Employees checking parcels at warehouse

What is a 3PL and when to use one for your eCommerce business


Written by Starshipit

As an online business owner, you have more than likely managed to fulfil all your online orders yourself from the relative comfort of your garage. However, if you're losing sight of your garage floor (or ceiling) due to an increase in orders, it may be time to consider a third-party logistics supplier (3PL) who warehouse your stock and can manage the fulfilment process for you.

To date, third-party logistics have traditionally been used by big businesses and multinationals, but since eCommerce is now part of everyday life, there has been an increase in online stores using 3PLs to deliver a frictionless customer experience.

We understand it may be daunting to outsource the warehousing and fulfillment of your orders to a third-party supplier, so to help shed some light on the subject, we've put together a guide to help you navigate the world of 3PLs as an online retailer.

Let's start by defining third-party logistics (3PL), we will then detail the merits of using a 3PL and how to find a 3PL that best suits your eCommerce business.

In this article we'll cover the following:
  1. What is Third-party logistics?
  2. Why use a 3PL as an online retailer?
  3. When it's time to use a 3PL?
  4. Tips to finding a 3PL right for your business

1) What is Third-party logistics?

Third-party logistics providers provide general to highly specialized warehouse and fulfillment services that cater to the specific requirements of the retailer.

According to Gartner, a global research and business advisory company, a third-party logistics provider or 3PL is, "A commercial firm that provides one or more logistics functions on behalf of its customers on an outsourced basis for a fee. To be a 3PL, the logistics service provider (LSP) must predominantly operate a business that moves, stores or manages products or materials on behalf of its customer."

These logistics include all functions necessary to store, package and deliver an order to a customer. These functions generally fall under warehousing and transportation services, which can involve subcontracted services.

A 3PL service can be tailored according to your specific product requirements for your B2C, DTC or B2B needs. For example, you may have special storage or packaging instructions that will need to be managed by the 3PL team. With the average returns rate in Australia sitting at about 30%, you may also need help implementing a returns process.

Hertz and Alfredsson (2003) describe four categories of 3PL providers, but for the purposes of eCommerce fulfilment we only need to know two of them.

Standard 3PL Provider

A standard 3PL provider covers the following basic fulfilment functions:

  • pick and pack
  • warehousing
  • distribution

3PL Service Provider

This 3PL provider offers more advanced value-added services, which is fast becoming tailored to suit the needs of online retailers, such as managing returns. Some services would include:

  • tracking and tracing
  • cross-docking
  • specific packaging
  • a unique security system
  • a solid IT foundation
  • a focus on economies of scale and scope

Now that we have established what a 3PL is, let’s look at the benefits of using a 3PL as an online retailer.

Man packing orders at the warehouse

2) Why use a 3PL

There are a number of benefits to using the right 3PL as an online retailer. The key is understanding how they can enable you to create a better online business with improved customer experience.

As an online retailer its important to find a 3PL provider that can offer you solutions that will solve your specific needs.

3 key reasons to use a third-party logistics provider:

  • Scale with ease

Using a 3PL provider will increase your capacity to fulfil orders at pace. You will benefit from the experience and infrastructure in place and have access to a team with expertise in things like cross-border shipping or specialist packaging or storage needs.

  • Professional customer experience

The expectations of online shoppers have increased dramatically over the last 18 months and offering a better delivery experience can become your competitive advantage. If you fail to deliver a great experience it will cause reputation damage, which is time-consuming and costly to manage. Using a 3PL will allow you to offer a professional and seamless delivery service, as 3PLs can offer you a range of services from a range of courier companies, allowing you to offer more delivery options to your customers. This will ultimately increase your customer loyalty.

  • Tailored services

Every online business has their own way of doing things, which can include processes, digital systems, or packaging requirements. When you work with a good 3PL provider, they tailor their services and give you a dedicated team who are on standby to meet your needs. Your success is ultimately their success.

3) Checklist for when it's time to use a 3PL

When you are in your business managing day-to-day functions and usually there are specific projects you may be focused on, you sometimes don’t take a step back to assess pain points in the business and understand the causes.

Here is a checklist of indicators, that could signal you need to find a 3PL provider that can partner with you to grow your business.

  • Have your costs increased?

This is the most obvious and immediate sign that your business is growing and requires increased capacity and resources to manage fulfilling orders.

  • Is your team able to manage more orders?

Assess if your existing environment and your team would be able to easily adjust to managing increased order numbers without feeling overwhelmed.

  • Have customer complaints increased?

Ensure you go through all customer feedback and complaints as this is a direct indication that you could require help get more orders out the door, faster.

  • Are you shipping to a new region or country?

When selling to a new customer base it’s useful to partner with a 3PL provider that has local knowledge and a network of local subcontractors to ensure a consistent customer experience of your brand.

Now we’ve established that there are definite times when you will need the services of a good 3PL provider, lets look at how you go about finding the right provider that will have the right skills and experience to manage your fulfilment requirements?

4) Tips on finding the right 3PL for your online business

Partnering with a 3PL provider will directly impact the success of your business, so going about finding the right 3PL who can meet your current and future needs can be challenging.

Here are a few tips that will help you in your search:

  • Do research

Make sure you research all 3PLs in the areas you will be shipping from and to. Read reviews and customer feedback and check if their systems can easily integrate with yours.

  • Meet the team

Once you have shortlisted your options and lockdown permitting, try and meet the team you will be directly working with. Having good communication and empowering your 3PL team becomes increasingly important as you grow. So, always remember to think ahead and ask if they have the resources to scale with you.

  • Look for a range of services

You need to plan for the growth of your business, so keep in mind the kinds of services you may need going forward. For example, do they offer same-day fulfilment? Have they got additional warehouse space for increased orders? Can they customize packing slips and manage returns?

  • Expertise and footprint

For example, can they transport dangerous goods and manage cross-border shipping? Do they have the right network of subcontractors and footprint for your future growth?

  • Do they have established relationships with couriers?

If they have good courier relationships your business may benefit from better shipping costs. Also remember to tell them if you have any delivery requirements, like signature upon receipt.

  • What shipping automation software do they use?

This gives a 3PL a central place to manage all communication with all couriers. This software will also be able to automate customer notifications along the delivery journey, which reduces customer queries and improves brand love. Also check if the shipping software can manage multiple couriers and that they don’t charge extra if you want to use different couriers later on.

  • Pricing and costs

The cheapest is not always the best, so guard against making price a deciding factor. What’s more important is quality and efficiencies, which will add value to your brand. Make sure you cover things like insurance and how they compensate for delays.

If you are considering working with a 3PL, you may want to read about how a multi-courier shipping platform can improve efficiencies and save you hours in handling time.

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