3PL: Everything You Need to Know About 3PL Companies & Warehouses

As your online business grows, so do the number of fulfilment procedures and warehouse management options. These come with challenges for your in-house logistics team as well! To tackle this problem head on might be best by turning to outsourcing some services through third party providers or 3PLs (as they’re called). A lot about what these companies offer needs explaining though – here I’ll try my hardest at giving an introduction into everything that’s involved when looking into having one work its magic for expanding businesses like yours further than ever before possible.

First, let's clarify what 3PL is. Then let's get to the main topic.

3PL is short for third-party logistics, and it means different things to different people. But broadly speaking, it is a kind of outsourcing.

A retailer outsources its warehousing to a 3PL (or, more likely, to a chain of 3PLs). A manufacturer hands over its finished goods to a 3PL, who ships the product to retailers. An importer hires a 3PL to handle its inbound cargo, and uses it to handle customs clearance, warehousing, and outbound shipping.

3PLs developed as warehouses that could handle huge amounts of inventory, without investing their own capital. Warehouses built in the 1940s and 1950s were so large that they were sometimes called “factories.”

In warehouses, inventory is stored until it is sold. For retailers, this means the warehouse stores the goods it sells, and ships more inventory to the store as needed. For manufacturers, this means the warehouse stores the finished goods, and ships more inventory to retailers. Warehouses can also store raw materials for manufacturers or sell them on consignment.

3PLs usually specialise in handling certain kinds of inventory. Some 3PLs specialise in handling imported merchandise, others handle domestic goods. Still others specialise in handling fast-moving consumer goods (FMCG), others handle high-end products like furniture or electronics. And some specialise in handling both kinds of inventory.

Warehouses, on the other hand, can store all kinds of inventory. They handle finished goods, raw materials, and even incoming shipments for manufacturers, and ship finished goods to retailers.

Advantages of 3PLs for E-commerce Businesses

The 3PL business model is transforming how e-commerce companies do business. The benefits of a 3PL are many, but in this article, we will focus on three advantages: reduced inventory, reduced cost of operations, and simplified logistics management.

Reduced inventory.

E-commerce businesses use drop-shipping techniques. Drop-shipping is a distribution strategy where a company does not maintain its own inventory, and instead relies on a 3rd party, or 3PL, to handle the inventory management. Most e-commerce businesses use drop-shipping as a strategy to reduce inventory costs and increase efficiency.
When a company does not have to stock goods, it simplifies inventory management, which saves costs. The 3PL company will warehouse the e-commerce company’s inventory, allowing the e-commerce company to focus on its core business, such as product development and customer service.

Reduced cost of operations.

As e-commerce businesses grow, the complexity in inventory management increases. The 3PL company will warehouse the e-commerce company’s inventory, allowing the e-commerce company to focus on its core business, such as product development and customer service.
Simplified logistics management.

Another major benefit of the 3PL business model for e-commerce businesses is the reduction in logistics costs. E-commerce businesses use drop-shipping techniques. Drop-shipping is a distribution strategy where a company does not maintain its own inventory, and instead relies on a 3rd party, or 3PL, to handle the inventory management. Most e-commerce businesses use drop-shipping as a strategy to reduce inventory costs and increase efficiency.
When a company does not have to stock

A good 3PL provider offers a flexible approach that can be customized for your business. This might include:

  • Direct shipping
  • Manage inventory
  • Track and trace
  • Order fulfilment
  • Transportation
  • Order and inventory management
  • Warehouse management
  • Returns management and processing
  • Returns processing

3PL providers can improve your supply chain operations in many ways:

  • Reduces costs
  • Increases productivity
  • Improves customer service
  • Enhances the supply chain process
  • Improves inventory management
  • Improves order fulfilment
  • Improves inventory accuracy
  • Improves inventory visibility
  • Reduces inventory carrying costs
  • Reduces handling costs
  • Improves order accuracy
  • Reduces labour costs
  • Reduces order cycle time
  • Improves order velocity
  • Improves order picking
  • Improves inventory management
  • Improves order response times
  • Improves order fulfilment
  • Improves response time
  • Reduces costs
  • Improves customer service
  • Enhances the supply chain process

How Does the 3PL Order Fulfilment Process Work?

The 3PL order fulfilment process involves 3 primary steps: receiving, storing, and shipping. These three processes work together to create a streamlined supply chain.

Receiving

When an order is received, it must be quickly processed so that the order can be fulfiled. A 3PL can provide many services during this stage, including picking, placing, packing, and shipping.

Storing

Once an order has been picked and packed, it must be stored until it can be shipped. 3PL warehouse facilities are usually very large and well-designed, so that orders can be sorted and stored efficiently.

Shipping

Once an order has been stored, it must be shipped quickly to the customer. Many 3PLs utilise their own fleet of trucks for delivery. Other 3PLs will work with the customer’s shipping department to relay shipping information and give guidance regarding delivery.

3PL vs 4PL: What’s the Difference?

The 3PL and 4PL business concepts and models are quickly becoming the industry standard.
3PL and 4PL services provide logistics support to help companies streamline their shipping process. 3PL companies collect inventory from companies (or individuals), store it in warehouses, and distribute it to customers. 4PL companies offer warehousing services, but also offer value-added services.

3PL’s handle shipping and logistics services for single or multiple businesses, where as 4PL’s handle operations for multiple businesses.

3PL: A logistics provider that stores, picks, packs, and ships inventory for clients. 4PL: A logistics provider that provides value-added services such as inventory management, order fulfilment, and transportation services.

3PL’s normally provide services for small businesses, whereas 4PLs normally provide services for large businesses. They vary in size, and the cost depends on the size and number of clients a company has, and the complexity of the services they handle.

3PL’s usually have a service cost, a per-unit cost, and a per-item cost. 4PL’s generally charge on a per-unit, per-item, and per-shipment basis.

3PL’s usually provide services through a warehouse or distribution center, whereas 4PL’s usually provide services through an integrated facility, which combines warehousing and distribution services.

3PL’s usually do not provide value-added services such as order fulfilment and inventory management, whereas 4PL’s usually provide these services.

How to Choose the Best 3PL Company.

We often choose the 3PL company that offers the cheapest rates. But the cheapest companies often offer the least reliable service, and that can hurt your business. If you’re in business, you want to spend your time making money. You want to avoid disputes and problems. You don’t want to be worrying about shipping, and you don’t want to have to train your staff on shipping. 

The 3PL company you choose should take care of all the details of shipping for you. But 3PL companies don’t all offer the same services. Which service do you need? Which service will best help you run your business? If you need someone to take care of all your logistics, you should look for 3PL companies that offer transportation management or transportation logistics. They coordinate all the details of your shipments: where your cargo is, how it moves, when it arrives, and so on. They manage all the paperwork; they make sure you have the right license and insurance. If you need someone to help you manage the shipping process, you should search for a 3PL company that handles transportation management. If you need someone to help with your logistics, you should look for a 3PL company that handles freight forwarding. They coordinate your shipments but don’t manage your shipping process. If you need someone to manage your shipping process, you should search for a 3PL company that specialises in transportation logistics. If, however, you need someone to do your shipping, you should look for 3PL companies that offer transportation planning. Do you need a 3PL company that has all of these capabilities? Maybe. But maybe not. Some 3PL companies offer more, some less. Which features do you need? What will help your business most? If you don’t think you need all this, don’t worry.