What is 3PL? Basics about third party logistics – definition, meaning, process and benefits
September 30, 2022November 24th, 2023
On this page
1. What is a 3PL or third party logistics?
As your business expands, you may quickly find that standalone order fulfillment is neither efficient nor practical. That's when a 3PL comes into play. 3PL not only take care of warehousing, picking, packing and shipping, but also returns, customer service and notifications. A reliable helper that takes the burden of order fulfillment off your shoulders, allowing you to focus on business development instead. This short article will help you understand how 3PL works and how it can help your e-commerce business.
The abbreviation 3PL stands for Third Party Logistics and refers to an external logistics service provider to whom companies can entrust order processing, including warehousing, inventory management, shipping and returns management. 3PL providers are considered experts in the logistics industry and have all the tools and infrastructure to simplify and automatize order fulfillment. Different 3PL providers specialize in different types of articles. For example, some work with perishable products like food, while others specialize in fragile goods. 3rd party logistics can offer their services to numerous companies at once. Some 3PL have their own inventory while managing the inventory of other companies. They are also able to customize services to meet the needs of clients. 3PL services are used by companies of all sizes and are considered one of the most efficient ways to expand business and reduce inventory and shipping costs. It is at the customer's discretion whether to delegate all or part of the fulfillment process to 3PL.
2. What kind of services does third party logistics offer?
These are the main steps 3PL perform in the process of order fulfillment.
The first thing 3PL will do is place your goods in an assigned storage locationin the fulfillment center after they are purchased from the suppliers ormanufacturers. The capacity of the fulfillment center varies depending on the 3PL. A competent 3PL can adjust its storage space to accommodate its customers' changing order volume and only charges for the space actuallyused. Third-party logistics providers are able to minimize storage fees whentheir 3PL warehouse services are used by numerous e-commercecompanies simultaneously.
2.2. Inventory management
3PL is able to sort, monitor and maintain its customers' inventories. In addition, a good third party logistics service provider offers special software to automate and optimize handling tasks. This software can be connected to web platforms that 3PL customers use to sell their goods. It makes it possible to track inventory and replenish it immediately to avoid out-of-stocks.
2.3. Picking and packing
In the 3PL warehouse, picking and packing of goods is carried out by qualified employees who are specially trained for these tasks. Each order is forwarded to the 3rd Party LogisticsFulfillment Center. First, a picker gathers the goods for the order. Then, a 3PL warehouse packer carefully packs the goods with durable and appropriate packaging.
Once the packages are ready for freight, the third-party logistics provider forwards them to a carrier. As a rule, 3PLs use the services of proven carriers and work with them on a long-term basis. This partnership results in advantageous rates due to a large number of shipments. However, there are also 3PLs that simply choose the forwarder that has the best price/performance ratio at the moment.
2.5. Processing of returns
Returns are probably one of the most unpleasant tasks in order processing. Many Third party logistics offer returns management as part of their services. When they do, buyers receive return labels. Unwanted goods are returned to the warehouse for disposal or resale.
2.6. International fulfillment
If you want to expand your reach internationally, 3PL is the right choice forthat as well. 3PL are professionals in the field of logistics, they know the laws and requirements for global shipments and which carrier to work with. 3rd party logistics companies that have their own warehouses overseas are especially useful because they can handle international shipments faster and at a lower cost.
3. How does 3PL fulfillment process work?
3.1. Integration with marketplaces
Integration with marketplaces is not just a step, but rather a foundation of the fulfillment process. Any valid third-party logistics should include such a program in their services, as such integration makes the fulfillment process smooth and efficient.
Preferably, 3PL providers should be able to work with any e-commerce platforms you use for sales. In most cases, this software is used to track the balances of 3PL warehouses and record all orders, shipments and returns. It is especially helpful for customer service as it shows the status of each order at any given time. It helps analyze customer buying patterns so that future purchases can be predicted and inventory replenished accordingly. In addition, picking errors can be avoided with the help of this software, and finding items in the warehouse is also much easier and faster this way. The software makes it possible to always have enough goods in stock to keep up with customer demand, as it tracks each item and replenishes inventory when it is needed.
Third party logistics Fulfillment Box uses Ysell.pro software to streamline fulfillment tasks. It manages the entire fulfillment process and integrates seamlessly with marketplaces such as Amazon, eBay, Woocommerce and Shopify.
3.2. Receiving of wares
First and foremost, a retailer or manufacturer sends your goods to your 3PLfulfillment center. To get goods in stock and available for sale faster, 3PL providers should process incoming goods in the shortest time possible. Third party logistics warehousing services include sorting, monitoring and maintaining your goods in a warehouse, in addition to receiving them.
How quickly buyers get the goods delivered depends mainly on the location of the warehouse. Since most online shoppers are not willing to wait more than two days for delivery, the third party logistics provider's warehouse should be located close to most of your customers. If a 3PL has multiple warehouses, it is advisable to split the inventory among them for faster and cheaper delivery.
For example, a 3PL Fulfillment Box has five warehouses. Four of them are located in the UK, Germany, Spain and Poland. This makes shipping throughout Europe very convenient, because the goods are shipped from the warehouse closest to the buyer.
If your third party logistics provider has integrated software, all details of the order are immediately forwarded to the 3PL as soon as the customer presses the buy button. Otherwise, orders must be manually uploaded into the 3PL's system. Then a 3PL picking team assembles the products in the desired quantity and takes them to the packer.
After everything has been gathered for the order, the goods are carefully packed for shipment. A packer at a 3PL warehouse selects appropriate and durable packaging and bundles the goods, trying to achieve a low volume weight. Most 3PLs use standard packaging materials, but some allow the use of custom packaging - a great way to increase brand recognition. The cost of the material is usually included in the 3PL services, but some providers charge extra for it. Regardless of the price, a good third party logistics provider will ensure that your customers receive their goods on time and undamaged.
3PLs usually work with proven carriers on a long-term basis. Since 3PLs handle large volumes of shipments, the forwarders can easily offer them favorable rates. After the order is handed over to the carrier, the buyer is informed about the status of the shipment. Since customers can track their orders themselves, the hotline is relieved and has more time to deal with serious problems - another practical advantage of the integrated technology of third-party logistics.
The next big advantage of 3PL shipping services is the ability to expand and ship internationally. Each country has its own regulations, duties and taxes. 3PLs as professionals will research all the terms of sale and select a secure carrier for international freight. Third-party provider Fulfillment Box, for example, offers worldwide shipping through reliable DHL services.
3.6. Processing of returns
Unfortunately, the fulfillment process doesn't always end the moment customers have their purchases in their hands. Returns are an inevitable part of any business. However, when handled expertly, they too can be beneficial to your business. Speaking of expertise: Third-party logistics are the way to go. Many 3PLs also offer returns management. If customers don't want the items, they can return them with prepaid return labels. The 3PL will also let them know when they can expect a refund or replacement item. Unwanted items will be returned to the 3PL warehouse for inspection. Products in perfect condition will be returned to the shelves for resale. Merchandise not suitable for resale will be placed in storage for safekeeping.
4. Why decide to work with 3PL? — Ten advantages of third party logistics
4.1. It is time-productive
Instead of doing routine tasks yourself, such as preparing items and shipping them to customers, you could rather use this time to develop your business. 3PL can provide you with this opportunity by relieving you of all the common activities.
4.2. It is cost-saving
The handling costs of developing companies can become very high due to the expansion of warehouse space, hiring more employees and equipment. Hiring a third party logistics service provider, on the other hand, is much more cost-effective. This is not only because they charge a single price for all of their services, but more importantly because they already have warehouse space, tools, personnel, and innovations that they can use most efficiently.
4.3. It provides faster and efficient fulfillment
Amazon has made shipping within two days a new norm in e-commerce. Good third party logistics with multiple warehouses near most of your customers is able to provide such fast and cost-saving deliveries and make your business competitive.
4.4. It is capable to manage reversed logistics
Third party logistics can help you handle returns and provide customer service. Outsourcing returns management to professionals like 3PL is very beneficial because online shoppers feel more confident buying from someone who handles returns in a straightforward and organized manner. And any good 3PL strives to reduce the negative impact of returns on the retailer, not to mention the customer.
4.5. It is competent
Third party logistics knows storage, shipping and logistics inside out. The company stays on top of industry trends and innovations. It continuously improves supply chain productivity to help its customers succeed in a world of e-commerce.
4.6. It will diversify your influence
You don't have to limit your company's opportunities by only having a presence in one country. 3PLs that have multiple fulfillment centers are the ones that are competent enough to not only expand your footprint to the region, but even help you go international.
4.7. It offers customized services
Whether it is storage or transportation, the 3PL is able to adapt and scale its services to the needs of its customers. Depending on your needs, you can expand or reduce the number of racks in the warehouse required to store goods.
4.8. It is secure
By hiring third party logistics, you minimize the risks associated with hiring labor or the financial risks of investing in warehouses and equipment. With 3PL, you don't have to worry about these things. 3PL oversees its own staff and already has warehouses, technology and all the equipment.
4.9. It possesses better technology
Many 3PLs have integrated technologies that optimize the entire handling process. The price for this is included in the 3PL services. However, if you handle fulfillment yourself, you probably don't have access to such technology or it's expensive to purchase one.
4.10. It offers additional benefits
3PL can provide a number of other services, such as kitting, custom boxes, custom labels and notes. When you include these things in the fulfillment process, you create a memorable, positive experience for your customers and increase brand recognition.
5. When is it time for third party logistics services?
If you're still on the fence about whether 3PL services can benefit your business, here are five ways you can benefit from working with a third party logistics.
5.1. You are overloaded with routine
As your business continues to grow, you'll quickly find that completing tasks alone won't get you anywhere. If you spend your time on routine tasks like packing boxes, printing labels and sending packages to customers, you're holding yourself back from truly running your business and making it a success. The more your goods are in demand and the more your inventory grows, the more time you will spend on it. This will become a real drag on your business and kill your chances of getting more sales and more customers. You simply won't have enough time to get everything done. This is the right time to delegate the entire routine of order processing to 3PL.
5.2. You run out of space
Another problem arises when the demand for your goods increases - then more storage space is needed. One of the solutions is to rent a warehouse. The problem is that this is not always cost-effective, especially if you don't need a whole warehouse just for yourself. Third party logistics, on the other hand, provides as much warehouse space as is currently needed, and you only pay for it. There are no inventory limits - whenever you need more, you can get it.
5.3. You want quicker delivery
To compete with giants like Amazon, you should ship within a few days. Shipping within two days is possible, even if it's from home. But it will likely be expensive and inefficient. Thanks to long-term agreements between 3PLs and carriers for lower shipping costs, two-day shipments are affordable for online sellers of all sizes.
5.4. You want safe money
Third party logistics charges a single price for all its services. And this is more economical than renting a whole warehouse, buying all the necessary equipment and materials, hiring warehouse staff and transportation at regular rates. And the money saved can be invested in further business development.
5.5. You want your company to develop
Whether it's a small or a large business, 3PLs are a very efficient business expansion strategy with their low rates, fast shipments, modern innovations and time-saving benefits.
A partnership with third party logistics can unleash the full potential of your business. 3PL becomes your reliable companion and helper. It takes care of order processing while you focus on developing your business.
Get in contact with Fulfillment-Box
Our managers will answer any questions you may have