- 3PL is the outsourcing of e-commerce logistics processes – including inventory management, warehousing and order fulfillment – to a third-party company.
- Some advantages of 3PL outsourcing are quicker and more affordable delivery, easier scaling, more service areas and more satisfied customers.
- Your 3PL provider may offer services like picking and packing, expedited shipping, and distributed inventory.
- This article is for e-commerce business owners interested in outsourcing their logistics processes to third-party logistics (3PL) companies.
For many entrepreneurs, the fun part of owning an e-commerce business is connecting all kinds of consumers with various products. However, the logistical parts – inventory management, packaging, shipping, tracking and more – might not be as enjoyable for these business owners.
If this sounds like you, or if your company has grown too large to handle e-commerce logistics processes in-house, you might benefit from hiring a third-party logistics (3PL) company. Our guide breaks down what a 3PL firm is, the benefits of using one and the best providers for small businesses.
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What is third-party logistics (3PL)?
Third-party logistics, commonly known by the abbreviation 3PL, is the outsourcing of e-commerce logistics processes to a third-party company. These processes may include warehousing and inventory management, as well as order fulfillment. If you own an online business, outsourcing your logistics processes to a 3PL provider can allow you to focus on other business ownership needs while automating your order fulfillment.
What is the difference between 3PL and 4PL?
As you learn more about 3PL, you might also encounter the term “fourth-party logistics.” 4PL companies are not themselves involved in e-commerce logistics as 3PL companies are. Rather, instead of overseeing warehousing, inventory management and order fulfillment, 4PLs find a 3PL for you and manage the 3PL’s work on your behalf. This is why these companies are called 4PLs: They’re the fourth party in your e-commerce logistics chain after your company, your customers and your 3PL provider.
What are the basic types of 3PL companies?
3PL companies can be broken down into several categories:
- Distribution-based: These 3PL firms store your products until you send them orders. Once the 3PL provider receives the order, it picks items from its stock, packages the items and ships them to the recipient.
- Financial-based: Such 3PL companies specialize in the finance side of e-commerce logistics, such as freight payment, audits, and accounting and financial management of inventory.
- Forwarder-based: With this style, 3PL providers focus primarily on directing stock from your warehouse to a mail carrier that handles delivery.
- Information-based: These 3PL companies are based online and focused primarily on B2B operations. They leverage electronic markets to power their logistics and transportation services.
- Transportation-based: Here, 3PL teams focus on transportation from factories to warehouses and then to customers.
What are the benefits of using 3PL providers for e-commerce logistics?
These are some reasons your e-commerce company might benefit from working with a 3PL provider:
- Faster, more affordable e-commerce operations: Yes, you’ll have to pay to hire a 3PL, but the money you’ll likely save on inventory management software, shipping software and other e-commerce platforms will almost certainly offset this cost. So will the time you no longer have to spend tracking your inventory, ordering stock, printing labels and bringing packages to your nearest mail carrier. [See mailing equipment solutions for small businesses.]
- Easier scaling: If your company grows to the point where it receives more orders per day than a small team can manage, 3PL providers can help you scale more easily. That’s because 3PL companies have their own warehouses, stock, forklifts, inventory management software and other tools that would likely be a headache (not to mention a financial burden) for you to obtain. You’ll also get time back to devote to tasks that might better suit an entrepreneur, such as focusing on your business marketing plan.
- Access to industry expertise: Whereas you might be more familiar with entrepreneurship and business management, 3PL companies live and breathe e-commerce logistics. You can rest assured that a good 3PL provider is capable of elevating your product delivery operations to their maximum potential.
- More affordable shipping: An e-commerce company is a great home-based business idea, but a home setup doesn’t just mean a lack of inventory storage space; it also means your shipping costs will vary significantly based on where your customers live. Hiring a 3PL can lower these variable costs since your shipping payments are included in the 3PL’s work.
- More shipping locations: The same shipping cost concerns can make reaching certain customers far tougher without 3PL. For example, if you’re based in California, shipping to Maine might be much more expensive than shipping to Nevada, thus discouraging you from selling to Maine-based customers. 3PLs eliminate this barrier since they have warehouses all over the country (and the world), so you can ship to pretty much any customer and not geographically limit your client base.
- More satisfied customers: The faster you can deliver items to your customers, the happier they’ll be. With 3PL, this rapid delivery is far more feasible than it would be if you handled shipping in-house. That’s because, as mentioned, 3PL providers have warehouses across the globe, so they have extensive control over delivery times.
- Less risk: We’ve all had packages arrive late and felt impatient as we awaited them. With 3PL services, you can set up alternate shipping arrangements in the case of delays or even lost packages, keeping your customers satisfied. You’ll also be legally protected in this scenario. Because the 3PL company is handling your shipping, the 3PL, not your business, is responsible for dealing with shipping issues.
The benefits of outsourcing your e-commerce logistics to 3PL companies include quicker and more affordable operations, easier scaling, a larger potential customer base and more satisfied customers.
What services do 3PL providers offer?
The most common services 3PL providers offer include:
- Alternate shipping arrangements: If an order is lost or won’t make it to your customer quickly enough for their needs, you can set up alternate shipping arrangements with your 3PL far more easily than if you handled logistics yourself. Your 3PL provider likely has several warehouses throughout the country, so it can quickly resend an item with expedited shipping at significantly less cost than you can.
- Distributed inventory: This is the e-commerce term for the storage of stock at several locations rather than one warehouse. With stock distributed among several 3PL locations, your provider can deliver items to customers from the locations nearest to them rather than a faraway warehouse. With this physical proximity comes faster and less costly shipping.
- Expedited shipping: Let’s say your e-commerce company has just one warehouse, located in Oregon. In that case, overnight shipping to Florida is a significant challenge. However, since your 3PL provider likely has distributed inventory, expedited shipping may become more realistic. Reaching Florida overnight from a 3PL warehouse in the Southeast is entirely feasible.
- Inventory management: Although hiring a 3PL company removes the burden of inventory storage from your business, you should still know which items you sell are in stock, nearly sold out or out of stock at any given moment. Your 3PL provider can manage your inventory for you and keep you in the know about your stock levels without any extra work on your behalf.
- Kitting and assembly: This process entails piecing separate inventory items into one product to be packed and shipped to the customer. Outsourcing this task to a 3PL saves your company manual labor and thus time and money.
- Picking and packing: This process involves finding the appropriate items in a warehouse and adding them to a package in a manner appropriate for damage-free shipping. Unlike kitting and assembly, picking and packing means the addition of several distinct products to a package rather than the assembly of several parts into one item. Put another way, picking and packing involves fitting all of a customer’s items into their shipment, not preparing one larger item from smaller parts.
- Returns management: All e-commerce companies, even those supremely confident in their products, should have firm return policies in place. Your 3PL provider can help you uphold these policies. It will oversee all your product returns on your behalf, relieving you of the time-consuming logistics that can accompany starting customer returns, generating shipping labels and reentering returned items into your inventory.
Among the services your 3PL provider may offer are distributed inventory, expedited shipping and returns management – all of which save you time.
Which companies use 3PL providers?
If you go the 3PL route, you won’t be alone. At least 90 percent of Fortune 500 companies hire at least one 3PL provider. For example, 3PL firm DB Schenker (see below) oversees logistics for Apple, Procter & Gamble, Dell and other well-known businesses.
That said, 3PL use is also common among companies outside the Fortune 500. For evidence that smaller enterprises can benefit from partnering with a 3PL provider too, look no further than the six small and midsize businesses that prominent 3PL company ShipBob showcases on its website. Nutrition company Ample Foods, grooming company BAKblade, apparel companies Brummell and Iloveplum, CBD company Nature’s Ultra, and deodorant company PiperWai all take advantage of ShipBob’s services. Keep reading to find out how you can too.
Partnering with a 3PL provider to outsource your shipping can eliminate some of the common challenges e-commerce businesses face, such as order fulfillment issues.
Which 3PL providers are best for small businesses?
Dozens of 3PL providers exist, but many of them are geared toward Fortune 500 companies. However, some 3PL providers that Fortune 500 companies use also offer services suitable for small businesses. The first three providers on the list below fall into this category, whereas the final two may be more obvious fits for SMBs. In all cases, you’ll need to contact the vendor for a quote before opening an account.
C.H. Robinson is a freight and supply chain company that oversees logistics for hundreds of thousands of customers, including household names such as Coca-Cola and Target. Its truckload and less-than-truckload (LTL) services can be ideal for small and midsize businesses, though its other offerings may better suit large corporations. See C.H. Robinson’s full list of services to learn more.
Like C.H. Robinson, DB Schenker, serves Fortune 500 companies but offers part- and full-load services that may benefit SMBs. The vendor promises access to exclusive technology that it asserts offers more transparent, real-time tracking than any of its competitors. Check out DB Schenker’s land transport services page to learn more.
Kuehne+Nagel offers LTL services through which e-commerce companies can provide their customers with accurate shipping prices, track and document shipments, more efficiently acquire stock, and transition from manual cataloging to digital inventory management. To learn more, read Kuehne+Nagel’s brochure.
The aforementioned ShipBob offers a tech-enabled fulfillment network through which e-commerce businesses can enjoy fast, affordable shipping. ShipBob also says it can save your company time and money, promising:
- Up to a 13 percent increase in bottom-line cost savings
- Up to a 97 percent increase in average order value
- Up to an 18 percent decrease in abandoned carts
- Up to 120 fewer labor hours
The vendor bases its quotes on your specific needs for receiving, storage, picking and packing, and standard packing and shipping services. See ShipBob’s pricing page for more information.
Warehouse Anywhere is a 3PL provider that owns more than 10,000 warehouses. It offers delivery, online and mobile warehouse services, as well as inventory management tools that allow for several users, real-time inventory tracking and thorough warehouse leasing controls.
Warehouse Anywhere says that its Core+ pricing plan is best for storage asset management, Pro (its most popular tier) and Enterprise are best for inventory and storage asset management, and Lightspeed is best for e-commerce. However, you’ll still need to contact Warehouse Anywhere for a quote if you’re interested.
Streamlining operations with 3PL
3PL companies are useful for more than just the biggest businesses. Small business owners can also use their services to fully power their e-commerce operations. 3PL companies can handle both the most tedious and important logistics on your behalf, leaving you free to focus on customer-facing work. They get your shipments where they’re going, and you get to focus on the joy of connecting customers with the products they need.