What Is 3PL? A Third-party Logistics Guide
11 minutes to read
What is 3PL? A third-party logistics guide
A Third Party Logistics provider (3PL) is effectively 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, fulfillment, pick and pack, and transport to the end user.
Buying a product online is so easy – or at least, that’s how it should be. The best customer experiences are very often the result of the work of a 3PL – a third party logistics company.
But have you ever wondered what happens once you’ve clicked ‘place order’ on a website?
- Here are the basics of going from ‘store to door’:
- Goods received: the 3PL receives orders from the client;
- Fulfillment: the warehouse picks and packs the orders;
- Shipping: the shipping partner delivers the goods.
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. The trainer-packers aren’t employed by them. And getting the trainers from China and onto the warehouse shelves was most likely overseen by a 3PL.
The sheer sophistication of interactions involved in getting products from origin to customers is becoming so complex that managing them is usually beyond the reach of small and growing businesses.
It’s no surprise then that 3PL services are in high demand: and it’s a competitive industry, with 14,784 businesses in the sector in 2021.
Why use a 3PL?
Quite simply, outsourcing warehousing, logistics and transportation allows companies to focus on growing their businesses.
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.
Using a 3PL can provide additional value adding services, including:
- Procurement: ordering/receiving goods from other suppliers, and arranging for these to be packed up and sent out along with their respective orders.
- Storage: 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.
- Global trade: working as the company’s logistics department, a 3PL can organise the road haulage, ocean and air freight services required to get goods to the right place, at the right time.
How does 3PL work?
Every 3PL provider manages the following basic steps:
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 time of order as possible.
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.
The 3PL works with one carrier, or a mixture, to secure the best possible rates for shipments. Once the van has been to the collection point and scanned the labels, the order is considered ‘out for delivery’, whether direct to consumer or for onward distribution.
What is a 3PL warehouse?
A 3PL warehouse manages all the stock for their clients’ businesses. Its workers receive stock, unload it, and place it in the right locations ready for pick and pack. A 3PL warehouse might also hold and distribute orders for its own business – something that’s known as a hybrid 3PL. Some 3PLs specialise in specific types of products, for example, raw or hazardous materials/ wines and spirits, whereas some will accept all types of goods.
What services are provided by 3PL providers?
The basics of a 3PL include:
- Receiving goods
- Storing goods
- Processing orders
- Pick & Pack
Additional services offered by a 3PL include:
- Returns management
- Global shipping
- Customs bonded warehousing
- Customs compliance
- Container storage and unloading
- Cross docking
What value-added services can a 3PL provide?
- Transportation: 3PLs can work with carriers to negotiate and consolidate less than truckload (LTL) and less than container load (LCL), increasing cost savings.
- Global shipping: 3PLs have in-house specialists to oversee customs, ensuring shipments are received from overseas in a cost-effective and compliant manner.
- Technology: 3PLs all use WWS (warehouse management software) enabling them to keep a close eye on stock levels without the need for manual stocktakes.
- Experience in ecommerce: 3PLs are able to add further value by not just storing goods but by linking in with fulfillment services such as Fulfilment by Amazon (FBA).
- Branding: a 3PL has access to its own value-adding services, such as branding, kitting, relabelling, quality checks and reworking.
- Manpower: with a 3PL, you 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.
- Quality assurance: many 3PLs work to strict KPIs for quality and service assurance, providing peace of mind.
What are the advantages of a 3PL?
Advantages of a 3PL include:
- Ability to get more orders out, more quickly – to tighter turnaround times – utilising the 3PL’s supply chain to bring moving parts together more quickly, for example, when ordering products from two different manufacturers.
- Access to advanced technology – real-time visibility of stock as standard, reducing stock outs and enabling you to create special offers at a moment’s notice.
- 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 – no need to employ or contract warehouse staff.
- Massive reduction in overheads – reduce the costs of running your own 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 myths and misconceptions
A 3PL is too expensive
Handing over the reins (and what can feel like huge sums of money) to an outsourced provider can be daunting. But that’s where it pays to think of the bigger picture. Fulfilling everything yourself now is working OK – but what about your growth? Customers are only going to increase their demands. In the end, you might find yourself so stretched that you don’t have time to invest in the part of the business that attracted them in the first place. Moreover, the costs associated with running your own facility – from manpower to rents, energy costs, stamp duty and the like – can quickly overtake the amount you would spend on outsourcing.
A 3PL isn’t for the likes of small businesses
You don’t have to opt for every service that the 3PL offers. Start with the basics, see the value, then expand if you need to. This is where a local or specialist 3PL can be the way forward. They will be honest about what they can offer. Moreover, some 3PLs offer a multi-user environment, making the costs achievable for even micro businesses.
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;
- 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
Top signs that you need a 3PL provider
If you are facing any of the challenges below, then it may be signs that you are ready to invest in a 3PL warehouse:
Your team can’t keep up
Has what started as a fairly relaxed operation to meet a regular flow of orders turned into a daily battle against time? As your business grows, your staff can find themselves firefighting at every turn. The stress of keeping customers happy can result in everyone becoming overwhelmed. As a result, staff become sick, injured or simply leave. A 3PL can deploy a greater pool of talent, significantly lifting the burden of having to staff a warehouse.
You’re running out of space
Pure and simple. You don’t have enough warehousing to keep up with the product lines that you want to get in and out to customers. As a result, you’re holding old stock and it’s eating into your profit margins.
Your website doesn’t match your inventory
If you’ve taken orders only to find that items aren’t in stock then it’s possible that your systems aren’t talking to one another. Having to offer refunds or issue cancellations is bad news for your brand. A 3PL stands the cost of investing in a WMS (warehouse management system), linking what’s on the shelves to what you’re selling online, along with all the updates to your back end systems.
You experience more customer complaints
Complaints can arise from all aspects of your operation, but some can be offloaded directly to the 3PL to manage. For example:
- Wrong product received: real-time inventory management can improve visibility of what products are located in what locations, improving accurate pick rates;
- Delivery queries/items going missing: the 3PL works directly with the carrier/s in their network to resolve with customers;
- Late deliveries: can be for a number of reasons but the 3PL can address any manpower issues to ensure that the fulfillment takes place;
- Items received damaged: the 3PL is responsible for sourcing and providing adequate kitting.
- Your warehouse manager just found stock you didn’t know you had – 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.
How to choose a 3PL partner
Outsourcing your logistics to a 3PL can have significant cost savings. 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?
Common 3PL questions
Where can I find a 3PL near me?
Based in Ipswich and close to Felixstowe, Hemisphere Freight Services is ideally placed to provide flexible warehousing, fulfillment and logistics services. We have a 110,000ft2 fully bonded warehouse facility and can handle ocean, air and road freight. Please Contact us with your requirements.
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.