How To Know It’s Time To Use a 3PL: Tips & Examples
Growing your e-commerce business comes with many challenges, but one of the best problems to have is outgrowing your current fulfillment operations. It means your products resonate with your customers, and sales come in large quantities.
However, some major ways to stunt your business growth are having long fulfillment times, overworking your current fulfillment team, and possibly fulfilling the wrong orders. These are all pain points that partnering with a 3PL can help remedy.
But, partnering with a 3PL is a serious business decision and one that should be informed. To help with that decision, we’ll define what a 3PL is, what they do, how to know you need one, and give real-life examples of e-commerce merchants who have taken that leap.
What is a 3PL?
A Third Party Logistics (3PL) company handles almost all aspects of your e-commerce business’s fulfillment processes. They receive your products from your manufacturer, store them, and once someone places an order on your website, 3PLs will package and ship orders straight to your customer.
By outsourcing fulfillment functions, you can avoid making the huge investment of building your own fulfillment center. Instead, it allows you to focus on other areas of your e-commerce business, such as marketing, customer service, and adding to your product catalog.
What Do Third-Party Logistics Companies Do?
Third-party logistics companies handle almost all areas of fulfillment. Some of the most common services they offer include:
- Shipping and receiving goods to and from your customers
- FTL Shipping and LTL Shipping
- Warehousing and storage
- Manage Inventory
- Picking and packing customer orders
- Custom packing and kitting
- Handling returns
Different 3PLs may offer different services. For example, some may go as far as to allow you to offer handwritten notes inside packages, while others may offer to store and pack temperature-sensitive items.
Most importantly, 3PL companies will almost always come with the ability to integrate their software into your current tech stack. This makes it so that data from orders placed at your e-commerce website gets transferred directly to the 3PLs network. This ensures that the right fulfillment center packs and ships the right item the right way every time.
How Do 3PLs Work?
3PLs work as a middleman between your business and your customer. They serve as a vital part of your business’s supply chain, and the entire process usually breaks down like so:
- Your business places an order to a manufacturing facility
- Those finished products are then sent straight to a 3PL’s warehouse or fulfillment center
- That inventory is received and logged
- It is then stored and organized by the 3PL staff
- Then once a customer places an order on your site, that information is sent directly to the 3PLs fulfillment center staff.
- Orders are then picked and packed
- The 3PL will then hand the packages off to the carrier that the customer has chosen
- The carrier will then deliver the package from the fulfillment center to your customers’ doorstep.
Top 7 Indicators That You Should Use a 3PL
While the timeline for when businesses should sign with a 3PL differs from business to business, there are some universal signs to know when it’s time.
Shipping Costs are Becoming Too Much For You and Your Customers
One of the key indicators that you should consider a 3PL is when your costs of fulfillment are starting to outweigh the benefits of increased sales.
For example, you may be delighted to see a steady rise in orders placed during your company’s peak season. But if you’re trying to fulfill in-house, you may have to turn around and pay for additional staff, order new equipment to handle the fulfillment process, order more materials, and pay for larger storage space. This isn’t even taking into account the cost of shipping labels for the carriers taking care of last-mile deliveries of your products. Once your peak season is finished, you may have to hand lay-offs and be stuck paying for equipment that isn’t being used to its full potential.
This is where a 3PL can help minimize fulfillment costs as you scale your e-commerce business and adjust to different periods of growth. 3PLs that partner with shipping solutions such as Shippo also access discounted shipping label costs which they can then pass onto their partners.
Order Fulfillment Delays Are Becoming The Norm
No matter what shipping service level your customers choose at checkout, they’re going to want your products delivered to them as soon as possible. This can’t happen unless orders are packaged and handed off to carriers the same day orders are placed. If your business is starting to take multiple days on average just to get the items in a carrier’s hands, you may need to start considering partnering with a 3PL.
The fulfillment centers of 3PLs have staff ready to package products as orders come in. Usually, they have scheduled carrier pickups once, if not twice a day, so packages can start their shipping journey sooner rather than later.
Your Fulfillment Team is Getting Burnt Out
This can happen if your e-commerce business doesn’t have a large staff ready to handle a spike in orders. If your team is experiencing burnout, it will most likely require you to take time away from other business operations and instead put that time towards interviewing and hiring more staff members. But, if your team is burnt out, you also risk staff members leaving. This can make you feel like you’re operating a revolving door rather than an e-commerce business focused on growth.
With a 3PL you’ll almost always have enough staff members ready to handle your orders, no matter the quantity of orders that come through at a given time.
Customer Service Tickets Are Piling Up
Customer service is arguably one of the most important aspects of running a business. To ensure you have repeat customers and retain any sort of brand loyalty, you’ll want to maintain quality customer service. But, to put your CS team in a position to succeed, you’ll need to make sure the post-purchase experience is held to a high standard.
If you’re starting to see a large number of tickets coming in regarding issues such as damaged products, wrong products being delivered, slow delivery times, and other areas of fulfillment, it might be time to consider a 3PL.
You’re Entering A New Market
Let’s say you’re expanding into a new part of the country or you’re looking to start selling into a new country entirely, it can come with logistical challenges. For example, let’s say your business is based in California, and you’re looking to start selling in Florida. If you try to fulfill and ship from California, you’ll likely need to charge your customer more for shipping and the time it will take for them to get your product will be longer.
This can be a huge deterrent for customers in Florida and will instead look to less expensive options within their area. By partnering with a 3PL, they can allot some of your inventory to a fulfillment center closer to Florida, if not within the state itself. This will help make your product more competitive in terms of shipping costs and fulfillment times and help you attain more customers in a new market. The same can be said for international shipping. Certain 3PLs will have fulfillment centers worldwide so you can reach a global audience faster than ever.
You’ve Run Out Of Storage Space
For many e-commerce businesses starting out, the first place you may store your products is at home. But, your garage or spare room can only fit so much inventory. The key to growing your e-commerce business success is ensuring you have enough inventory to keep up with orders. But, you may not have enough inventory to constitute keeping it at a warehouse. Or, your orders are coming too fast so keeping your inventory at a warehouse might just be adding an unnecessary step in your supply chain.
With a fulfillment center powered by a 3PL, you can store a much larger quantity of products than you could at home and have your products organized and ready to ship out faster. Keep in mind, fulfillment centers usually store inventory for a shorter period of time than a warehouse because they are designed to get out individual orders fast. Warehouses are designed to store items for longer and ship items in bulk.
You Want To Scale Your E-commerce Business
Scaling an e-commerce business can be difficult. An increasing number of sales adds new complexities into your existing logistics. The need for more storage space, the need to be more tactical in where your store your inventory, and streamlining the pick and pack process are all necessary for your business to maintain that momentum.
3PLs will often have fulfillment centers in different locations, can fulfill orders as they come in so that you’re not overpaying for labor, and can help get your items shipped faster. This allows you to continue to provide a positive post-purchase experience to your consistently growing number of customers.
How To Choose a 3PL Company For Your E-commerce Business
Different 3PLs can specialize in fulfillment for different products. For example, some might be better suited for shipping temperature-sensitive products and need equipment and processes for cold chain logistics. Others might specialize in shipping hazardous materials that require more carrier compliance. Some may even have large fulfillment centers that are tailored towards shipping large and heavy items.
But, no matter which type of 3PL you’re considering partnering with, there are a few key areas to look out for.
Make Sure You Can Afford The Service
Not all 3PLs charge the same rate and pricing structures may differ completely. You’ll have to consider their storage costs, what they charge to fulfill each order, and how much they will charge for shipping. Some 3PLs get discounted shipping rates which they can then pass on to you. Some also give discounted rates if you move more inventory through their fulfillment centers. Be sure to review their pricing structures and measure that against your sales forecast.
Make sure their technology integrates with yours
3PLs often come with their own software and you’ll want to make sure that they integrate with your current e-commerce solution. You’ll also want to see if they can integrate with other e-commerce platforms if your company needs to make switch.
Look for 3PLs that prioritize security
3PLs not only contain your physical goods, but also your customers’ information. You’ll want to be confident that the fulfillment centers your goods will be housed in are secure and that your customers’ identities and information are protected.
Research The Legitimacy of the 3PL Company
This should go without saying, but not all 3PLs have the same amount of experience or track record. You’ll want to read plenty of reviews, talk to a representative, and if possible, get an inside look into how their fulfillment centers operate.
Ensure They Can Handle Your Level of Shipments
3PLs by nature can serve multiple businesses within a single fulfillment center. You’ll want to make sure that the 3PL you choose has enough room to accommodate storing your products and have enough people on staff to fulfill all of your orders.
For a list of 3PLs that fit each of these categories, be sure to check out our fulfillment partners page. Each 3PL Shippo has partnered with has been carefully vetted before being selected and has years of experience serving e-commerce merchants of all types.