The traditional business model of handling many or all operations in-house isn’t always the most productive. This is particularly true for small eCommerce businesses. Many eCommerce companies have been able to expand operations while operating on a shoestring. Third-party logistics services allow you to partner with pros on one of the most important aspects of your eCommerce business. That allows you to focus on marketing, growth, and customer satisfaction.
A third party logistics company can store your inventory for you. It will pick, pack, and ship your products. 3PL is the vital link between your manufacturing operations and your customers. When your order fulfillment operations run smoothly, your customers are happy and your business grows. It’s not an exaggeration to say that excellent fulfillment is the key to success for eCommerce companies.
Before you start working with a third-party logistics company, it’s important to understand what 3PL is. This piece details how you can integrate third-party logistics into your operations, and how to find the best 3PL partner. If you already know that this is what you’re looking for, check out our 3PL services.
What is third-party logistics?
Third-party logistics, or 3PL, is used interchangeably with fulfillment warehouse or fulfillment center. Companies that provide 3PL services offer many of the same services as order fulfillment companies. These services include:
- Inventory management
- Shipping and receiving
- FTL and LTL freight shipping
- Picking and packing
- Kitting and customization
- Reverse logistics (returns)
A third-party logistics company acts as an eCommerce fulfillment company. It provides all the services you need to outsource your logistics operations.
Different 3PL services companies specialize in different types of fulfillment and warehousing. Some are equipped for cold fulfillment. These warehouses can store and ship food products that need to be refrigerated or frozen. Other 3PL companies are prepared to store and ship hazardous materials. Red Stag Fulfillment is one of the top third-party logistics providers for heavy, bulky, and high-value products.
What is 3PL?
3PL stands for third-party logistics, described above. The term third-party logistics is often also used interchangeably with order fulfillment. A third-party warehouse provides a full range of eCommerce fulfillment services. This can include warehousing, order processing, and shipping and receiving. Many 3PL warehouses provide other services. These can include customer support, returns processing, and customization.
The 3PL business model is the most common type of outsourced logistics company. There are other types such as 4PL and 5PL, but by far most companies large and small are interested in 3PL.
Third Party Logistics (3PL) Basics
Third-party logistics providers manage inbound and outbound transportation for their clients, as well as warehousing. Most 3PL companies own or lease warehouse space, which they provide to their clients. They generally don’t own their own fleet of trucks but contract with other carriers for freight and shipping.
Third-party refers to the fact that you’re outsourcing your order fulfillment. You don’t own the warehouse. Instead, you rent shelf space for your products in a large warehouse that stores products for multiple companies. Warehouse employees receive your products and place them into inventory. They pick items from shelves to fill orders and pack them securely for shipping. The 3PL works with various carriers to deliver orders to your clients.
Third-party logistics warehouses are designed to maximize speed and efficiency. As your business grows, they can handle the extra volume and you can expand your capacity without hiring additional staff. A 3PL can work with you on ways to reduce your shipping costs and delivery times. When you use a 3PL company for your eCommerce fulfillment, you get the benefit of experience and focus.
Let’s delve into the specifics of how outsourced fulfillment works with your business.
The third-party logistics process
When you outsource your fulfillment, your products ship directly from the factory to the 3rd-party logistics warehouse. Once your inventory arrives, the third-party logistics company can provide a range of services. Here are just a few of the elements of the 3PL process.
eCommerce platform integration
Most eCommerce businesses depend on multichannel selling to survive. To support this, your fulfillment warehouse needs strong IT. The best fulfillment companies integrate seamlessly with multiple sales platforms. Your provider should support all your sales channels or be able to create a custom API. In addition, you should be able to view and track the progress of your orders in real time online, via a dashboard.
FTL and LTL freight shipping and receiving
Full truckload (FTL) and less than truckload (LTL) freight can be essential tools to save you money on freight. This is particularly true if you often ship large orders to commercial customers or wholesale orders to retailers. You can also use freight services to ship your products between warehouses or to a distribution point closer to your customers. Your outsourced logistics company can guide you through this process. It can arrange for FTL or LTL loads and process incoming truckload freight. Your 3PL can also help you find the best deals and the right service level for your freight shipping.
When you work with a third-party logistics company, you no longer have to go it alone. Your 3rd-party logistics partner has valuable experience with inventory management. Your account rep can apply lessons learned from working with many eCommerce companies to help you manage your stock. Reach out for advice on restocking levels, supply chain management, and ideal seasonal inventory levels.
Picking, packing, and shipping
Pick, pack, and ship services are the core of order fulfillment. When your customer places an order through one of your sales channels, it goes directly to your fulfillment warehouse. There, a picker finds the items for the order on the shelves. Then a packer selects the perfect box – not too big, not too little – and packages the order. The packer also applies the shipping label. Finally, the shipper makes sure the order gets picked up by the right carrier as soon as it’s ready to go.
Your third-party logistics provider may offer same-day shipping. This service means that your customer orders are picked, packed, and shipped on the same day they are received. There is usually a time cutoff for same-day shipping. For example, Red Stag Fulfillment offers two levels of same-day shipping service. One has a 3 pm cutoff; the other will ship orders that arrive as late as 5 pm on the same day. Same-day shipping gets your orders to your customers faster. And faster delivery leads to more satisfied customers.
Reverse logistics is a fancy term for returns. Returns are simply a fact of life in eCommerce. Your return rate will depend on a number of factors, including the type of merchandise you sell. Products that are sized, such as clothing and shoes, have much higher return rates than the industry average. Your eCommerce fulfillment company can accept and process returned items for you. The reverse logistics process includes examining returned items to assess whether they are damaged or can be returned to the shelf. Reverse logistics can also decrease the time it takes to make undamaged products available for purchase again.
3PL services vs. drop shipping
There is more than one way to outsource your order fulfillment. When you adopt a drop shipping eCommerce business model, your order fulfillment is handled by a third party. However, there are significant differences between drop shipping and 3rd-party logistics. Here’s what you need to know to understand which is best for your business.
Are 3rd-party logistics the same as order fulfillment?
Third-party fulfillment may also be called order fulfillment or eCommerce fulfillment. In this business model, you have upfront costs to purchase and store products, but your cost of goods sold is lower than in the drop-shipping model.
When you use 3rd-party logistics, your supply chain will look like this:
- You source the products that will be sold in your eCommerce shop.
- You invest the capital to purchase the raw materials and/or products before you make sales (unless you take pre-orders – by crowdfunding, for example).
- Your merchandise ships to the order fulfillment warehouses that you have contracted with for your third-party logistics.
- You put your available inventory in your online store or eCommerce platforms.
- Customers place orders online.
- Online orders flow from your sales platforms to your 3PL warehouses.
- Experienced warehouse workers pick, pack, and ship your orders from the products that you have already paid for, which are stored at the warehouse.
- Your customers receive their orders.
Benefits of third-party logistics
There are several benefits of this operational model.
- Lower cost of goods sold. When you purchase products upfront, you will pay the wholesale price. The more you buy, the lower your costs and the higher your profit margins.
- Greater flexibility in product sourcing. When you use an eCommerce fulfillment business model, you can more easily source products from more than one manufacturer. All your items will be stored in the same warehouse, so orders that include products from multiple suppliers can ship in the same box. This saves on shipping costs.
- More control over your logistics operations. You get to choose an order fulfillment partner that provides the services your customers expect.
- Faster order fulfillment. You can pick a third-party logistics service with warehouse locations that will get your orders delivered quickly.
- Easier returns processing. The 3rd-party logistics warehouse that shipped your products can provide customer service and seamlessly process any returns. This improves customer satisfaction and lets you put products back into inventory quickly.
What is drop shipping?
Drop shipping requires little or no upfront capital investment. It can be a great way to jumpstart a new venture on a shoestring. Some eCommerce entrepreneurs use drop shipping to launch their businesses, then switch to traditional order fulfillment once they understand their markets. The downside of this model is that you’ll pay a higher wholesale price for your products, so the profit margins are smaller.
Here’s the structure of a drop shipping supply chain:
- You don’t own or control the inventory you sell. You contract with a manufacturer to do drop shipping.
- Then you place items for sale in your eCommerce shop.
- Customers order from your online platforms.
- You relay those orders to the manufacturer. At this point, you pay the manufacturer. You pay only for the products your customers order.
- The manufacturer ships items directly to your customers.
Benefits of drop shipping
Drop shipping has advantages for some eCommerce businesses.
- Low capital outlay. You can start a new business on a shoestring with drop shipping. Your only investment is in setting up your eCommerce store.
- Low risk. You only buy the products your customers want. You don’t risk investing in items that you don’t sell or that must be heavily marked down to move.
- Low overhead. You don’t have to pay for warehouse space to store your inventory. The products stay with the manufacturer until you sell them.
Will your business benefit from third-party logistics?
Outsourced fulfillment services are an asset to many eCommerce businesses. In-house fulfillment can become cumbersome to manage and expensive. If your online shop is a small side hustle, you may not need third-party fulfillment services. However, if your business is growing, you might want to consider using a 3rd-party logistics company.
Here are some of the benefits your business can get from using a 3rd-party logistics provider:
- Your business doesn’t have to lease warehouse space. When you use 3rd-party logistics, you can more easily increase or decrease the amount of shelf space for your products. That flexibility can save you money.
- Your orders are processed by professionals who specialize in top-notch order fulfillment.
- Your operations may not be located in the best spot to ship across the country. By outsourcing your fulfillment, you place your products closer to your customers. That means faster delivery and lower shipping costs.
- Fulfillment warehouses are volume shippers and may have negotiated reduced shipping prices with major carriers. Your 3PL partner may be able to save you money on shipping.
- You gain access to additional services that can enhance your business, including kitting, customization, and freight shipping.
- Your 3PL can handle returns (reverse logistics) as well as shipping. This saves you time and gets your products back on the shelf more quickly.
- You gain a partner in your business. Your third-party logistics provider can help you choose the best packaging, shipping, and inventory management options for your company.
- Best of all, when you outsource your logistics operations, you free yourself and your staff to focus on the core mission of your business. You can use that energy to expand your marketing and increase your sales.
5 Tips to help you find the best 3PL services company for your eCommerce business
If you’ve decided to work with a 3rd-party logistics company, the next step is to find the right fit. The best 3PL company for your business will be one that easily integrates with the eCommerce platforms where you sell. The fulfillment provider you choose should have experience in shipping products similar to the ones you sell. Every fulfillment company is different. Even an excellent 3PL may not be the right choice for your business.
Here are several additional factors to consider when you’re looking for the best eCommerce fulfillment services company.
3PL services expertise
The best fulfillment companies know their own strengths and weaknesses. For example, Red Stag Fulfillment is the best 3PL for heavy, fragile, and bulky products. Our typical order weight is over 10 pounds. If you sell a lightweight item like clothing, Red Stag probably isn’t the right choice for your business.
Expertise is important. Fulfillment warehouses are engineered to efficiently handle typical shipments. In the case of Red Stag Fulfillment, that means building extra wide aisles and using a heavy-duty conveyor belt to accommodate large items. We stock a sturdier grade of packaging to ship heavy products safely. A warehouse that specializes in lighter items might have a wide selection of shipping bags and a pick and pack system designed to quickly assemble small products into customer orders.
If your products are outliers in the warehouse, you won’t get the level of service you need. In fact, you could end up with damaged goods because of improper packaging. Make sure you work with an order fulfillment service that will work well with your products.
3PL warehouse locations
It can give you a feeling of control to ship your products from your own warehouse. However, unless your customers are clustered close to your business location, this probably puts you at a disadvantage when it comes to shipping. A small number of fulfillment warehouses in the right locations can be a better choice. This positions your products close to all your customers for national fulfillment.
3rd-party logistics services customer support
When something goes wrong with your operations, you need to identify it and fix it quickly. Reliable and fast customer support is key to your eCommerce success. Find out what kind of support your order fulfillment partner offers. Does the company have dedicated customer support agents for each client? What is the customer service response time? How quickly can problems be addressed?
Specialty 3rd-party logistics services
Your 3rd-party logistics services company can bring added value to your business. Kitting services allow you to create value-added kits and increase your sales. Just-in-time customization lets you offer more options to your customers. Ask your eCommerce fulfillment warehouse if it can provide these or other special services that will help you grow your business.
Resource for third-party logistics center evaluation: Know what questions to ask
When you choose a third-party logistics company, you are choosing a business partner. You need to be able to count on your partner to provide high-quality and reliable fulfillment. The health of your business depends on it.
If you were going to take on a business partner, you’d ask a lot of questions first. You should do the same with your 3PL. Here are a few key questions to get you started.
Ask about security and continuity of operations
Does the 3PL provide 24/7 security? Does the warehouse have backup systems for power and internet service? In other words, what steps has the company taken to provide you with uninterrupted service?
Ask about order fulfillment costs
The fees for third-party logistics services aren’t the only costs of fulfillment. Ask who bears the cost of mistakes, including mis-packs and shipping errors. Does the warehouse take responsibility for lost or damaged goods? The costs of mistakes can take a bite out of your bottom line. Make sure you understand who is responsible before you sign a contract.
Ask about shipping costs
In some cases, a 3PL may have favorable contracts with major carriers. Ask about shipping costs for typical orders. Find out if the fulfillment center can save you money on shipping or DIM weight charges.
Ask about omnichannel fulfillment integration
Make sure that the 3PL you choose can talk to all your eCommerce platforms. Ask about existing integrations and custom APIs.
These are just a few of the questions you probably want to ask prospective order fulfillment warehouses. To help you gather all the information you need, we’ve created a fulfillment company questionnaire. The questionnaire includes a comprehensive list of topics to help you cover all the bases.
Online reviews of 3rd-party logistics services companies
When it comes to choosing a 3rd-party logistics company, talk to clients as well as the company. Online reviews can help you decide whether a fulfillment company is right for your business.
Here are some excellent fulfillment reviews to help you get started:
In addition, look up the companies you’re considering on the Better Business Bureau. That allows you to see how they rate and if they have any complaints lodged against them.
How can 3PL services help your eCommerce business?
Outsourcing your fulfillment is a great way to increase the capacity and reach of your eCommerce business. You don’t have to hire any additional staff, but you will be able to do more. You pay only for the services and warehouse space you need. And you bring in pros to handle your logistics. The warehouse professionals at your 3PL can bring your fulfillment operations to a higher level.
Fulfillment isn’t the most glamorous part of your eCommerce shop, but it is at the heart of your business. Bad fulfillment can cost you money and customers. Excellent fulfillment can lead to more positive reviews and loyal customers. Fulfillment services will pull the growth curve of your business up or down. In the long run, excellent third-party logistics can keep that trend line heading up and up.