A third-party logistics (3PL) provider is an outsourced company that manages key components of your company's supply chain and logistics operations. By outsourcing these functions to a 3PL, your business can focus on strategic priorities, such as entering new markets or expanding product and service offerings, while improving efficiency and reducing operational costs.
Third-party logistics services can include:
Storage Services
Order Fulfillment Services
Distribution Services
Compliance Services
Transportation Services
Value-Added Services
International Logistics Services
Technology Services
When integrated into a business’s transportation and warehousing operations, a 3PL can enhance multiple areas of the supply chain. Not only can it improve financial and operational performance, but it can also strengthen the end-customer experience.
A fourth-party logistics provider (4PL) serves as a strategic partner that oversees and manages supply chain logistics for their clients. Unlike a 3PL, which handles the physical logistics like storage and transportation, a 4PL outsources those tasks to one or more 3PLs, while focusing on supply chain optimization and acting as a strategic consultant for your logistics needs. Due to their experience with logistics optimization, a 4PL can be beneficial for large-scale companies with highly complex supply chains.
A few of the tasks that 4PLs tackle include:
From an outside perspective, the differences between a 3PL vs 4PL may seem subtle, but they serve distinct roles within the supply chain.
A 3PL is a hands-on logistics provider, giving your business direct access to operational services like warehousing, fulfillment, and transportation. Many 3PLs also offer advanced, proprietary technologies that improve visibility and efficiency across your supply chain.
A 4PL, on the other hand, acts as an intermediary between your business and multiple logistics providers. They manage relationships with 3PLs, analyze performance data, and provide strategic recommendations to optimize supply chain operations.
If your company wants to stay closely involved with day-to-day logistics while leveraging innovative tools and flexible fulfillment services, a 3PL may be the better fit. If you're looking for end-to-end supply chain oversight and strategic direction, a 4PL could be the right solution.
As businesses aim to scale and protect margins, full-service 3PL solutions offer a smarter way to streamline operations, improve fulfillment, and drive sustainable growth. But what really goes on behind the scenes and what does partnering with a 3PL look like?
Inventory is one of the company’s most valuable and costly assets. That’s why the receiving and replenishing process is a critical first step in 3PL fulfillment. It all begins when a business ships its products to the 3PL warehouse. Upon arrival, the inventory is received, inspected, and logged into the warehouse management system (WMS). This ensures visibility and real-time tracking from the start.
Once received, items are stored in designated locations based on factors like SKU velocity, product type, or temperature requirements. As inventory levels fluctuate, third-party logistics providers replenish picking areas to ensure fulfillment can happen efficiently without delays.
In this next stage of the 3PL fulfillment process, the warehousing team will receive an itemized list of goods for retrieval, also known as a pick ticket. A strategic third-party logistics provider will implement strategies that maximize efficiencies in picking, such as batch picking. This method streamlines operations and helps ensure the right products are picked in a timely manner.
After items are picked, they are ready for packing. The timely and safe arrival of goods to customers is always a priority for businesses. An experienced 3PL provider will offer a breadth of packing solutions designed to protect merchandise while achieving the lowest practical dimensional weight.
They will also optimize order flow by consolidating shipments, an eco-friendly practice that can effectively decrease packaging and disposal costs. When looking for the right 3PL management solution, it is pivotal to find a partner that places emphasis on showcasing your brand. For instance, leveraging custom tape, packaging, and inserts during the 3PL order fulfillment process can help foster brand recognition and customer loyalty.
The next phase of the 3PL fulfillment process is shipping. From shipping labels to transportation carriers, a third-party logistics company with a vast network of relationships can help you negotiate shipping rates and satisfy consumer demand for quick, two-day shipping. In times of shipping delays and rising costs, having a first-rate 3PL by your side is good for both your bottom line and company reputation.
Handling product returns can be a time and labor-intensive process to handle in-house. With a third-party logistics partner on your side, customers can simply ship items back to the 3PL warehouse, who will process the return. In addition to processing the return, they will also restock or dispose of the product based on your preferences.
As e-commerce surges, the market has also experienced a corresponding uptick in customer returns. A robust 3PL management strategy will ensure the reverse logistics process is cost-effective and pain-free. Even better, your organization can lean on your 3PL partner’s technology to capture valuable product feedback and customer insights to drive future business improvements.
A partnership with a trusted third-party logistics provider can deliver meaningful improvements to your supply chain.
Handing over the logistics responsibility to 3PL management enables you to focus your efforts on high-level initiatives, such as expanding your customer base, bolstering brand visibility, and increasing your bottom line. The right 3PL partner will bring valuable expertise to the table, ensuring your logistics are handled with excellence.
Optimizing your entire supply chain — from fulfillment to shipping — is pivotal for any business looking to scale and drive profitability. Today’s customers expect their store shelves to always be stocked, and their online purchases delivered quickly and hassle-free. This is where the advantages of a 3PL provider come into play.
One of the greatest benefits of outsourcing logistics operations to a third-party logistics provider is the time it frees up for companies to focus on their core business. When it comes to business operations, a company’s time is better spent on product development and marketing versus order fulfillment and transportation management. Companies that have outsourced logistics to a 3PL can focus on growing their company knowing that their supply chain management is being handled by professionals.
When it comes to 3PLs, logistics operations are their core competency. They work to continuously improve their processes and offer cost-effective supply chain solutions. Partnering with a 3PL ensures efficiency without the investment of developing and managing an in-house logistics operation. 3PLs lower logistics costs for their clients by removing the need for overhead, facilities, equipment, technology, and labor. Outsourcing to experts that have developed efficient processes helps companies save money by eliminating wastes such as time and errors. 3PLs can also source additional services and products for their clients at lower prices through relationships with other companies in the industry, such as transportation and packaging. They typically have access to discounts as well because they are procuring for many clients who often need the same materials.
3PL providers have the technology and expertise needed to identify inadequacies in your supply chain management, which can allow you to curtail costly mistakes. From inventory insights to demand forecasting, optimizing storage levels to ensure you aren’t overstocking (or understocking) inventory is another advantage of 3PLs.
A logistics service provider vastly expands the expertise of a company’s team. A 3PL acts as an extension of their clients’ business and can grant them access to a wealth of industry knowledge and technology. It is beneficial to companies to have logistics experts on their team when it comes to developing strategy or resolving supply chain issues. 3PL partnerships eliminate having to handle complexities like retail compliance requirements and managing expensive real estate. Logistics experts have efficient processes and strategic recommendations that can improve their clients’ supply chain management.
Established third party logistics companies provide advanced technology to seamlessly integrate with your current tech stack to streamline and automate key supply chain management processes. From their inventory management system to real-time data, a 3PL that actively invests in cutting-edge technology ensures you’re on the receiving end of ideal service and an ideal experience.
When outsourcing inventory management to a 3PL, opportunities to scale and grow are at hand. Many ecommerce businesses start by handling their own supply chain operation. However, as a business grows, managing activities like order fulfillment, transportation coordination, and reverse logistics become increasingly complex. The need to scale and expand is a scenario when outsourcing logistics to a 3PL can provide great value. Another scenario is during peak selling seasons. A company may have a high demand for a short period of the year and not want to invest in real estate and staffing to meet the demand for that short period. A 3PL can provide the resources that a business needs to meet demand and avoid missing sales. Logistics outsourcing is a good long-term plan for companies to develop a comprehensive supply chain strategy that is flexible and reliable.
A 3PL partnership can give businesses connections to a vast network of supply chain solutions. Most 3PLs have facilities in several strategic locations or have business partnerships that can provide needed services in various locations. They often have connections with transportation companies, packaging companies, industrial real estate companies, market data analysis companies, and more. An experienced 3PL can connect clients with a reputable company for nearly any supply chain service they may need. A network becomes a valuable benefit as a business grows because they can place their inventory in multiple warehouse locations that best serve their customer base. Access to additional resources such as data analysis, warehouse space, and labor is essential to expand logistics operations.
Consumer expectations are high when it comes to fast shipping. The bar has been raised by e-commerce giants like Amazon, causing consumers to expect packages on their doorstep within two days. Outsourcing logistics to experts and using their technology, proven processes, and strategic facility locations ensures the customer’s expectations are met. A business can lose sales if a customer is unhappy with the estimated shipping time. They will simply find a similar product that will arrive sooner. In addition to meeting customer shipping expectations, outsourcing to a 3PL allows businesses to allocate more time toward developing top-quality products and five-star customer service, which contributes heavily toward customer satisfaction.
The process of 3PL order fulfillment involves receiving, processing, packing, and shipping your products to your customers. When choosing a third-party logistics partner, one of the first things to decipher is whether you need low or high-volume fulfillment.
Your order volume will serve as a good indication of whether or not your business could benefit from 3PL order fulfillment. Some companies require you to have an order minimum —the minimum number of orders your company must receive on a monthly basis.
If your current orders are considered low-volume, then you may want to consider self-fulfillment or a low-volume fulfillment solution with no order minimum. Self-fulfillment means that your company receives and processes all its orders internally, including packing and shipping. If you only ship a handful of items per month, self-fulfillment is the best option in terms of affordability.
Your company's long-term growth projections and online sales trends can help determine if a 3PL order fulfillment solution is right for you. If expansion plans and forecasting models predict a significant increase in your monthly sales volume, get ahead of demand by leveraging 3PL order fulfillment.
If your business has a large quantity of orders per month and/or is experiencing significant growth, you’ll likely need a high-volume 3PL order fulfillment partner to accommodate this level of work.
The right 3PL partner can handle all the heavy lifting so your team is free to focus on big-picture initiatives, like sales and marketing. An effective 3PL order fulfillment solution can manage a variety of logistics processes – inventory management, picking, packing, and shipping products to the end consumer.
So, what makes a 3PL order fulfillment partner so valuable for scaling your business?
1. Kitting
All merchandise that is received by a third-party logistics company is indexed with a unique alphanumeric code to adequately track, monitor, and manage inventory. This is known as a Stock Keeping Unit, or SKU. By leveraging this identification system, your 3PL order fulfillment partner can digitize and access specific details about each item, such as its size, color, category, and brand.
Kitting involves combining multiple SKUs into one “item” or “kit.” A common example of kitting is the creation of variety packs – picking multiple flavors, colors, etc., and combining them to create a new SKU that is picked and packed when a customer places an order for the variety pack.
Product kitting has become a popular warehousing technique among large retailers and e-commerce brands.
3PL order fulfillment companies use kitting to improve efficiency by reducing operational costs with each kit. Bundling effectively lowers shipping costs, bolsters order accuracy, increases customer satisfaction, and expands market reach.
One of the biggest advantages of 3PL services is the ability to organize and track all of your company’s products from the point of sale to their arrival on a customer’s doorstep. How? Through an effective inventory management system.
The right 3PL order fulfillment solution will be equipped with the 3PL technology needed to ensure you’re maintaining the right inventory level at locations closest to your customers. With the rise in e-commerce and omnichannel fulfillment, consumer demand for quick shipping and seamless customer experience has never been greater. Optimizing your inventory network to ensure proximity will help keep customers happy, drive business growth, and decrease company costs.
By leveraging machine learning and AI, 3PL order fulfillment technology delivers valuable insights into real-time inventory levels, market trends, stock replenishment, and customer demand, resulting in a more optimized inventory management system. The benefits are wide-ranging, from improving adaptability to market shifts to preventing stockouts and overstocking.
From reducing repetitive tasks and accelerating lead time to optimizing storage space and decreasing transportation costs, the right 3PL order fulfillment partner will have the expertise needed to drive upward mobility for your business.
Your third-party logistics partner will use tools like a warehouse management system (WMS), to drive operational efficiency. For businesses, this translates into greater supply chain visibility and more streamlined practices, which are both integral pieces of creating a strong customer experience.
Partnering with a 3PL order fulfillment company that can handle high-volume orders is crucial for scaling your company and driving repeat business due to a positive customer experience.
A hot topic in the world of 3PL order fulfillment: last-mile delivery. As consumers lean on e-commerce to satisfy their shopping needs efficiently, businesses face an increasing demand for speedy fulfillment. Quick, accurate shipping is no longer considered a bonus. For today’s customers, efficient shipping is an expectation of every online shopping experience.
As a result, businesses are seeking supply chain management solutions designed to expedite deliveries, increase parcel volume, and enhance the customer experience — all while reducing overhead.
One of the biggest challenges businesses face from a logistics perspective is last-mile delivery. As technology progresses and consumer demand heightens, the last leg of delivery is increasingly becoming a key piece of supply chain management.
So, what exactly is last-mile delivery, and how can a strong relationship between 3PLs and last-mile carriers impact 3PL order fulfillment success?
Last-mile delivery refers to the transportation of goods from a 3PL order fulfillment center to their final destination. A last-mile carrier’s objective is to ensure packages arrive at a customer’s doorstep quickly and cost-effectively. Some examples of last-mile carriers include popular household names like UPS, FedEx, and Amazon, all of which control their own fleet of vehicles responsible for ensuring products are delivered appropriately
To build a thriving business, companies must prioritize the customer experience. An economical and efficient last-mile delivery strategy is pivotal in ensuring customer satisfaction and driving repeat business. Why? Because customers expect to receive their products quickly and on time. Otherwise, they’ll simply purchase from a competitor that offers better delivery options.
From order fulfillment to tracking and shipping costs, strengthening your company’s supply chain management strategy is crucial for achieving favorable delivery outcomes. After all, you’re competing with large retailers and marketplaces like Amazon. That means you need the right infrastructure, technology, and expertise for quick 3PL order fulfillment and delivery while managing logistics costs.
With the last mile delivery expense making up 53% of total delivery costs, many brands are looking for supply chain management solutions that help maximize efficiency and decrease expenses. Partnering with a third-party logistics company is an effective way to improve fulfillment and delivery experiences, ensuring they don’t negatively impact profit.
By tapping into the right 3PL technology and infrastructure, your business can effectively reduce costs and optimize the last-mile delivery process.
The rise of e-commerce has propelled the growth of last-mile delivery, making it a high priority for carriers and fulfillment companies alike. So, how exactly can a 3PL improve your last-mile delivery efforts?
From demand forecasting with predictive analytics to optimizing routes, the right 3PL provider will ensure delivery is quick and affordable by implementing smart supply chain management practices.
Some benefits of utilizing 3PL last mile solutions include:
Let’s say your company’s headquarters are located on the East Coast, but the majority of your sales are along the West Coast. The ensuing shipping costs would cut heavily into your revenue stream. A supply chain management solution with warehouses located in key markets across the country can reach customers more efficiently. This ability to house inventory in diverse regions will reduce travel mileage, time, and costs associated with last-mile shipping.
Outsourcing order fulfillment and supply chain management to a 3PL provider allows your business to leverage value-added solutions that may not be available in-house, such as greater visibility, more shipping options, and advanced 3PL technology that improves accuracy. 3PLs can often negotiate better shipping rates than individual brands by utilizing their aggregated volumes. A 3PL provider can help companies meet the demand for two-day shipping while keeping costs low and driving revenue growth.
Operating in the e-commerce space comes with the challenge of managing product returns, which can be both time-consuming and labor-intensive. Your 3PL partner will serve as an extension of your team, ensuring the reverse logistics process is cost-effective and pain-free. You can also lean on their supply chain management technology to capture valuable product feedback and customer insights to drive future business improvements.
Amazon provides a powerful platform for e-commerce sellers to reach a global audience, but success depends on how efficiently you manage fulfillment. For most sellers, that means striking the right balance between cost and reliable delivery.
While several options are available for outsourcing Amazon fulfillment needs, two primary avenues utilized are FBA (Fulfilled by Amazon) and FBM (Fulfilled by Merchant).
Fulfilled by Amazon (FBA) allows registered Amazon sellers to house inventory at Amazon’s fulfillment centers. Once an order is placed, Amazon handles picking, packing, and delivery, as well as managing return logistics for customers.
Amazon is currently one of the top platforms for e-commerce businesses, which is why it has become such a lucrative place for Amazon aggregators. While using FBA seems like an obvious choice, it comes with costs and requires giving up control over certain aspects of your supply chain management.
A significant benefit of using FBA is the access it provides to the site’s 100+ million Prime members. This provides shoppers with Amazon’s Prime shipping feature, as well as some additional perks like added exposure on Prime Day.
FBA includes return logistics, customer support, and handling any complaints received (i.e., a damaged product). However, the customer support is not personalized for your brand.
3. Simple Fee Structure and Sales Integration
Amazon’s fee structure is relatively straightforward, allowing you to calculate costs and determine estimated fees and profits easily. The service also provides multi-channel fulfillment. That gives you the flexibility to fulfill orders placed through other channels using inventory housed at an Amazon fulfillment center.
Quality control is a pivotal piece of supply chain management. Some sellers are reluctant to use the FBA service due to quality control process concerns. For instance, unless you’re selling private label products, Amazon will simply pick the product from a location closest to the customer. Sure, this method is effective for improving shipping speed. However, as you can imagine, it greatly decreases your Amazon fulfillment center quality control capabilities.
The FBA service ships your products in Amazon-branded boxes and doesn’t provide the option for custom packaging or inserts. This can significantly impact your ability to build brand awareness and loyalty. Why? Because from the customer’s perspective, they are buying a product from Amazon rather than your brand.
Amazon fulfillment centers generally have higher storage fees than 3PLs. You can also expect those fees to rise during times of high demand, like the holidays or peak season. Additionally, you may run into roadblocks when negotiating inventory pricing due to dips and spikes, as they offer less fluidity in inventory cycles.
Amazon FBM is where the merchant (Amazon seller) is responsible for fulfilling their own orders placed through Amazon. This fulfillment method allows sellers to utilize the Amazon marketplace while the fulfillment is handled by either the seller directly or through their third-party logistics provider.
FBM fees are lower than FBA. With FBM, Amazon sellers are typically billed a monthly subscription fee, a small per-order fee, and a per-order referral fee. Fulfilling orders using FBM means that the seller will acquire other costs associated with outsourcing fulfillment to a 3PL. However, storage and fulfillment costs through a 3PL are often lower compared to Amazon’s pricing, which leaves businesses with a higher profit margin on their sales.
Some sellers prefer to have more control over their branding, packaging, and inventory management. FBM can offer more customization than Amazon when it comes to their client’s inventory. Amazon inventory must comply with FBA requirements and there is little that a seller can change about the management of inventory once it enters an Amazon fulfillment center.
When you manage customer service in-house rather than using FBA, you have the opportunity to connect with your customers and better understand their problems. Offering personalized support allows you to respond in a way that aligns with your brand. This can also result in stronger customer relationships, higher satisfaction rates, and positive reviews.
Managing inventory, packing, and shipping all in-house can be time-consuming and resource-intensive. To operate efficiently, sellers need streamlined systems or the support of a trusted 3PL partner to manage these moving parts efficiently.
As your order volume increases, managing fulfillment without FBA or a 3PL partner can quickly become unsustainable. Scaling requires warehousing, dedicated personnel, and greater time investment. Without the right infrastructure and resources in place, FBM can limit your growth.
Partnering with a 3PL for FBM provides businesses a great opportunity to expand their business with a coordinated omni-channel strategy. When it comes to 3PL partnerships, one of the most beneficial features is scalability as their business partners grow. Services can be expanded or added as businesses grow their distribution channels beyond Amazon’s online marketplace, such as their own online store or other retailers (Walmart, Target, etc.). Companies with a current omni-channel strategy can have their entire inventory managed efficiently under one logistics provider.
Amazon has requirements that inventory must meet to be accepted into their fulfillment centers without incurring penalties. There are requirements for the products themselves in addition to the labeling, packaging, and shipping of the inventory. FBM has fewer requirements and a 3PL can guarantee that any and all requirements for orders will be met
Sellers who are looking for an alternative option for FBA can get overwhelmed looking at the complexity behind fulfillment processes. A 3PL partnership eliminates the hassle of trying to fulfill your own orders and leaves the complex processes to the logistics professionals. 3PLs already have the necessary equipment, labor, space, technology, and proven processes for fast and efficient fulfillment.
Seasonal spikes in order volume and tighter carrier capacity make peak season a high-stakes period for supply chains. A 3PL e-commerce fulfillment partner can help you conserve valuable time, money, and resources, allowing your team to focus on more high-level, revenue-generating activities.
Here are several factors to consider when deciding if it makes sense to use 3PL e-commerce fulfillment to manage the busy peak season.
Do you have enough time to handle your supply chain management successfully in-house? Developing a well-crafted inventory control strategy during peak and seasonal demand requires a significant investment in time, labor, and technology.
Performing fulfillment in-house means you’ll be responsible for managing inventory levels, processing orders, updating your website based on product availability, picking and packing orders, and shipping goods to your customers. On top of all this, you’ll need to satisfy customer expectations for quick delivery and a seamless ordering experience.
In addition to supply chain management, you’ll still be liable for running all the other essential facets of your business, like production, advertising, customer service, and reputation management. If you have a large customer base and want to establish a national footprint, a 3PL e-commerce fulfillment solution will help your business scale while satisfying peak season demand.
Another essential factor to consider is the cost burden of self-managing fulfillment and logistics operations. By outsourcing your 3PL e-commerce fulfillment, you’ll effectively reduce the overall costs associated with inventory management, order packaging, and transportation.
Leveraging a reputable third-party logistics company means gaining access to their network of resources, including trained staff, efficient processes, 3PL technology, and relationships with shipping carriers. The cost of hiring, onboarding, and training alone can be astronomical. And that doesn’t factor in the expense of turnover or human error, both of which can negatively impact the customer experience and your brand’s reputation.
Using 3PL e-commerce fulfillment will also provide cost savings on shipping goods. An established 3PL provider will have valuable connections with regional and national carriers. Due to their high shipping volume, they typically receive discounted rates, which would translate to considerable savings for your business.
3. Available Resources
Do you have ample storage space for inventory? Is the tight labor market making it difficult for you to recruit talented workers? Are you receiving more orders than you can handle? If so, a 3PL e-commerce fulfillment solution may be exactly what you’re looking for.
If your business is experiencing a high level of growth and is unable to keep pace with the increasing demand, a third-party logistics company can mean the difference between sinking and swimming. A sudden fluctuation in sales volume, due to the holidays or peak season, can be highly disruptive to operations without the right supply chain management system in place. With the specialized expertise, facilities, and technological capabilities needed to scale up, a 3PL provider can help you effortlessly maneuver increased demand without sacrificing quality.
Trying to handle such a complex, multi-faceted process in-house can be time-consuming and costly. Taking on too much can stunt growth, frustrate customers, and shrink profit margins. A 3PL e-commerce fulfillment company can create a customized strategy that aligns with your unique business goals, helping your brand thrive.
At Smart Warehousing, we can accommodate the entire supply chain under one “roof”. Looking for omnichannel fulfillment that can handle your unique cold chain, retail, or e-commerce needs? We’ve got your back.
We’re not just a warehouse. We’re a nationwide network of end-to-end supply chain management services – serving as an extension of your team to handle everything from 3PL order fulfillment to inventory management. This allows you to reallocate valuable time and resources toward big-picture initiatives, like expanding your customer base.
Smart Warehousing combines innovative 3PL technology and automation with decades of industry expertise to deliver customized solutions that exceed customer expectations. Contact our team today to discover how Smart can support your business with 3PL services.