If you’ve been looking for a fulfillment provider, you’ve likely heard of 3PL fulfillment at some point in your search. But.. what is 3PL fulfillment?
What is a 3PL?
Third-party logistics (abbreviated as 3PL, or TPL) in logistics and supply chain management is an organization’s use of third-party businesses to outsource elements of its distribution, warehousing, and fulfillment services.
In short, you would take customer orders and your third-party logistics provider (3PL) would fulfills those orders. It really is that simple in concept and when things are done right, your customers will never know about the handoff between receiving orders and having them fulfilled. A 3PL is a link in the supply chain that a company can use to outsource part or all of a business’ distribution and fulfillment services.
With the launch of the internet and ecommerce, the market for 3PLs providers has exploded. In fact, did you know that the majority of Fortune 500 companies are using fulfillment services? How many? 86 percent! Did you know that nearly all Fortune 100 companies use a 3PL partner? How many? 96 percent!
What do Fortune 100 and Fortune 500 companies know that you don’t? They know a strategic 3PL fulfillment partner can be a game changer for their company, an investment that pays off over and over again.
3PLs receive new inventory from your manufacturers before shipping it to consumers. They can also handle retail distribution and returns. Ultimately, they deliver your orders with an out-of-box experience.
When Should You Use A 3PL?
A lot of companies make the mistake of waiting until they’re overwhelmed with orders before they make a call to a 3PL. You don’t want to wait until the last minute, you want to bring in a 3PL when you first begin seeing substantial growth.
The last thing you want to do is break your promise on fulfillment. It only takes a few complaints to cause big problems for your company. If you’re having fulfillment problems, then your focus is going to be elsewhere versus concentrating on the growth of your company.
Some of you reading may be wondering when is it the right time to hire a 3PL, here’s what you should be asking.
- Are you running out of inventory storage space? Storage costs can be greatly higher than using a 3PL fulfillment service. If you’re investing a lot of money to store inventory, you may be able to save money using a 3PL and free up resources to use elsewhere.
- Are you fulfilling more than 20-30 orders per day? You should always being focusing on strong profit margins. You can’t undervalue the opportunity of growth working with a 3PL provider. You need to run the calculations, see if it makes sense to outsource your fulfillment.
- Are you beginning to see substantial growth? Like we said before, many companies wait until the last minute to work with a 3PL partner. If you’re starting to see sustained growth in order volume, this is the right time to start exploring 3PL fulfillment solutions.
Types of Third-Party Logistics Providers
When you begin evaluating 3PL providers, there’s 4 key areas you want to look at. These will include:
- Shipping And Receiving
Size and specialization matter. Some 3PLs lack the native full-service capability and specialize in one or two areas. Larger 3PLs like Thill Inc. offer end-to-end execution and integrations, giving you a wide range of service options.
(1) Warehouse And Distribution-Based 3PLs
This is the most common type of 3PL, these companies will store, ship, and handle returns. Innovative warehouses can help you offer fast shipping to your customers. If you’re expanding globally, international warehouses can help build a global supply chain, which is essential to your international shipping.
When considering a warehouse solution, evaluate the following criteria:
- Warehouse Network – In 2020, you need to have the ability to ship your products fast. This is where 3PL warehousing can help. You need a larger network of strategically placed warehouses if you want to promise customers expedited delivery. Shipping speed hinges on warehouses being geographically close to your customers. You’ll also need to accurately forecast inventory levels so you can properly stock warehouses within your network.
- Pricing – You do want a transparent pricing model, so understanding how that model can drive your growth is essential. 3PL costs can vary from one provider to the next. You want to understand the pricing of your 3PL, top to bottom. Identify what’s included in the overall price and what may cost extra, such as returns management or customer support. You should ask about kitting, pick and pack, and how it may impact pricing.
- Shipping Carrier Rates – When you’re evaluating your 3PL, make sure you’re checking their shipping rates. The 3PL may not be able to get the shipping rates you can. If that will be the case, you want to make the warehouse partner will accept them. Larger warehouse networks can usually negotiate deeper discounts.
- Insurance – Another thing you’ll need to consider is whether you want packages fully insured while in storage or during delivery and return. You need to be sure you’re precise when negotiating product insurance. You also want to know the differences between insurance or just having a carrier-included liability.
- Cutoff Times For Fulfilling Orders – Another key decision you’ll need to make is choosing your cutoff times for fulfilling orders. If orders are placed after the warehouse cut off time, they won’t go out until the next day. This actually impacts a lot of different things, both marketing and customer expectations.
- Delivery Service Levels – Sweat the contract details before you commit. Decide whether you prefer a refund or credit if shipments aren’t fulfilled on time. Be sure you know whether you’ll be credited for broken or lost items, understand the service-level guarantees offered to gauge your liabilities.
- Management Tools – Last but equally important, you better make sure your 3PL can integrate with your existing inventory management system (IMS), order management system (OMS), order processing software, and/or warehouse management solution (WMS). Synchronizing systems ensures orders are automatically picked, packed, and shipped while simultaneously updating inventory levels.
More than likely, you’re using some type of ecommerce platform to sell your products to customers. One of the most popular ecommerce platforms is Shopify. If you’re on Shopify, you want to make sure your 3PL is familiar with Shopify fulfillment and they have the appropriate integrations to easily integrate with that system.
Most of our clients here at Thill use Shopify, but Shopify is not the only ecommerce integration we have. In fact, we have dozens of ecommerce integrations, but some of the more common would be;
(2) Transportation-Based 3PLs
Some 3PLs specialize in the transportation between one location and the next. For example, they might transport inventory between your factory and warehouse or you and your retail buyer. Before you consider using a parcel transportation provider, here’s what you should be focused on:
- Origin Location
- Destination Location
- Shipping Methods
- Service Levels
Remember to consider import/export taxes and duties if you transport freight globally.
Traditional parcel transportation providers include;
Same-day delivery is normally handled by local couriers like Postmates and UberRush. Transportation marketplaces like Flexport, Freightos, and GrandJunction connect buyers and sellers.
(3) Financial Or Information Based 3PLs
Once you’re able to scale your company to 8-9 figures, you may want to consider a financial or information based third-party logistics company. These firms will usually provide industry-specific insights and can optimize complex global supply chains. They also provide internal controls related to freight auditing, cost accounting, and inventory management.
However, there’s a number of 3PLs out there that can offer industry insights and optimize supply chains.
Pros Of Using 3PLs
It’s fact, there’s a lot of pros of using 3PL fulfillment. will automate fulfillment for you, so you can focus on the rest. Spend time growing your business, not on moving packages.
- Automating Fulfillment – 3PLs are going to allow you to focus all your attention elsewhere as they will automate all of your fulfillment.
- Side By Side With A Partner – Fulfillment and shipment optimization are the specialities of a 3PL and you’ll have the opportunity to learn a lot.
- Fulfillment Network – Being a part of a fulfillment network opens the opportunities, allowing you to offer faster shipping and helping you get products to customers faster.
- Limiting Overhead – Leasing warehouse space and hiring a fulfillment team increases your overhead. Maintaining fulfillment assets is costly. Working with a 3PL can minimize costs so capital can be directed toward return generating endeavors.
Cons Of Using 3PLs
The biggest risk of using a 3PL would likely be losing control over your inventory and trusting a third-party with your company.
- Hidden Responsibility – Your 3PL won’t interact directly with your customers. When products are late, who will your customers turn to? You. (Regardless of whether it’s your fault.)
- Set-Up Fees – Significant upfront costs include integrating a 3PL’s software with your ecommerce store, SKU upload, and account access.
- No Immediate Inventory – Inventory stored in 3PL warehouses won’t be immediately accessible should you encounter quality control issues.
How to Choose Your 3PL Provider
The right partner can make or break your company’s logistics, customer service, and repeat purchase rate. Trusting someone with sales, inventory, and other sensitive information can be considered to be a risk. However, with a little due diligence, you can find a trust-worthy 3PL.
Here at Thill, we have over 50 years of experience in fulfillment and have worked with hundreds of companies to help with all their fulfillment needs.
- Experience – It matters!
- Partner – The right 3PL is going to be a beneficial partner.
- Track Record – A proven track record of success.
- Results – Is it a profitable relationship?
If you need a trusted 3PL, don’t hesitate to reach out. You can find our number at the top of header.