3PL (Third-Party Logistics)
What is a 3PL?
A 3PL or third-party logistics is a way your business can utilize a third-party logistics company’s existing infrastructure to take care of your fulfillment and shipping requirements. 3PL’s use their own workflows and systems to help fulfill your e-commerce shipping needs. They are also sometimes referred to as fulfillment centers or fulfillment warehouses.
They provide wide-ranging services such as warehousing, returns, packing and shipping, etc. Some 3PLs may even specialize in certain kinds of shipments such as hazardous materials or cold products. Some can also offer value-added services such as handwritten notes inside of packages, kitting, custom infill, and more.
How Do 3PL Companies Work?
3PL’s have the essential equipment, people, and systems in place to take care of fulfillment; they’re designed to carry out specific tasks, so their day-to-day operations are optimized with regard to that. As a business, you would rent out space in a 3PL, which also houses products from other companies, and store your inventory with the 3PL. A 3PL will often come with software that integrates with your e-commerce site. This is so that once your customers place an order for your product, the 3PL receives the order, and their employees pack and ship those orders out to your customers.
Depending on your specific business needs you can opt for certain services from 3PL’s, or even a more end-to-end solution. Since your business is constantly evolving, you might find that you either require more services from the 3PL, or you may choose to cut back on a few depending on your evolving needs.
3PL Services vs. Dropshipping
While dropshipping and 3PL services might seem similar because they both are a way to outsource shipping, here are some significant differences between them.
- In 3PLs the product is owned by the seller (you, in this case), whereas with dropshipping the supplier owns the product.
- Dropshipping has minimal upfront costs. However, with 3PLs you need to fill out their inventory with your product.
- 3PLs are more reliable because they ship out the products that you have placed in their inventory. Dropshipping is riskier since product availability and fulfillment depends on the manufacturer.
Difference Between 3PL and 4PL
The most significant difference between 3PLs and 4PLs is that 4PLs supervise the holistic logistics of supply chain management for manufacturers. Another way to think about a 4PL is that it oversees a 3PL for your business. With 4PLs you get access to additional services such as 3PL management, carrier performance analysis, strategic planning, and so on. These tend to be for more enterprise-level businesses whereas 3PLs are the first step to scaling your e-commerce operations.
When to Start Using A Third Party Logistics Company
You should consider using 3PLs when your business is growing, and it’s becoming costlier and more time-consuming to package and ship orders to your customers. Some useful metrics to look at before you decide whether 3PLs are right for your business are your inventory storage space, the number of orders shipped on average, demand surge during busy months, costs associated with shipping yourself vs. a 3PL, increasing customer complaints, and burnout from your in-house fulfillment team.
How to Choose a Third Party Logistics Company
Here are some important considerations to keep in mind when you’re thinking about utilizing a 3PL:
- What’s their track record in the 3PL space?
- Are they reliable?
- Will they integrate with your workflow?
- What kinds of services are they offering that your business can take advantage of?
- Is the 3PL able to evolve and adapt to your changing business needs?
- Is the 3PL a smart and affordable solution for your business?
- Does the 3PL offer fulfillment centers close to your client bases?
Shippo has partnered with several Third-Party Logistics companies that check all of these boxes. To learn more about these industry-leading 3PLs, click here.