is different from 3PL in that it manages even more for you. A fourth-party logistics provider adds another level of separation between eCommerce shops like yours and the 3PL companies shipping their inventory.
When an eCommerce business contracts with a 4PL, the 4PL company manages and arranges 3PL services, often offering end-to-end entire supply chain management for the eCommerce store, including 3PL services, manufacturing, inventory procurement, and other tasks as needed.
Advantages And Disadvantages Of Using 3PL Services
Advantages of 3PLs
Help cost savings and free up time.
Offer responsiveness for higher or lower order volume (i.e. product seasonality).
Allow businesses to scale affordably.
Disadvantages of 3PLs
Typically, apply only to small- or medium-sized businesses.
Offer less control over company inventory.
Less oversight for customer experience.
What are 3PL Services?
There are many 3PL service providers that your business can take advantage of. By partnering with the right 3PL, your life can be made easier, your business can run more efficiently, and your customers can be happier with their overall experience with your shop.
Whether you have 100 items in your store or 10,000, you need to have a system in place to manage your inventory. Without inventory management, you will not know which products you are running low on and you may even have a customer place an order for an item you do not have in stock.
A 3PL can sync inventory with your online store so that real-time inventory levels are reflected online and sold-out items are marked as such or removed from the store. Once your 3PL has received and warehoused your items, you can check inventory and know the quantity of each item, color, or size you have and how many items are being sold each day.
It can be challenging for many eCommerce stores that handle their logistics to have multiple warehouse locations, which can help to reduce shipping times for your customers. However, many 3PLs have warehouses across the country, allowing you to have inventory in multiple fulfillment centers with a distributed inventory strategy.
This means that your inventory is closer to your customers in the West, the Midwest, and the East. Instead of shipping from your warehouse in Southern California to a customer in Massachusetts, you might have a warehouse with inventory in New Jersey that can cut that shipping time (and cost) down.
Another benefit of distributed inventory is when there is an extreme weather event. If you have a warehouse in Austin, but another ice storm is crossing Texas and transportation is shutting down, your items can still ship from your Phoenix warehouse.
Freight forwarding is the coordination and shipment of products from one place to another. This shipping often includes crossing international borders, and it can happen with single or multiple carriers.
Sometimes, freight needs to be moved by air, sea, rail, or highway, depending on the goods involved and how quickly they need to get there. A 3PL can help coordinate freight forwarding, including documentation, consolidation, cargo insurance, and customs compliance.
B2B And B2C Fulfillment & Order Processing
If you sell to both business and consumer customers and utilize a multi-channel logistics approach, 3PLs that provide both business to business and business to consumer (or direct to consumer) services can make your life much easier.
A 3PL can centralize your inventory management and fulfillment services. With order processing through a 3PL, orders can be shipped quickly and accurately, so it is a win-win for your business and your customer.
Process Returned Inventory
It’s inevitable – returns are going to happen. A 3PL can manage your returns for you, processing returned orders and handling them in the right way (restocking, disposal, quarantining, etc.). While they handle the return, you will still have full visibility into the return process so you know which items are being returned and how often returns are happening.
In addition to handling the shipment, a 3PL can manage the tracing and tracking process, giving you and your customers insight into where items are at any given moment. Your order system and your customer will receive shipping information, so everyone can see where an order is throughout the order fulfillment process.
A big trend in the eCommerce world is subscriptions and kits. These are customizable inventory items that you can sell on your website under one SKU, but may contain many items or happen regularly for the customer. A few key ways customization can happen with 3PLs are:
Subscriptions can be a single, recurring item (like a monthly coffee delivery) or they can be a bundle of items that may change every month (like a fitness or wellness box with 4 or 5 items). A 3PL can bundle the subscription items, or handle the recurring order promptly.
The software 3PLs use ensures that errors in bundling items or handling recurring items (without a new order being created) do not happen and the process is seamless for you and the customer.
Kits are multiple items sold as a single SKU. As opposed to a subscription box that changes each month and is sent out to a subscriber regularly, a kit is typically a one-time purchase. Kitting is often used for items regularly purchased together or for items that would make the customer’s life easier if they had the full set of items.
When you allow customers to personalize their items, whether on the item itself or with a special custom gift note for the recipient, you are providing an additional level of service to your customer. A 3PL can make this easier for you, by handling the personalization of the order when processing it.
Data is how you make decisions for your eCommerce business. Without data from your logistics company or team, you would not be able to have access to information on the stocking levels, supply chain challenges, shipping times, or other information that can help you determine new promotions or offers, new pricing, or new products to offer your customers.
Pick And Pack
Pick and pack is a process used by 3PLs to prepare and ship orders as they come in. Items are stored in a warehouse, and as orders come in, fulfillment workers go through the warehouse shelves to pull items to fill each order. Those items are then packed and shipped, making fulfillment easier and limiting freight costs.
A 3PL can often offer more shipping options and quicker shipping than businesses can on their own. Customers are wanting their items quicker, and many are expecting affordable or free shipping on top of that. Some of the biggest stores online have free two-day shipping options available, so to stay competitive many eCommerce shops want to offer the same or similar.
With a 3PL, two-day shipping is much more achievable. Established 3PLs have negotiated discounted shipping rates for clients with shipping partners, so you can have more shipping options and faster shipment speeds available for your customers.
💡Finding a 3PL that can handle fulfillment and freight services for your eCommerce business can simplify your logistics and save you time and money. An experienced and reliable freight forwarder can leverage established carrier relationships to offer you the most efficient and economical domestic and international transportation options for bulk shipments.
Key Terms And Definitions In The 3PL World
Here are some of the key terms and definitions you may come across when working with a 3PL company or researching the 3PL industry.
Average Inventory: Average inventory is the inventory at the beginning of a timeframe and the inventory at the end of a timeframe divided by two.
Case Picking: Case picking is the gathering of full cartons or boxes during order fulfillment within a warehouse or distribution center.
Cycle Count: Routine counts of inventory help to maintain inventory accuracy. In a cycle count, warehouse employees physically count the number of individual items in storage and check that count against the WMS.
Distribution Center: A localized center for 3PL that receives products, stores them, and ships them to customers in their region.
Freight Forwarding: The planning and coordinating of goods across international borders.
Fulfillment: The completion of an order placed through an eCommerce store, sometimes done via the pick and pack method (see below).
Import and Export Services: Import services and customs clearance or the preparation of export documentation for international shipping.
Outbound Logistics: Moving products from your production facilities to your customer.
Pallet Picking: The gathering of full pallets while filling orders. Picking full pallets of goods is often less expensive on a per-unit basis than picking individual goods.
Pick and Pack: One of the processes for picking items to fill orders and packing them for shipment to customers.
Storage Rates: Fees charged per unit for storage of product, typically based on the number of days in inventory, inventory turns, stackability of pallets, etc.
Transportation Management: The outsourcing of transportation via land, sea, or air to a 3PL.
Transportation Mode: The method by which your products are transported, which ranges in price depending on the method (rail, truck, cargo ship, airplane, etc.).
Value-Added Services: Additional services a 3PL can provide, including building displays, kitting, labeling, etc.
Warehouse Management System (WMS): A technology that makes managing every functional task within the operation easier. A WMS can help with tasks such as inventory control, labor planning, product tracking, invoicing, and other operational functions.
Warehouse Network: A 3PLs supply chain of warehouse locations across a given geographic area (for example, some 3PLs have a warehouse network only in the Pacific Northwest of the United States, while others have a warehouse network that spans the country).
How Do 3PL Companies Work?
When you partner with a 3PL for your order processing and fulfillment services, you may be wondering exactly what happens and how your customers get their orders. It doesn’t have to be confusing or done behind closed doors. You should be able to understand how your 3PL company works and ask questions to have a good idea of what’s going on when you send inventory their way.
Here is what happens after your items leave your business for your third-party logistics provider.
The first step is for the 3PL to receive those items. Receiving refers to the intake of your inventory into their warehouse. Once the items have arrived at the warehouse, the 3PL will take stock of the items and place them in a designated area.
Next, the items you have sent over are warehoused. They will arrange the shelves or pallets to keep your inventory organized so that when orders start coming in, the warehouse workers will easily be able to pull items to fulfill orders.
After a customer places an order, it is time for fulfillment. The first part of order fulfillment is often picking. Often with a pick and pack fulfillment strategy, warehouse workers will go through the warehouse after an order slip comes in to gather the items. Many 3PLs have software and technology to make this process easier and more efficient.
This technology can give all the relevant order information, including the items, quantities, and storage locations at the warehouse to collect the items in the order from their current storage shelves, bins, and pallets.
After the items in the order have been picked, it is time to pack them. With this, 3PL workers get items securely and safely packed for shipment. Aside from packing the items in a box, workers ensure the box or envelope is the right shape and size for the items.
After items have been picked and packed, they are ready for shipping. Most often with 3PLs, special low rates have been negotiated so that you have choices in shipping carriers and shipping speeds, while your shipping costs are kept low.
The 3PL worker will print and attach shipping labels to your packages. You may be able to use UPS, USPS, DHL, or other carriers depending on the order and the contract you have with your 3PL. You may choose to offer two-day shipping speeds to your customers to keep up with current industry trends.
Your third-party logistics provider may also be able to process returns. When a customer returns inventory, there are a few options for how to deal with that: restocking, quarantining or disposing of the item. These options depend entirely on your inventory and your company policy for returned items.
However, instead of having to deal with returns yourself, your 3PL can help with the shipping label, inventory management, and return status.
3 Benefits Of Partnering With A 3PL
When you hire a 3PL, you get more than just someone who knows what they are doing. You are getting a true partner in business for your logistics and order fulfillment needs. Some of the main benefits that your business will find include:
Save Time And Money
With a third-party logistics provider, you do not need to have your own warehouse space. You also will not need to have logistics expertise, software, or other technology to get the job done. Some of the costs you can cut include warehouse space, forklifts and equipment, warehouse management software, recruiting and labor costs, and warehouse workers comp.
Time can be saved from packing boxes or standing in line at the post office. Instead, your time and money can be invested into other aspects of your business, like product development, marketing, or customer service.
Even though you are involved in all aspects of your business, it is impossible to know everything. The most successful businesses understand this and hire or outsource to people who are experts in their field and have the knowledge that they lack. You may know your products and industry, but a 3PL knows the intricacies of order fulfillment, shipping, and logistics. They will know the latest trends, have the latest software and technology, and train their employees on the best practices for warehouse and fulfillment centers.
When you leverage the expertise of the people who know more than you do, you can get the most for your money so you can sustainably scale your business and increase revenue.
Expand Your Reach
When you have your warehouse and order fulfillment in-house, you may be limited in where you can sell. However, with a 3PL, you are able to have your inventory spread out across the country and even have the opportunity to open up your business to international shipping.
Third-party logistics providers can cut down on shipping and transportation time and increase cost savings while giving you an expanded footprint for your business.
💡Shipping out of multiple fulfillment centers in locations closest to your customers can have a huge positive impact on your bottom line and on your customer satisfaction. Distributing your inventory across multiple locations in major metropolitan areas will allow packages to ship from the location closest to your end customer. This reduces transit for shipments, meaning your packages will ship faster to your customers and at a lower shipping cost.
How To Choose A 3PL Provider
Now that you know what a 3PL is, the services they can provide, and the benefits they can bring to your eCommerce business, you need to understand how to choose from the variety of third-party logistics providers. You need to find a 3PL that you trust to manage your inventory, efficiently and quickly ship your orders, and provide an overall great customer experience to reap the benefits of 3PL services and grow your business.
Here are some questions to ask yourself and some tips that can help you select the right 3PL company for your business.
Know Your Requirements
If you need an exceptionally large storage area or something beyond the standard pick and pack model, then you might be looking for a specialized 3PL. Otherwise, you have more options available for your order fulfillment needs.
What Kind Of Technology Does The 3PL Have?
Some 3PLs have technology that can connect to your online store and others have technology that can automatically update inventory levels in real-time. Depending on your needs and your technology, you might have a specific need with your 3PL company.
Understand What Data They Can Provide
Data makes your business work, and you need data to make decisions. Some 3PLs will provide weekly or monthly reports, while others will have a real-time reporting dashboard you can view. What you need will depend on how quickly your business moves and the kind of information you need to make important decisions for growth.
Where Are Their Fulfillment Centers Located?
Because one of the benefits of partnering with a 3PL is growth with a network of warehouses, you want to know where their warehouses are located. You want to ensure you have inventory located near major groups of customers, so if you mostly have customers in one part of the country, you should have a warehouse near them.
Know Your Integration Needs
Some third-party logistics providers can integrate with specific eCommerce platforms only, like Shopify, WooCommerce, Magento, or Amazon, while others can offer an API for communicating with specialized systems. Depending on what you use for your eCommerce site, your 3PL must integrate with that platform. This will streamline fulfillment, improving shipping times for your customers.
It may also benefit your in-stock inventory levels on the website, as they can be more accurately reflected with proper integration.
Why Hire A 3PL Warehouse?
Many businesses choose to work with a 3PL warehouse to reduce costs and improve customer experience. This allows your business to spend less time and money on coordination and logistics, and instead focus on the core of what differentiates you in your market, growing your business and customer base.
A 3PL offers value through three primary channels: speed and accuracy, regulatory navigation, and industry expertise that many businesses just do not have on their own.
Speed & Accuracy
With consumers demanding speed and accuracy from your businesses, hiring a 3PL makes sense. Experienced 3PLs specialize in processes to ensure quickly packed, accurate orders. These 3PLs already have the technology to manage their inventory, automate tasks, and deliver complete visibility to drive value and efficiency.
Another reason businesses may choose to hire a 3PL warehouse is because of the type of inventory or other regulatory challenges when shipping goods.
Certain types of products are controlled by rules and regulations, so it’s important to have the right facility with the right equipment and storage capabilities, as well as the right labels for shipping. Some of these regulations might include cold storage, hazmat, nutraceuticals, etc.
A 3PL brings an array of expertise that is hard to obtain without years of industry experience. Expert 3PLs can combine several services all in one offering, simplifying logistics for you. Things like negotiating shipping rates, efficient picking, and packing, or materials management are some of the ways 3PLs can cost-effectively bring industry knowledge and expertise.
Why Use A 3PL Vs In-House Fulfillment?
Many eCommerce companies look to a 3PL when they experience rapid growth over a short period. Companies partner with 3PLs when they want to scale their business without having to implement new warehouse strategies in-house, or when their shipping and logistics needs are getting too complicated.
By using a 3PL, you know that your business’s logistics strategy will always include the latest trends and best practices. This is costly and time-consuming if you do it in-house, but when you outsource it to the experts, everything stays up to date and your business can benefit from the latest and greatest in the logistics and order fulfillment world.
How Much Do 3PL Services Cost?
The cost of 3PL services depends on what services you need and what model the 3PL company uses. Sometimes, 3PLs will charge on a per-service basis, while others will have packages they can offer to clients that may include multiple services (sometimes at a discounted rate).
Some of the common costs eCommerce businesses may face when working with a 3PL company include the following:
This gets your 3PL services up and running
Inventory Receiving Costs
This covers your inventory acceptance and storage at the 3PL warehouse and may be charged per unit, per pallet, per hour, or flat rate
Inventory Storage Costs
This will include the space for your inventory and may be charged per SKU or unit or bin, shelf, or pallet in the warehouse
Pick And Pack Costs
This includes the labor for picking and packing orders for your company and may be charged per item or order
If you offer kits, sets, or subscriptions, this charge will vary based on what specifically goes into your company’s kitting project
This may be charged separately than picking and packing or kitting and can include the boxes and/or filler material for the packages
This may be charged separately from your fulfillment fees. Costs vary depending on shipping speeds, zones, and weights
Now that you know what the costs may include, some pricing and cost strategies are used throughout the logistics industry. Some of the most common pricing strategies you will see as you research 3PLs are:
Total Fulfillment Cost
This pricing model reflects the total fulfillment cost for online orders, charging only for receiving, storing, and shipping inventory rather than paying for each service.
Pick And Pack
This pricing model is based on individual charges for each item picked and packaged. The range for this cost can vary, but most third-party logistics providers charge between $0.15 and $5 for each pick. Costs can add up quickly with this model.
Partner With Rakuten Super Logistics For 3PL Needs
When you find the right 3PL partner, you will no longer need to stress about getting the orders out to your customers or handling the day-to-day inventory management. Rakuten Super Logistics provides more than just pick and pack services. With Rakuten Super Logistics, you can find a true partner in logistics with order fulfillment, return management, subscription boxes, lot tracking, temperature control, and more.