So you’re looking into 3PL? As a warehouse owner or business owner, you must understand what 3PL is and what it can do for you.
You may have a great understanding of logistics and experiencing working with 3PL companies. Still, there’s always something that we learn, so be sure to look through this guide to find some helpful tools, ideas, and tips for increasing your supply chain efficiency and effectiveness.
Let’s dive in and start with defining 3PL.
What is 3PL?
3PL is an abbreviation for third party logistics. A third-party logistics company is someone you hire to handle your inventory, packaging, shipping, and other related tasks. When employing a third-party logistics provider, your company can sell more products without worrying about the supply chain’s logistics.
Many times these companies can even be located in a state different than your business. Working with a 3PL isn’t too difficult, but it will cost you, and there are some specifics that you should watch out for to ensure that your business’s interests and needs are met throughout the process. Logistics companies are complex organizations that can serve multiple customers simultaneously, thus making it essential that you find a 3PL (third party logistics) company that cares about you and your business.
3PL vs. 4PL
So we know what 3PL is, but something you might come across is a 4PL. A 4PL is like a 3PL, but it adds another degree of separation between you as a business owner and your customer. When you hire a 4PL, you’re looking for a company that essentially brokers a deal with a third-party logistics company and handles all of that for you. All your company will be left doing is selling the product.
Using a 4PL is an aggressive supply chain management strategy that frankly won’t work for everyone. But, some companies have found it beneficial to use someone for this portion of the job. A 4PL will undoubtedly make things much simpler for your company on a day to day, but it’s going to really dig into your profits and margin.
Order Fulfillment Process Using a 3PL
If you’ve spent any time running your own logistics and taking care of all things on the shipping side of things, you likely know that a lot is going into order fulfillment. 3PLs are a great resource because of the money and time that they can save you and your team. You won’t have to worry about fulfilling orders because that part of the supply chain will depend on your 3PL provider.
Here’s what 3PLs will do for you when you hire them.
The first step in the supply chain is receiving. Some logistics services might include ordering product as it runs out, but in most cases, that’s on the business employing the 3PL. When you order a product, you’ll ship it to your 3PL provider. The logistics provider will then mark and label the inventory when it arrives. Depending on the items, they may need special storage instructions, but almost always will have a specific section of their warehouse dedicated to your stock.
After your products are received, marked, and labeled by the 3PL provider, they will be stored. In many ways, warehousing isn’t expensive because all that happens is the item sitting in place until it’s time to be picked, packed, and shipped to your customer. Some items might sit for a year, or more, so your logistics providers must have a secure warehouse where your products won’t be at risk for damage or theft.
All 3PLs will utilize software that integrates with your e-commerce platform. This allows them to know when orders are coming in real-time. With the help of this software, your 3PL will know what was ordered, when it needs to be shipped, and where it needs to be shipped. As soon as an order comes in they’ll get a notification and they’ll be directed to the correct area of their warehouse where they can pick up the item and move it to the packaging department.
Another step in the picking process is monitoring stock levels. Your fulfillment center is going to help to determine when you need to re-order. While re-ordering will ultimately be your decision, you must know what your inventory levels are before choosing to order more stock.
Depending on your packing requirements, the 3PL provider you choose to work with will pack up your item. If you’re selling any items at risk of damage during shipping, you’ll need to clearly specify that. Additionally, some companies have special packaging. If your company uses specific materials, make sure that the third-party logistics provider you’re considering working with allows this. Some 3PLs might avoid working with companies that have specific packaging instructions because it can be more difficult to provide consistency and quality control.
After the 3PL has picked and packed your product, it’s ready to go to shipping. Small businesses will definitely see the value of having a shipping partner. Shipping is one of the most expensive parts of running an online business. Customers want their products fast, and it can really hurt profits. An advantage that 3PLs bring to the table is their relationships with shipping providers. Because of the many packages that a third-party logistics provider is likely sending out every week, they’re able to obtain discounts from shipping providers. Getting cheaper shipping costs will be a huge win for your supply chain and profit margin.
You might be asking yourself, why should I be outsourcing fulfillment to a 3PL if it’s going to cost me? There are many reasons you might feel the need to outsource different aspects of your business. Take, for example, marketing. Yes, you can probably do your marketing just fine, but when you choose to use marketing companies, you’ll free up your time for things like sales, business development, or product development.
Keeping your customer satisfaction high should be of utmost importance as it is for most businesses. A fulfillment center will allow you to cut on transportation costs, supply chain logistics, fees associated with renting or owning a warehouse. All of these cuts will cost you because 3PLs aren’t free, but the benefits tend to outweigh the costs.