Third-Party Logistics (3PL) Guide
The Modern 3PL Logistics Guide: Everything You Need to Know About Fulfillment in The Digital Era
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There are many types of third-party logistics (3PL’s) providers and finding the one that is best aligned to your business needs is critical to driving your company’s goals. At a high level there are three types of 3PL’s. First, is the full-service 3PL fulfillment provider that creates specific solutions for each company they work with. They gather the needs of your business and determine the best path forward with a customized solution typically within their own network of services. Second, is the most typical 3PL which is a warehouse and distribution provider that is focused on receiving, storing, picking, packing, shipping and the returns of your products either directly to the consumer (business to consumer), to other businesses (business to business) or both. A warehouse and distribution provider is sometimes referred to as a fulfillment provider. You can align the size of your business with that of a fulfillment provider at the local, regional, national or international level. Third, is a Transportation 3PL that focuses on moving the products to warehouse, consumers and businesses. This can entail a freight-broker business that acts as the middle-person to a carrier or transportation provider.
An additional key advantage of 3PL provider is the reporting and data information that can provide you missing pieces to the puzzle in your supply chain management and many 3PL’s can act as a partner to provide guidance, direction and literally have a seat at the partnership table. Ultimately, the modern 3PL allows your company to remain agile and scale up and down with no additional resources.
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What is the meaning of a 3PL in 2023
A 3PL, also known as Third-Party Logistics, refers to a company or service provider that offers logistics and supply chain management services to businesses. The term “3PL” originated from the concept of outsourcing logistics functions to a third-party provider. A 3PL typically provides a range of services that can include transportation, warehousing, inventory management, order fulfillment, packaging, freight forwarding, and customs brokerage. The specific services offered by a 3PL can vary depending on the needs of the client and the expertise of the provider. Every 3PL offers different services and expertise, so it is critical to first understand what services you are looking to outsource.
The primary purpose of a 3PL is to help businesses optimize their supply chain operations by leveraging the expertise, resources, and technology of the service provider. By outsourcing logistics functions to a 3PL, companies can focus on their core competencies while relying on the 3PL’s specialized knowledge and infrastructure. The right partnership essentially does two things. For the business, it frees up resources, typically in the form of people and time. And secondly, it typically reduces the cost of managing the services outsourced.
Pros & Cons of a 3PL
Leveraging a 3PL can add significant advantages to your business and can partner with you so that you don’t have to navigate the supply chain challenges all by yourself. Partnering with a 3PL can open up additional markets and expand your audience. Critical to any ecommerce business is the ability to scale up and down based on demand without the additional cost. As an example, if you need 10K square feet of space on average, but during the holiday’s need to scale up to 40K square feet and then back down to 10K square feet post-holiday you only pay for the utilized space. The cost of labor, warehouse space, utilities, software can all be reduced or eliminated by outsourcing to a 3PL provider. The cost of shipping your product to the consumer or business will be reduced as you will benefit from pooled costs that a 3PL has negotiated with a carrier and if you’re in multiple warehouses reduce the time for the order to be delivered. Lastly, the speed to fulfill your orders will greatly be enhanced by a dedicated 3PL. Their built in processes and team will perform more consistently and handle volume variances with greater success.
A 3PL is not the right solution for all businesses. Many times it’s a matter of aligning your needs with the right partner and ultimately determining if the timing and benefits are right. Most startups that are not well capitalized will start out of their own residences, a small office or shared space. Limited resources requires wearing many hats from product adoption, marketing, customer service, accounting and warehousing (receiving, pick, pack, shipping, returns) to name a few. Giving up control of some of these functions is definitely the first difficult decision to make and difficult for many. The processes that worked for you may not be the same processes that you’ll need to adapt to with a 3PL. Additionally, at lower volumes, cost may not be an immediate benefit. If inventory isn’t turning quickly enough, the additional cost of storage (assuming you’ve been housing that in your own home. garage etc.) may become prohibitive. The pace that your business is growing at will ultimately determine if it is the right decision.
Seven ways to determine if a 3PL is the right solution for your business.
First, start with creating a list of what functions (scorecard) you want outsourced. Prioritize them and add what the ideal solution for each line item is.
Second, determine which functions you are ready to give up now.
Third, determine what the cost of those functions are for you now and then create a pro-forma with a one to three year view based on your growth projections.
Fourth, do some research and pick three to five 3PL’s that have a good reputation, come highly recommended or have a track record for being in business for a long period of time.
Fifth, interview each 3PL and ask for a request for proposal.
Sixth, review the original scorecard you created and rate each line item.
Seventh, pick the organization that is the highest rated and mostly closely aligned to providing you the services needed now and for the next three years (minimum). One key side note, is that most businesses make this decision based on cost and cost alone. It is probably the number one reason that companies move from their first choice in the first two years. Like any business, 3PL’s all have similar costs of doing business and picking one solely based on the lowest cost solution, usually provides the lowest level of execution and support.
How to ace your 3PL & avoid these common mistakes
Alignment: Your 3PL is an expert partner that can be a catalyst to improve your customer experience and reduce your cost. However, 3PL’s have built in processes that ensures their ability to execute the required warehousing processes with a high level of accuracy at an efficient use of resources. Therefore, for many business owners adapting to a 3PL becomes the greatest hurdle. Understanding what their requirements are and adapting to them will be the first obstacle and change required by the business owner. Practices that were specific to how you completed the warehousing work may need to be changed. Starting with how your product arrives (by the item, carton, pallet), to how it is identified on the purchase order (UPC, SKU, Serial #, Expiration Date) and ultimately how it is packaged and finally to which ship method is chosen for delivery.
Communication: Partnering with a 3PL starts and ends with providing accurate information to ensure that their services align with your needs. This process starts prior to determining which 3PL is right for your business, but ultimately is a continuous process as all businesses evolve and their needs change as their business evolves. Therefore, creating a cadence with your 3PL to share information is critical. The communication is business dependent and greatly varies. If your business is currently stable, with little change in product, SKU count, packaging or volume forecasts, then a once a year meeting or call can be quite sufficient with most communication happening via email or chat. If your business needs continuously evolve, with routine changes to your product or service needs then most likely a quarterly business review is more appropriate. Lastly, if your business needs change frequently and your business needs are ever evolving than more frequent monthly or weekly meetings are suggested. The more informed your 3PL is, the better they can support your needs, or guide you to other solutions and ensure that what they can do, aligns with what you want them to do.
Planning: A key change in how you manage the business that should be considered is providing the right information in advance to your 3PL partner. Small changes to inventory type or number of SKU’s are probably not necessary. However, what if the number of SKU’s you currently are selling changes significantly or the product type requires serialization. Significant changes to your product profile are important to notify before they happen. If your space requirements are permanently changing or you have short term needs (holiday ramp up) these are key examples of information that your 3PL partner needs to know. How about a change to the number of inbound containers or delivery date? Lastly, forecasting changes in volume greater than a pre-determined amount need to be changed as soon as possible (the earlier the better). As an example, If you are shipping 100 orders a day and expect your order volume to increase by 100% it’s unlikely that you’ll need to notify you’re partner. However, if you’re shipping 1000 orders a day most 3PL’s would need to know about a similar change. 3PL’s consolidate work and create efficiencies based on work-flows and work-projections. And you’re one of many, many clients all with different and changing variables that affect their execution. Assisting them with good information that leads to better execution adds to their ability to deliver better results for you.
What We Do
Receiving
The inbound shipping team with Speed Commerce is ready to receive, inspect, enter into inventory, and place your products on the shelves, ready for the warehouse team to pick products for your orders.
Picking & Packing
Accurate assembly of ecommerce orders can make or break your business. Our team goes the extra mile to ensure orders are assembled correctly, packed with care, accurately labeled, and sent to shipping on time.
Shipping
Because of our shipping volume to and from our facilities, we have established relationships with major carriers and negotiated favorable rates. Ensuring your orders are received by the carrier as expected is our top priority.
Inventory Management
Making sure you have enough stock on hand (but not too much) takes expertise in ecommerce retail trends. We work closely with our clients and their Speed Commerce client success manager to anticipate spikes or dips in demand. Our team also manages monthly inventory reporting and takes measures to avoid shrinkage.
Cross-Docking
Need to expedite order fulfillment to meet unexpected high-demand? We’re experts in cross-docking. Our team is agile and can quickly receive (and complete their inbound checklist) on the dock, then our pick-pack team will quickly assemble orders and prepare for shipment. We don’t waste time putting items on the shelves; instead we get them out the door!
Returns Management
Get your reverse logistics under control. We manage the full end-to-end process of returned product, including refreshing and reviving! Reducing shrinkage and get your product back out the door generating profit with our returns management service.
Long-Term Storage
Store your inventory in our safe and secure warehouse and gain flexibility you need in your operations. We have space for your long-term storage needs. Centrally located, our warehouses are ideally situated to give you access to your inventory in a secured location. We offer transparent pricing, quick start, and flexible terms.
Managed Services
We remove the headaches in managing your ecommerce fulfillment and warehousing operation. We work with you to learn what’s important to you and craft our agreements to match your expectations. You’ll meet with your client account manager regularly to review our performance and make adjustments.
Speed
Your customers want their orders delivered quickly. In ecommerce, fast order fulfillment is a must! We live up to our name and ensure speed in everything we do. Same-day fulfillment gets your orders packed and shipped shortly after your customer makes their purchase.
2PLs vs 3PLs vs 4 PLs: What are they and their differences
Understanding the difference between a 2PL vs 3PL vs 4PL comes down to aligning your company’s needs with the right solution each one provides. Let’s start simple and take a step back. If your company is handling its own fulfillment operation, storing goods in its own warehouse and using its own transportation solution then you are a First-party logistics provider (1PL). Keep in mind this could apply to a retailer, supplier or manufacturer.
A second-party logistics (2PL) provider typically refers to the transportation side of the supply chain. A 2PL handles the movement of goods up and down the supply chain using their own transportation solutions. Most recognize a 2PL as a shipping company (carrier) or freight forwarder.
A third-party logistics (3PL) offers a greater range of services from warehousing, order fulfillment, shipping, returns etc. An easy way to relate is by taking all or part of your logistics operations and asking a third-party to manage that part of the business. 3PL’s have become increasingly popular as they specialize in key components of the b to c (business to consumer) and b to b(business to business) logistics. A fourth-party logistics (4PL) provider offers end to end solutions, typically from the purview of a strategic partner or consultant, evaluating the full needs of the supply chain and recommending a plan that includes typically multiple providers for each segment of the supply chain.
Are these companies considered 3PLs? – Amazon, FedEx, Maersk, DHL, UPS etc.
No, Amazon is not primarily a third-party logistics (3PL) company. While Amazon does offer fulfillment and logistics services to its sellers through its program called Fulfillment by Amazon (FBA), it is more accurate to describe Amazon as an e-commerce company and marketplace. As an e-commerce company, Amazon operates an online platform that connects buyers and sellers, allowing them to engage in transactions. Additionally, Amazon has its own network of fulfillment centers and delivery services to handle the storage, packaging, and shipping of products on behalf of sellers who choose to utilize their services. However, Amazon’s main focus is on facilitating e-commerce transactions and providing a seamless shopping experience, rather than solely providing logistics services like a traditional 3PL company. 3PL companies, on the other hand, specialize in providing logistics and supply chain management services to businesses that outsource their distribution and fulfillment operations. These 3PL providers typically offer services such as warehousing, transportation, inventory management, and order fulfillment to help businesses streamline their operations. While Amazon does offer logistics services to its sellers, its primary business model revolves around e-commerce, where it acts as a marketplace and facilitator of transactions.
No, FedEx is not a traditional third-party logistics (3PL) company. FedEx is a global transportation and logistics company that primarily provides courier, express delivery, and freight services. While FedEx does offer various supply chain solutions and services beyond transportation, it is more accurately classified as a transportation and logistics provider rather than a 3PL. As a transportation company, FedEx specializes in shipping and delivering packages and freight across domestic and international locations. They offer a range of services, including overnight and express delivery, ground shipping, air cargo, freight forwarding, and customs clearance. However, the distinction between FedEx and a traditional 3PL lies in their business models and scope of services. 3PL companies typically focus on providing comprehensive supply chain management solutions, including warehousing, inventory management, order fulfillment, and transportation. They often act as intermediaries between manufacturers, retailers, and distributors, offering integrated logistics services to optimize the flow of goods throughout the supply chain. While FedEx does provide certain value-added services beyond transportation, such as warehousing and fulfillment through its subsidiary FedEx Supply Chain, these offerings are not the primary focus of the company. FedEx’s core business is centered around transportation and express delivery services. No, Maersk is not a third-party logistics (3PL) company. Maersk is a global shipping company and container logistics provider. It is one of the largest container shipping companies in the world. While Maersk does offer some logistics services, its primary business is focused on ocean transportation and container shipping. Maersk operates a vast fleet of container vessels and provides end-to-end transportation solutions for goods through its extensive network of ports and terminals. The company specializes in moving goods across different regions and continents using their shipping containers. Although Maersk does provide certain logistics services, such as customs clearance, documentation, and inland transportation, these services are more closely aligned with facilitating the transportation of goods rather than offering comprehensive supply chain management solutions like a 3PL company would.In summary, Maersk is primarily a shipping and container logistics company, specializing in ocean transportation and containerized shipping. While they offer some logistics services, their focus is on the movement of goods through their shipping network rather than providing comprehensive 3PL solutions.
How to get started with a 3PL & How integrations work
Getting started with a third-party logistics (3PL) provider involves several steps to ensure a smooth integration of your logistics operations. Here is a general outline of the process:
Begin by evaluating your logistics requirements and identifying the areas where you require assistance. Determine which aspects of your supply chain you want to outsource to a 3PL. This could include warehousing, inventory management, order fulfillment, transportation, customs compliance, or other specific services.
Conduct thorough research to find reputable 3PL providers that align with your business requirements. Consider factors such as industry expertise, geographic coverage, service offerings, technology capabilities, scalability, and cost. Request proposals and evaluate multiple providers before making a decision.
Clearly communicate your expectations and requirements to the chosen 3PL provider. Define the scope of services, performance metrics, key performance indicators (KPIs), and service level agreements (SLAs). This step is crucial to ensure both parties are on the same page regarding responsibilities and goals. Work with your 3PL to establish a data integration process. This involves sharing relevant data and information such as inventory levels, orders, shipments, and tracking details. Determine the integration methods, whether it’s through direct system-to-system integration, file transfers, or utilizing an application programming interface (API). Ensure data security and confidentiality measures are in place.
Collaborate with your 3PL to map out the processes and workflows involved in your supply chain. Document the step-by-step procedures, including receiving orders, inventory management, order fulfillment, shipping, returns handling, and any other relevant processes. This documentation will serve as a reference for both parties and aid in a smooth transition.
Train your staff and educate them on the processes and systems used by the 3PL. Ensure they understand how to communicate with the 3PL and how to handle any exceptions or issues that may arise. Likewise, the 3PL should provide training to their staff on your specific requirements and procedures. Conduct a pilot phase to test the integration and operational processes before going live. This allows for identifying and resolving any potential issues or gaps. Monitor performance and gather feedback during this phase to fine-tune the logistics operations.
Once all the necessary preparations are complete, transition your logistics operations to the 3PL. Monitor performance, track KPIs, and maintain regular communication with the 3PL to ensure the partnership is meeting your expectations. Address any concerns or adjustments needed along the way. Remember, the specifics of the integration process may vary depending on the 3PL provider and your unique business requirements. Open and clear communication with the 3PL throughout the entire process is essential to establish a successful and collaborative partnership.
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How to sell a 3PL internally to stakeholders: top stats & facts to know
Using a 3PL provider offers several advantages to your business and key stake holders.
1. Cost Savings should be a key consideration in partnering with a 3PL. From reduction of internal costs (headcount, facilities, software) to reduction in fulfillment and shipping rates.
2. The ability to scale and be flexible to adapt to the changing business needs.
3. It allows the business to focus on its core competencies to grow the company, from product changes (improvements) to marketing and improving customer engagement.
4. A good 3PL can act as an extension of your team and provide expertise and specialization to navigate the unchartered path you may be walking.
5. Enhanced technology and data to provide tools that stay updated with the changing demands of the business.
6. Improved geographic reach to shorten inbound and outbound timeframe.
7. Reduces the risk and burden most ecommerce businesses face when they have significantly greater demand than can be executed or with dealing with areas such as compliance, customs, regulation and security.
When working with a third-party logistics (3PL) provider, tracking certain key performance indicators (KPIs) can help measure the effectiveness and efficiency of the partnership. Here are some top stats that should be tracked when working with a 3PL:
On-Time Delivery: Measure the percentage of orders or shipments delivered on time. This metric indicates the 3PL’s ability to meet delivery commitments and ensure timely fulfillment.
Order Accuracy: Track the accuracy of orders picked, packed, and shipped by the 3PL. This KPI measures the rate of errors or inaccuracies in the fulfillment process, including wrong items, quantities, or packaging.
Inventory Accuracy: Monitor the accuracy of inventory records maintained by the 3PL. This includes measuring the variance between reported inventory levels and physical counts, ensuring the accuracy of stock availability and preventing stockouts or overstock situations.
Transportation Cost: Analyze the transportation costs associated with utilizing the 3PL’s services. Compare these costs with industry benchmarks or historical data to evaluate the competitiveness of pricing and identify opportunities for cost savings.
Warehouse Capacity Utilization: Track the utilization rate of warehouse space provided by the 3PL. This metric indicates the efficiency of space utilization and helps identify potential areas for optimization or the need for additional storage capacity.
Order Cycle Time: Measure the time it takes from order placement to order fulfillment and delivery. This KPI provides insights into the speed and efficiency of the 3PL’s order processing, picking, and shipping operations.
Customer Service Metrics: Assess customer satisfaction levels by tracking metrics such as order fill rate, customer complaints, and returns. These measures reflect the 3PL’s ability to provide satisfactory service and meet customer expectations.
Return Rate and Reverse Logistics Metrics: Monitor the rate of product returns and the effectiveness of reverse logistics processes. This includes measuring return rates, turnaround time for processing returns, and the ability to efficiently handle returns, repairs, or exchanges.
SLA Compliance: Evaluate the 3PL’s adherence to the agreed-upon service level agreements (SLAs). Measure the performance against specified metrics, such as order processing time, transit time, or response time for inquiries or issues.
Overall Cost and Savings: Track the overall cost of logistics operations when working with the 3PL. Compare these costs with the pre-outsourcing baseline to assess cost savings achieved through the partnership.
3PL cheat sheet of terms
Here is a cheat sheet of the top 20 common terms and acronyms related to third-party logistics (3PL):
- 3PL: Third-Party Logistics
- SCM: Supply Chain Management
- WMS: Warehouse Management System
- TMS: Transportation Management System
- LTL: Less-than-Truckload
- FTL: Full Truckload
- FCL: Full Container Load
- LCL: Less-than-Container Load
- Freight Forwarder: A company that arranges transportation and logistics services on behalf of shippers.
- Carrier: A transportation company that moves goods, such as a trucking or shipping company.
- Last Mile: The final leg of delivery from a distribution center or transportation hub to the end customer.
- Cross-Docking: A logistics practice where products are directly transferred from inbound transportation to outbound transportation without being stored.
- EDI: Electronic Data Interchange, a standard format for electronic data exchange between systems.
- KPI: Key Performance Indicator, a measurable value used to evaluate performance and success.
- SLA: Service Level Agreement, a contract that defines the agreed-upon service levels between a customer and a service provider.
- Reverse Logistics: The process of managing the return and disposal of products, including handling returns, repairs, recycling, or reselling.
- Order Fulfillment: The process of receiving, processing, and delivering customer orders.
- Inventory Management: The control and oversight of stock levels, storage, and movement of goods.
- Freight Audit: The process of reviewing and validating freight invoices for accuracy and compliance.
- Lead Time: The time it takes for an order to be fulfilled, from placement to delivery.
FAQs about 3PLs
Here are some frequently asked questions (FAQs) about third-party logistics (3PLs):
What is a 3PL?
A 3PL, or third-party logistics provider, is a company that offers outsourced logistics services to businesses. They specialize in managing various aspects of the supply chain, including warehousing, transportation, inventory management, order fulfillment, and value-added services.
What services do 3PLs provide?
3PLs offer a range of services that can vary depending on the provider. Common services include transportation management, warehousing, inventory management, order fulfillment, packaging, reverse logistics, customs compliance, and supply chain consulting.
Why should I use a 3PL?
Businesses choose to work with 3PLs for several reasons, including cost savings, scalability, access to expertise and resources, improved efficiency, enhanced customer service, expanded geographic reach, and the ability to focus on core competencies.
How do I choose the right 3PL for my business?
Selecting the right 3PL involves evaluating factors such as their industry experience, capabilities, technology infrastructure, geographic reach, service offerings, scalability, reliability, cost structure, and compatibility with your business needs and values. Requesting proposals, conducting site visits, and checking references can help in the selection process.
How do 3PLs integrate with my existing systems?
Integration with existing systems can be achieved through various methods such as direct system-to-system integration, file transfers, or utilizing APIs (Application Programming Interfaces). The 3PL and your IT team will collaborate to establish the necessary data integration protocols and processes.
How does pricing work with 3PLs?
3PL pricing structures can vary and depend on factors such as the services utilized, volume of goods, complexity of operations, geographic coverage, and value-added services required. Pricing models may include transaction-based fees, monthly fees, storage charges, transportation costs, and additional charges for specialized services.
What are the risks of working with a 3PL?
Risks associated with 3PL partnerships can include potential loss of control over certain aspects of the supply chain, challenges in communication and coordination, reliance on a third party for critical operations, data security concerns, and the possibility of inadequate performance or service level breaches. Proper due diligence, clear communication, and a well-defined contract and SLAs can help mitigate these risks.
How do I transition my logistics operations to a 3PL?
Transitioning to a 3PL involves assessing your logistics needs, selecting a suitable provider, defining expectations and scope, establishing data integration, mapping processes, providing training, conducting testing, and gradually implementing the transition plan to ensure a smooth shift of operations.
These FAQs provide a starting point for understanding the basics of working with a 3PL. However, it’s important to consider your specific business requirements and consult with a 3PL provider directly to address any unique concerns or questions you may have.
Speed Commerce, a 3PL leader with decades of experience has created a great source to refer to with 50 questions to ask a potential Fulfillment Provider. https://www.speedcommerce.com/insights/50-great-questions-to-ask-a-potential-fulfillment-provider/
What We Do
Our Solutions
Speed Commerce is a leader in eCommerce services for retailers and manufacturers. We provide outsourced services for our clients. To learn more, watch this short video.
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