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The Benefits of Strategic 3PL Distribution

Geoff Whiting

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How well is your eCommerce fulfillment working for you? Does it enhance customer satisfaction and build your brand? Are your operations seamless, allowing you to focus on the business of running your online store? If you’re like many eCommerce brands, you and your staff might be spending too much time putting out (metaphorical, hopefully not literal) warehouse fires. A strategic 3PL distribution plan could be the next step in bringing order to your fulfillment operations while saving you money in the process.

3PL distribution

Understanding 3PL distribution

While self-fulfillment gives your online company the benefit of control over order fulfillment, it comes with significant downsides:

  • You must attract, hire, and train warehouse staff.
  • Inflexible warehouse space is a fixed cost and may not easily accommodate surges in demand.
  • You’re probably shipping orders from a single location, increasing delivery times and costs.

Professional third-party logistics can solve the first two problems, and 3PL distribution can solve the third. 

When you develop a 3PL distribution plan, you determine where to place your inventory rather than defaulting to your company location. For example, an eCommerce business located in Tallahassee, FL, isn’t well-placed to ship orders to the West Coast or the Midwest. Or a company whose stock enters the U.S. at the Port of Los Angeles might ship from a nearby warehouse, but orders could take up to five days to reach the East Coast.

When you create a 3PL distribution plan, you might analyze where you have the largest concentration of customers and place warehouses near those population centers for faster delivery. Or you could pick centrally located warehouses to optimize your national fulfillment.  

You could use one third-party logistics warehouse or a dozen — or more. And you might work with a single 3PL services company or multiple logistics providers. The number of fulfillment centers you need will depend on your sales volume, inventory costs, and inventory management strategy.

Impact of fulfillment center location on your business success

The quality of your fulfillment impacts your eCommerce success in many ways, but your 3PL distribution comes with some specific benefits.

Shipping costs

The farther you are from a customer, the more shipping zones their order must cross. Delivery companies set their rates based on shipping zones, so you will save money on shipping costs when you increase your 3PL distribution. That might even allow you to offer free shipping on some orders.

Delivery times

Delivery times also depend on 3PL warehouse locations. Offering a shorter standard delivery time is an excellent way to reduce shopping cart abandonment and increase conversions.

Customer satisfaction

Online shoppers want their orders delivered fast and don’t want to pay for shipping. Proper 3PL distribution allows you to maximize customer satisfaction in these crucial areas.

Freight costs

Moving from a single warehouse to one or more fulfillment centers to better reach your customers will change freight expenses because you’ll need transportation services to get your merchandise to the warehouses. However, that expense may be more than offset by lower shipping costs. Plus, the benefit of better 3PL distribution to your customers will likely boost your revenue.

Inventory planning

Inventory costs

Inventory planning is essential when you spread out your fulfillment operations. You will have to hold additional inventory to have sufficient product at each warehouse, plus safety stock. The more warehouses you use, the more stock you will need to carry. Ideal 3PL distribution finds the sweet spot between the minimum amount of inventory on hand and optimal delivery logistics. Managing inventory impacts your profit margin, so this is critical to your eCommerce business.

Reverse logistics

When you use more than one fulfillment warehouse, you have choices about how to handle returns. You could have a single location manage all your reverse logistics, or customers could return each order to the fulfillment warehouse that shipped it. There are pros and cons to each reverse logistics management method, depending on how you set up your warehouse operations.

Third-party logistics and supply chain management 

Savvy supply chain management that integrates a 3PL distribution strategy is an excellent way to improve your operations. When shipments arrive, you can split the inventory and route it to multiple locations. Once you implement that process, distributed inventory becomes a routine element of your supply chain management.

3PL distribution

Choosing among third-party logistics providers

Most eCommerce companies outsource fulfillment to a third-party logistics provider once they become successful. Wider 3PL distribution has the potential to help you grow and scale your business, but your fulfillment operations can also hold you back, depending on the order fulfillment company you choose.

A 3PL with core competencies in shipping products similar to yours is essential. Look for a warehouse space that offers value-added services such as kitting or special handling for your products. If you sell oversized or bulky items, you need a 3PL that can help you reduce dimensional weight shipping charges. If your product line includes edible items, you need a specialist in shipping food products.

And when considering 3PL distribution, the number and placement of multiple warehouses are critical. Here are the pros and cons of more vs. fewer when you ship from multiple locations.

Pros and cons of multiple warehouse locations

No one in the U.S. has more warehouses than Amazon. Because of its vast distribution network, the eCommerce giant can often deliver orders the next day and even offers same-day delivery in some cities for specific products.

The logistics operation needed for Amazon’s lightning-fast turnaround is enormous. It may be a money-maker for items with high turnover if you are the world’s largest online retailer. And Amazon sellers can take advantage of that vast retail distribution network through Fulfillment by Amazon (FBA).

However, you don’t have to use FBA to get fast delivery. And there are significant downsides to placing your inventory in many warehouses. In the case of FBA, specific drawbacks include slow receiving, inventory limits during peak shopping periods, and reports of stock switching. 

If you’re using an independent 3PL, you aren’t likely to face those issues. But, as mentioned above, you will need to stay on top of inventory management, and your business will have additional inventory carrying costs. You’ll need to weigh whether the benefit of shaving an extra day off a delivery time is worth the expense of additional warehouse space.

Pros and cons of consolidated 3PL distribution

Consolidated 3PL distribution places your products in a smaller number of warehouses. That simplifies your inventory management and reduces inventory and freight services costs. For some eCommerce businesses, a single warehouse in the center of the U.S. can reach customers quickly enough with efficient delivery. 

Expanding to two or three strategically located fulfillment centers can give you excellent coverage of the whole country while minimizing your 3PL distribution. No matter what 3PL you choose to work with, you can decide how many warehouses to use for your order fulfillment and which locations are ideal for your business.

The Red Stag Fulfillment warehouse in Knoxville, Tenn.

Red Stag Fulfillment offers optimal 3PL distribution

Red Stag Fulfillment ships thousands of orders daily, on time and in full, from its two warehouse locations. We operate warehouses in Knoxville, TN, and Salt Lake City, UT. Our Knoxville location alone can ship to 69% of U.S. addresses in two days or less. Companies that place merchandise in both warehouse locations can reach 96% of Americans in two days or less.

We offer efficient, practical pick and pack fulfillment services for high-value, heavy, and bulky products, plus plenty of support for smaller, lightweight goods. Our superior third-party logistics have earned us industry awards and loyal clients. If you’re ready to find out how Red Stag Fulfillment 3PL distribution can help your business, give us a call.

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A team of fulfillment fanatics who care about our clients’ businesses like their own. We see things from our customers’ perspective, and have the guarantees to prove it.

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