What Is 3PL? A Third-party Logistics Guide
8 minutes to read
A Third Party Logistics provider (3PL) is an outsourced logistics partner that has the expertise and infrastructure to help manage your supply chain activities. Depending on your needs, a 3PL can take care of everything from shipping products from origin, warehousing, customs clearance, order management, fulfilment, pick and pack, and transport to the end user.
The rising popularity of 3PLs
When most of us think of an ecommerce business, a warehouse comes to mind. But for many businesses, that warehouse isn’t owned by the company or its brand. Getting the products from China, or other countries worldwide, into a warehouse, and finally to stores/ your doors was most likely overseen by a 3PL.
The processes involved in getting products from origin to customers can be complex, therefore the services of a 3PL can be invaluable to businesses of all sizes.
Why use a 3PL?
Quite simply, outsourcing warehousing, logistics and transportation allows companies to focus on growing their businesses, whilst the 3PL focuses on running an efficient and effective logistics operation, which is their specialism.
Maintaining a warehouse is expensive and stressful. Figuring out the logistics involved in getting stock to the warehouse is complex – especially when you throw in global networks.
As a single company, you’re responsible for everything: from fixing leaking roofs that threaten to spoil your stock, to paying people to pick and pack the goods. Throw in the cost of forklifts, packing materials, order management and managing stock levels and outages: for many business owners, there’s simply not enough time in the day to do it all.
What services are provided by the best 3PL providers?
A 3PL follows all industry best practices around delivering, unloading, and storing products in their own warehouse or fulfilment centre.
The 3PL takes full responsibility for ensuring that goods are well protected, including those with expiry dates and those that require specialist conditions e.g. cold storage.
Best of breed order processing:
In a 3PL, the seller sends a list of orders to the warehouse. The best way for this to happen is to use a ‘live’ integrated system so that the warehouse receives them as close to the time of order as possible, to save on manual handling, and duplicating data input. 3PLs may use a WMS (warehouse management software) enabling them to keep a close eye on stock levels, inbound product, outbound product, and data insights.
Pick & Pack/fulfilment, along with value-added services:
The warehouse picking team receives a pick list of items, along with their quantities and pick locations, to collect the orders from their shelves and storage bins. The warehouse team then packs the orders ready for shipping. The packaging materials should be optimised for the safest carriage at the most efficient rate. A 3PL has access to its own value-adding services, such as branding, kitting, relabelling, quality checks and reworking. 3PLs are able to add further value by not just storing goods but by linking in with fulfilment services such as Fulfilment by Amazon (FBA).
With a 3PL, firms don’t have to rely on a picking team to turn up every day to process orders, and can scale their resources according to order volumes.
The 3PL works with airlines, shipping lines, and road hauliers to provide the most suitable and cost effective solution for shipments depending on your requirements. 3PLs can also work with carriers to negotiate and consolidate less than truckload (LTL) and less than container load (LCL), increasing cost savings.
Customs and final mile delivery:
The 3PL is responsible for the final leg of the journey, whether that is preparing goods for onward transportation to another storage facility or working with courier companies to fulfil deliveries to customer addresses or pickup points. The 3PL should also have Customs Clearance expertise to ensure that goods are adequately cleared for import and export if required.
Container storage and unloading:
A 3PL can take care not only of storing your container but also providing the manpower to load/unload goods onto shelves, often doing it more efficiently than would be possible in-house. Some 3PLs let clients use their warehouse as a Goods In location, providing longer term storage for things like containers as well as cartons and pallets.
What are the advantages of a 3PL?
Advantages of a 3PL include:
- Saying ‘yes’ to new products: with a 3PL, ecommerce firms can take advantage of those new product lines without worrying that they are going to run out of space.
- Ability to get more orders out, more quickly: utilising the 3PL’s supply chain expertise, technology, efficient processes, and scale you will probably be able to process more orders, more quickly, increasing customer satisfaction.
- Access to advanced technology for better stock visibility: a 3PL stands the cost of investing in a WMS (warehouse management system), linking what’s on the shelves to what is being sold online, along with all the updates to your back end systems
- Greater accuracy: real-time inventory management can improve visibility of what products are located in what locations, improving accurate pick rates;
- Better customer service: late deliveries can be for a number of reasons but the 3PL can address any manpower issues to ensure that the fulfilment takes place;
- Returns management: the 3PL is responsible for sourcing and providing adequate kitting.
- Better cashflow/stock management – carrying more stock than you need isn’t just a cashflow issue: it takes up valuable space that needs to be dedicated to more sellable items. A 3PL can reveal where all your SKUs are at a glance, reducing the likelihood of obsolete items sitting on shelves.
- Ability to accommodate seasonality and trends: the 3PL has the capability to cope with increased demand during busy periods.
- Lower shipping and procurement costs: the 3PL can take advantage of economies of scale when buying in shipping services and products required for packing and kitting.
- Reduction in manpower requirements: a 3PL can deploy a greater pool of talent, significantly lifting the burden of having to staff a warehouse, or even employ or contract warehouse staff at all.
- Massive reduction in overheads: a 3PL reduces the costs of running an owned storage facility, with its associated energy costs, stamp duty, business rates, training and health and safety management.
- More cost-effective expansion into global trade: clients can take advantage of the 3PL’s relationships with oversea partners, for example, enabling your overseas stock to be received into the 3PL along with another shipment from the same point of origin – there are similar advantages for exports.
3PL for ecommerce
The Covid-19 pandemic has created significant pressure on all ecommerce businesses to deliver quickly and reliably. Unsurprisingly, 3PL services are in high demand: according to a recent report, ecommerce companies are the leading consumers of 3PL services, accounting for nearly 53% of the global market.
A 3PL can enable ecommerce firms to be more competitive through the ability to:
- Offer international shipments, managing logistics on the road, by sea and air;
- Reduce costs by taking advantage of economies of scale;
- Provide a better customer experience through integration with ecommerce platforms such as Amazon, Magento and Shopify, enabling faster order processing.
- Provide access to exclusive shipping rates and cut-off times.
- Outstanding levels of execution – the best 3PLs are experts in the industry and make it their pure focus, not just a sideline.
How to choose a 3PL partner
Outsourcing your logistics to a 3PL can have significant cost savings and deliver significant service enhancements. Even the largest, most established and experienced firms may be daunted by handing over the reins and entering into a 3PL relationship. Here’s the questions to ask:
- What experience do you have in my sector?
- What resources do you have within warehousing, road, sea and air transportation?
- What value adding services do you offer?
- What technology do you use? What platforms do you integrate with?
- How do you scale your offering around fluctuations in my business?
- Can you facilate and cope with our future growth?
What’s the difference between 3PL, 4PL, 5PL?
Our handy guide, 3PL, 4PL & 5PL – What’s the Difference? explains the differences in the breadth of service offerings, and how to choose the right level of service provision for your business.
Looking for a trusted 3PL partner for your ecommerce business?
To learn more about the benefits of choosing Hemisphere as your trusted 3PL partner, please get in touch.