What Is 3PL (Third-party Logistics)

Logistics is indispensable to any business that manufactures or sells products. It encompasses all the planning, organization, and execution of supply-chain strategies for moving and storing goods. Traditionally, companies handled these tasks internally, requiring significant investment in infrastructure, personnel, and expertise. However, many businesses started outsourcing their logistics to third-party logistics (3PL) providers.

In the beginning, primarily large companies leveraged 3PL services. However, the rise of eCommerce has driven demand for efficient and scalable fulfillment solutions in businesses of all sizes. 3PLs are well-positioned to handle the high volume and fast turnaround times required for online orders, making them ideal solutions for small to medium-sized businesses (SMBs) as well as large companies.  

However, the term “3PL” and the services under its umbrella might still be unfamiliar territory for some entrepreneurs and startups. Understanding what 3PL is and the advantages it can bring to your operations can help you make an informed decision on whether outsourcing your logistics is the right move for your business.

What Is 3PL: Defining Third-Party Logistics

Third-party logistics, or 3PL, refers to outsourcing logistics and supply chain management to external companies. 3PL providers handle various aspects of the logistics process, from warehousing and inventory management to shipping and distribution. By leveraging the expertise of 3PL providers, SMBs can focus on their core operations, such as product development and customer service, without getting bogged down by the complexities of logistics.

What Does a 3PL Provider Do?

A 3PL provider offers a wide range of services to streamline and optimize your supply chain. These include the following:

  • Warehousing: 3PL providers offer storage solutions, ensuring your products are safely housed until needed. These can include climate-controlled facilities for sensitive items.
  • Inventory Management: They track inventory levels, manage stock, and provide real-time data, helping avoid stockouts or overstocking.
  • Order Fulfillment: 3PL providers handle the entire order fulfillment process, from picking and packing to shipping. They ensure orders are processed accurately and delivered on time. 
  • Shipping and Freight: 3PLs negotiate with carriers to secure the best shipping rates and options, whether you’re shipping domestically or internationally.
  • Returns Management: They manage returns efficiently, ensuring that returned products are processed quickly and restocked or disposed of appropriately. 

In addition to the above, some 3PL providers may offer services such as the following: 

What 3PL Is Not

Understanding what 3PL is not can help clarify its role and benefits for businesses considering hiring a 3PL provider. Here are some things that a 3PL does not involve:

  • Manufacturing or Product Sourcing: While 3PL companies store and manage your products, they are not involved in creating or sourcing them. You will need to make your own products or find a manufacturer or wholesaler who can supply them.
  • Delivery: While 3PL companies handle order fulfillment and might work with carriers, they do not always own delivery trucks and deliver products to end customers. Most 3PLs coordinate with companies like UPS or FedEx for final deliveries.
  • Retailing: 3PLs focus on the logistics of storing your products, preparing them for delivery, and moving them. They do not sell products directly to customers.

Additionally, there is a misconception that all 3PLs offer the same services. On the contrary, some specialize in specific industries or product types, while others provide an extended range of solutions. Researching a 3PL company first is essential to ensure their services align with your needs. 

What Are the Types of 3PL Companies?

3PL companies come in various forms, each specializing in different aspects of the supply chain. Here are the main types of 3PL companies:

  • Standard 3PL Providers: These companies offer basic logistics services such as warehousing, picking, packing, and shipping. They are ideal for businesses that outsource fundamental logistics tasks without requiring advanced solutions.
  • Service Developers: These 3PL providers offer specialized services, including IT support, tracking and tracing, and customized packaging. They invest in technology to provide enhanced services that standard providers might not offer.
  • Customer Adapters: These providers integrate closely with their clients, taking over logistics operations. They work as partners, tailoring their services to meet specific business needs. This type is suitable for businesses that want to outsource logistics entirely while maintaining a high level of control over their supply chain.
  • Customer Developers: The most advanced type of 3PL, customer developers manage the entire logistics process and become an integral part of the client’s business. They handle everything from strategic planning to execution, offering a complete logistics solution.

What About 1PL, 2PL, 4PL, and 5PL?

Understanding the different logistics models is crucial for SMBs. Each one offers unique advantages and disadvantages, and the best choice for your business will depend on factors like your budget, order volume, product type, and growth trajectory.

While 3PL is popular among SMBs, other logistics models are also important. Here is a breakdown of these models:

  • First-Party Logistics (1PL): The company handles all logistics internally in this model. Typically, it owns and operates its transportation and warehousing. While this provides complete control, it can be resource-intensive and costly, making it less feasible for SMBs.
  • Second-Party Logistics (2PL): This involves contracting transportation services from carriers. Companies own the goods but outsource transportation to 2PL providers, like shipping lines or freight forwarders. This model offers flexibility and can be cost-effective for businesses not wanting to invest in their own transportation fleet.
  • Fourth-Party Logistics (4PL): A 4PL provider, also known as a Lead Logistics Provider (LLP), manages the entire supply chain. Unlike a 3PL, which focuses on executing tasks within the supply chain, a 4PL takes a more strategic approach. 4PLs act as a single point of contact, leveraging a network of 3PL providers to handle specific tasks like warehousing or transportation. This model is ideal for businesses that require a high level of supply chain visibility, control, and strategic optimization..
  • Fifth-Party Logistics (5PL): The most advanced logistics model, 5PL providers manage the entire supply chain network, including eCommerce and global supply chains. They focus on optimizing the entire logistics process using advanced technology and data analytics. 5PL providers aim to achieve complete integration and optimization of the supply chain, making it ideal for businesses seeking cutting-edge logistics solutions.

What Are the Benefits of Working With a 3PL?

Some company owners might mistakenly believe that partnering with a 3PL is expensive and unnecessary, especially in the early stages of their business. They might reason that they can handle their products’ warehousing, fulfillment, and transportation. 

While some micro-businesses and startups do begin by keeping everything in-house, this is not the best strategy for success. As demand for your products grows, this approach can become unsustainable.

Eventually, you’ll need to hire extra staff, manage warehouse space, and negotiate shipping rates—all time-consuming and complex tasks. Dealing with logistics means taking time away from your core business functions. 

In contrast, outsourcing logistics to a 3PL provider might incur upfront costs, but these can be offset by the efficiencies and benefits they provide. The following are some examples of these advantages: 

  • Cost Savings: One of the primary benefits of partnering with a 3PL provider is cost savings. By outsourcing logistics, businesses can avoid the significant capital investment required for staffing, warehousing, transportation, and logistics technology. Additionally, 3PLs often have economies of scale that can lead to lower storage and shipping costs compared to what a small business could achieve independently.
  • Expertise and Experience: 3PL providers are experts in logistics. They bring years of experience and specialized knowledge to the table, ensuring efficient and effective supply chain management. Their expertise can help your business navigate complex logistics challenges, optimize processes, and comply with regulations.
  • Scalability and Flexibility: Your logistics needs will evolve as your business grows. 3PL providers offer the scalability to handle fluctuating demand, whether during peak seasons or periods of rapid growth. This flexibility allows you to scale your operations up or down without significant infrastructure investments.
  • Focus on Core Competencies: Outsourcing logistics allows businesses to focus on their core business operations, such as product development, marketing, and customer service. By offloading logistics to a 3PL provider, you can concentrate on what you do best, such as driving growth and innovation in your company.
  • Improved Customer Satisfaction: Efficient logistics lead to faster delivery times, accurate order fulfillment, and reliable service. Partnering with a 3PL provider can enhance your customers’ experience, leading to higher satisfaction rates, repeat business, and positive reviews.
  • Risk Management: 3PL providers help mitigate risks associated with logistics, such as delays, damage, and compliance issues. They have contingency plans and insurance coverage to handle unforeseen events, ensuring your supply chain remains resilient and reliable.

Who Should Consider Outsourcing Their Fulfillment Logistics to a 3PL?

  • ECommerce Businesses: For eCommerce companies, efficient and reliable fulfillment is crucial. Outsourcing to a 3PL provider ensures that orders are processed quickly and accurately, enhancing customer satisfaction and loyalty.
  • Businesses Experiencing Rapid Growth: Keeping up with logistics demands can be challenging if your business is expanding rapidly. A 3PL provider offers the scalability needed to handle increased order volumes, enabling seamless growth without the burden of logistics management.
  • Companies with Seasonal Fluctuations: Businesses with significant seasonal demand fluctuations, such as holiday retailers, can benefit from a 3PL provider’s flexibility. They can scale operations up or down as needed, ensuring efficient fulfillment during peak periods.
  • Startups and Small Businesses: Companies just starting out or in the early stages often lack the resources to invest in their logistics infrastructure. Partnering with a 3PL provider offers access to professional logistics services at a fraction of the cost, allowing these businesses to compete with larger players.
  • Businesses Seeking to Expand into New Markets: If you’re looking to expand your business into new regions or international markets, a 3PL provider can facilitate the process. They have the expertise and networks to manage cross-border logistics, helping you reach new customers and grow your market presence.
  • Companies with Complex Supply Chains: Businesses with complex supply chains involving multiple suppliers, manufacturing stages, and distribution channels can benefit from the integrated solutions offered by 3PL providers. They can coordinate and streamline these processes, ensuring efficient and cohesive supply chain management.

3PL Services To Use for Your Growing ECommerce Brand

Now that we’ve comprehensively answered the question “What is 3PL?” and established that 3PL providers are valuable resources for growing companies, the next steps are identifying the right 3PL partner and the specific services you require. Assess your business and determine which areas of your logistics and fulfillment processes you need assistance with. To guide you, here are some of the services typically offered by 3PL providers: 

Warehousing and Inventory Management

Efficient storage and inventory management are critical for eCommerce success. A 3PL provider offers scalable warehousing solutions and inventory tracking services, which help ensure your products are stored securely, organized correctly, and managed effectively. 

Order Fulfillment

Speed and accuracy are paramount in order fulfillment. Look for a 3PL with comprehensive pick, pack, and ship services. They should be capable of handling a high volume of orders and ensuring timely delivery to your customers.

Shipping and Freight Management

Shipping can be complex and costly. A 3PL provider can negotiate with carriers to secure the best rates. They can handle domestic and international shipping, streamlining the process and reducing costs.

Returns Management

Efficient returns processing is essential for ensuring customer satisfaction. A 3PL provider manages returns, ensuring products are inspected, restocked, or disposed of appropriately.

Value-Added Services

These include kitting, assembly, custom packaging, tour pulls and storage, as well as labeling. A 3PL provider offering value-added services can help you enhance your product presentation and meet specific customer requirements, adding value to your brand. 

For instance, kitting is essential for businesses that offer bundled products, such as gift baskets and subscription boxes. Meanwhile, Fulfilled by Amazon (FBA) prep services are helpful for companies that sell on Amazon. 

How to Choose the Best 3PL Company

Apart from the services they offer, the following factors should be considered when selecting a 3PL partner for your business: 

  • Experience and Expertise: Choose a 3PL provider with experience in eCommerce logistics. They should understand the unique challenges and requirements of your industry and offer tailored solutions that align with your needs.
  • Scalability: Your 3PL provider should be able to scale their services as your business grows. They should be able to handle growth-related challenges such as increased order volumes, seasonal fluctuations, and expanding product lines.
  • Customer Service: Exceptional customer service is vital. Choose a 3PL provider with a dedicated, responsive, proactive support team in addressing your needs. Strong communication and a collaborative approach are essential for a successful partnership.
  • Reputation and Reviews: Research the provider’s reputation and read reviews from other e-commerce businesses. Positive feedback and case studies can give you confidence in their ability to deliver high-quality services.
  • Cost and Value: The cost of the service is important, as most businesses have a budget they need to work with when outsourcing logistics services. However, it shouldn’t be the only consideration. When choosing a 3PL provider, evaluate the value they offer. Do they offer the solutions you need? Is their service quality exceptional? Even if a particular 3PL provider charges slightly more than its competitors, the higher cost might be justified if they deliver value.

Find the Best Logistics Solution for Your e-Commerce Business 

3PL services can help support your business’s growth and success by streamlining logistics and fulfillment processes. By partnering with the right 3PL provider, you can benefit from streamlined operations, scalability, and improved customer satisfaction. 

Warehousing Pro is a trusted provider of superior 3PL services. Whether you’re a traditional brick-and-mortar company, an eCommerce brand, or a brick-and-click business, we can tailor a solution that meets your needs. Reach out to us today to learn how we can help you optimize your logistics. 

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