3PL vs. in-house logistics: Which is best?

Operational challenges can push your business to its limits, especially when demand soars. 

Improving logistical efficiency is one of the best ways to boost productivity and combat rising costs. But choosing the right logistics model for your business requires thoughtful consideration. 

Should you outsource to a third-party logistics (3PL) provider or keep your operations in-house? Is a hybrid logistics model better suited to your specific requirements?

This guide will help you choose between using a 3PL vs. in-house logistics. We’ll compare the pros and cons of each option, visible and hidden costs, and when each model makes the most sense.

What you’ll learn

3PL vs. in-house logistics: Pros and cons

There’s no one-size-fits-all solution for managing logistics. 

The right model depends on where your business currently sits in its growth cycle, what your most pressing challenges are, and how equipped you are to handle demand changes.

3PL advantages

There’s a reason many of the world’s most successful businesses outsource logistics to the experts. Convenience and ease are the obvious advantages, but deeper benefits can be gained by partnering with a 3PL.

5 key advantages of 3PLs:

Partnering with a 3PL frees you of the high start-up and ongoing costs of in-house logistics. Instead of investing significant upfront capital, you pay 3PL fees that are typically structured in a pay-as-you-go system.

Cost savings related to third-party logistics:

• Labor costs.
  You can operate your business with a smaller team. That means less money spent on hiring, staff wages, and employee benefits.
• Infrastructure costs.
  3PLs allow you to manage inventory and fulfillment without investing in equipment, warehousing, technology, and ongoing maintenance.
• Shipping costs.
  Third-party logistics companies often benefit from volume discounts and carrier loyalty programs, which can be passed on to the businesses they support.
• Opportunity costs.
  When demand spikes, 3PLs are better equipped to meet consumer needs without requiring you to hire extra staff or invest in new infrastructure.

Tony Runyan, Chief Client Officer at Red Stag Fulfillment, emphasizes how outsourcing logistics can unlock capital for other parts of your business:

Outsourcing logistics gives you the flexibility to meet demand changes without diverting capital toward new infrastructure or more staff. You’ll have more time to focus on core business activities that support your growth.

3PLs are also useful when you need to scale down—for example, outside of peak seasons or after an unexpected shift in the market. 3PL teams are typically better equipped to respond quickly to downshifts in demand. This helps avoid the hassle and productivity loss of laying off staff, moving to a smaller warehouse, or selling unused equipment.

The more your business grows in complexity, the harder it is to remain efficient and profitable. A 3PL opens doors to more efficient logistics operations by leveraging state-of-the-art systems and technology otherwise inaccessible to many businesses.

When your SKUs increase in number or have special requirements, 3PLs are equipped to support these challenges while keeping error rates low, benefitting both the seller and their customers. They also know exactly how to tailor logistics processes for speed and accuracy—ensuring customer satisfaction and safeguarding against spikes in demand.

With a 3PL, you can harness the power of advanced logistics technology and rely on experienced logistics professionals to ensure fulfillment and inventory management processes are optimized for efficiency.

In-house teams often comprise greener staff and fewer experts. It’s not uncommon for employees to wear multiple hats during the early growth stages.

Third-party logistics teams, on the other hand, bring experience and expertise that’s difficult to match without investing significant money in wages or staff training. Many 3PLs also offer specialist services such as ecommerce fulfillment, kitting, and omnichannel order management.

When you partner with a reliable 3PL, you can leverage the combined expertise of dedicated logistics specialists to better capitalize on opportunities and resolve problems faster.

One of the hidden advantages of 3PLs is the reduction and mitigation of risks.

Challenges like staying compliant with regulatory requirements, managing international shipments, and ensuring quality can all lead to costly bottlenecks for unprepared businesses. 3PLs help you reduce the risks associated with these potential problems because their reputations depend on it.

For example, if you’re importing pharmaceuticals from an international source, it’s paramount you adhere to the latest laws and restrictions to avoid hefty penalties. Customs delays or paperwork errors could prevent the goods from arriving on time, and poor quality control could result in customers receiving goods that should never have been shipped.

A good third-party logistics provider will keep up with changing regulations to ensure you stay compliant and will have procedures in place for ensuring smooth cross-border shipments. Likewise, they will strictly adhere to quality and safety standards to ensure customer satisfaction and minimize the risk of unsafe goods going out the door.

3PL disadvantages

Choosing between in-house operations and a 3PL is a big decision. Despite the peace of mind that comes with outsourcing, in some cases it makes more sense to keep things in-house.

3 key disadvantages of 3PLs:

Working with a 3PL can mean losing some oversight of your operations. Granted, you can maintain real-time inventory visibility—perhaps by integrating with your 3PL’s logistics software. But this doesn’t give you an in-person perspective that can be critical for faster decision-making.

You’ll also have limited control over how logistics operations are facilitated. Choices such as which technology is used, how inventory is stored, and prioritization of fulfillment tasks are often in the hands of the 3PL. The degree of control you have depends on the 3PL you choose and your arrangement with them.

One silver lining to handing over control to a third party is that they typically have better equipment and more experience tackling common logistics challenges.

When you manage logistics in-house, you retain full visibility of your ongoing and upfront costs. 3PLs often come with added costs and fees you weren’t expecting, which can dig into your margins and restrict cash flow.

Hidden 3PL costs to watch out for:

A good 3PL will ensure you’re aware of all potential costs associated with working together and quote their services accordingly. If your logistics partner neglects to mention specific costs until it’s too late to avoid them, that’s a major red flag.

An often-overlooked disadvantage of working with a 3PL is that you’re putting your business’s fate in the hands of another company.

If your third-party logistics partner is struggling with bankruptcy or understaffing, for example, you face a real risk of supply chain disruption. And since it’s not your company that has the issue, you have very little control over fixing it.

In-house logistics advantages

In-house logistics is where most businesses begin their journey. It comes in many forms—such as a dedicated warehouse, a small storage unit, or your own garage—and offers several benefits compared to working with a 3PL.

Key advantages of in-house logistics:

Managing logistics in-house means retaining complete control over core business decisions. You decide how inventory is stored and handled, when and how orders are fulfilled, and the infrastructure that supports your operations.

Unlike 3PLs, in-house logistics gives businesses the power to make small but important changes at the drop of a hat. For example, if you suddenly need to prioritize a specific new customer order over older ones, it’s as easy as communicating the need to your team and asking the appropriate people to abandon what they’re doing to get that order out as soon as possible.

With a 3PL, you might have to contact your account manager and request urgent action—with no guarantee they’ll be able to make it happen.

With in-house logistics, you can tailor the experience customers have with your brand.t.

If a 3PL has strict rules regarding packaging, shipping, and customer communications, it limits your ability to customize and personalize the brand experience to best suit your customers’ expectations.

Likewise, the interactions you have with your customers—e.g., resolving issues or answering queries—will feel more authentic because they’re speaking directly to your company as opposed to a third party.

Agility is a two-sided coin when it comes to logistics. 

On one hand, 3PLs are typically better equipped to respond quickly to shifts in demand or unexpected supply chain disruptions. On the other hand, that responsiveness is entirely subject to the 3PL’s internal priorities and standard logistics processes.

In-house operations allow you to make quick changes to shipping methods, warehouse processes, and order management without needing the approval of a third party. You also won’t have to worry about wasting time on contract renegotiation if the request is outside the boundaries of your 3PL agreement.

The more a business grows, the fewer opportunities for cost savings. A major advantage of in-house operations is that you can avoid the various hidden and visible 3PL fees and markups.

The scale of your operations has a major impact on how cost-effective it is to manage your own logistics. If you don’t require a lot of storage space or you’re dealing with low order volumes, major investments in infrastructure can make it challenging to justify the cost of in-house logistics.

Conversely, running logistics in-house can be a cost-effective long-term strategy for businesses with greater storage or fulfillment needs, as you’ll be able to benefit from economies of scale without sacrificing profit to a third party.

In-house logistics leaves your business’s fate in your own hands; whereas, working with a 3PL means marrying your success to theirs—which can be disastrous should your logistics partner suddenly be unable to fulfill their service obligations.

When you manage logistics in-house, the only business you need to worry about is your own. If problems arise, such as an unexpected supply chain disruption, you have more power to resolve them quickly and effectively.

Full visibility across all your operations—inventory management, order fulfillment, shipping, and warehouse performance—puts you in a better position to make faster decisions and provides a holistic understanding of your logistical efficiency.

When using a 3PL, your operational visibility is limited to reports and dashboards from their warehouse management system. You don’t see how orders are processed or where inventory is stored, leaving you to rely solely on performance metrics to make your decisions.

With in-house logistics, you can make faster, more informed changes to your operations as soon as they’re spotted. You can identify and address issues before they affect other areas of the business, such as procurement and finance. This ensures greater efficiency that can help you minimize customer frustration.

In-house logistics disadvantages

In-house logistics may give you more control over how things get done, but control isn’t everything. In many situations, working with a 3PL can take a weight off your shoulders and reduce the immediate costs and risks hampering your ability to scale sustainably.

Key disadvantages of in-house logistics:

One of the most challenging aspects of building a successful business is balancing cash flow and resources with sustainable growth. If you decide to manage all your logistics in-house, there’s a good chance you’ll face significant upfront and ongoing costs that will dig into your profits and limit your agility.

Some of these investments are obvious, such as renting or purchasing a storage facility and the necessary equipment and technology to support it. Others are less glaring but no less impactful. Hidden costs include ongoing maintenance fees, software upgrades, and staffing costs—all of which can add up quickly.

Runyan makes the situation clear:

Perhaps the biggest disadvantage of in-house logistics is that you have far more plates to keep spinning to ensure the business runs smoothly.

When you partner with a 3PL, all the time and energy spent managing operations can be redirected to core business activities such as sales, product development, and marketing.

“Most ecommerce business owners are good at creating, marketing, and selling products. It’s rare for an entrepreneur to be able to run a fulfillment operation successfully and scale it correctly without putting sales at risk.” — Tyler Sellers, Director of Operations, Red Stag Fulfillment

Large upfront investments aren’t just a financial risk of in-house logistics. They’re also a performance risk. Purchasing or renting additional infrastructure often presents its own challenges that impact productivity and overall operational efficiency. 

For example, if growing demand necessitates moving to a larger warehouse, you’ll need to dedicate time and resources to setting up the new facility and relocating all your inventory and equipment. You may even need to freeze the order fulfillment process for a few days while you oversee the transition.

Here at Red Stag Fulfillment, we’ve seen this firsthand.

When one of our long-term clients needed more space to expand their West Coast operations, our Salt Lake City team added over 150,000 square feet of purpose-built space in just four weeks. This happened much faster—and more cost-effectively—than it would have taken the client to lease a building, purchase equipment, hire staff, and get operations running.

Demand fluctuations, such as seasonal spikes, are also harder to deal with in-house. This is because 3PLs are typically better set up to scale up or down as needed—without putting a strain on operational efficiency.

Comparing the costs of 3PL vs. in-house logistics

When determining the total costs of 3PL vs. in-house logistics, it’s important to consider both the pricing structure and how various costs affect your cash flow.

In-house logistics typically has more fixed costs, whereas 3PL fees are mostly variable costs. In other words, when it comes to 3PLs, you’re only paying for the space, services, and resources you actually use at a given time.

The table below breaks down the different costs associated with in-house logistics and 3PLs.

How to choose between in-house logistics and a 3PL

The right logistics solution depends on key variables that will differ for every business. Specifically, you need to consider:

Before you decide to outsource logistics or keep everything in-house, let’s look at some important considerations that may help you make the right choice for your business.

Important considerations

Several key questions will provide a clearer understanding of the logistics model that’s best for your business.

Before deciding whether to outsource or insource, ask yourself:

Remember, transitioning from in-house logistics to a 3PL (or vice versa) comes with its own set of risks and costs. These should be carefully considered when assessing the pros and cons of each option.

Which option is right for you?

The ideal solution comes down to which logistics model tilts the scales after weighing all the factors and consequences. 

To help you define that balance, we’ve created a handy decision matrix that compares specific criteria for in-house logistics, 3PLs, and a hybrid approach. We’ve scored each solution on a scale of one to five based on how effectively they meet each criteria.

How to use this decision matrix

This matrix helps you evaluate which fulfillment approach best matches your specific business needs. Here’s how to use it:

For example, if operational control and customer experience are your top priorities, in-house logistics shows the strongest performance. However, if you need rapid implementation and scalability, a 3PL would better serve your needs.

Optimize your logistics with Red Stag Fulfillment

If you’re ready for a 3PL that treats your products like their own, Red Stag Fulfillment is your solution. As a 3PL founded by ecommerce operators, we understand your challenges firsthand.

Our guarantees set us apart: zero shrinkage, 100% pick accuracy, fast check-ins, and on-time shipments. If we miss these targets, we’re financially accountable for our mistakes

Your priorities become our priorities. That’s why we focus on perfect execution, operational transparency, and building logistics that help your business grow.Ready to see if we’re the right solution for your business? Reach out today for a free custom quote.