What’s a 3PL?
It’s simple, you take theorders as usual, but a third-party logistics provider (3PL) fulfills them.Sounds seamless at first, doesn’t it? It’s the least concern for customersabout how an order they made online gets delivered to them. They’ll hardly giveit a second thought, provided their order arrives safely and in a timelymanner. A third-party logistics provider is a link in the supply chain industrythat brands use to outsource part or all of a company’s distribution andfulfillment services.
Following the start and exponential growth of eCommerce, the market for 3PLsexploded. Most established companies, like the Fortune 500 companies today,rely on 3PLS for order fulfillment, and so should you!
It’s not only about order fulfillment, but 3PLs also receive new inventory fromyour manufacturers before shipment to consumers. A well equipped 3PL can alsohandle retail distribution and returns. In the end, they deliver your orderswith a stellar experience.
When Should You Enlist a 3PL?
Why wait until the ordersoverwhelm you? By the time the orders have overwhelmed you, you have probablydone so much damage to your brand than you probably don’t realize; you havebroken lots of promises to your loyal customers. To make matters worse, itdistracts you from your main goal of being wholly focused on your businessgrowth.
These three key questions will help you when determining whether you need a3PL:
1. How many orders do you fulfill in aday?
If you realize that you fulfill more than 10-20 orders in a day, so, you maywant to calculate the costs of partnering with a 3PL to help keep your profitmargins strong. Similarly, estimate your growth potential—these areopportunities you may currently not be able to pursue–by outsourcingfulfillment.
2. Do you often run out of inventorystorage space?
It’s not unheard of for brands to forget to include storage costs in theirfulfillment expense modeling. So, compare your current expenditure with estimatesfrom 3PLs. Then compare between bundling storage costs and outsourcedfulfillment; which one is a better value?
3. Is your business a coiled spring?
Are you expecting a sustained spike in order volume? Unlike one-off flash salesor marketing promotions? How about you estimate the costs and headcountnecessary to meet demand on your own, and then compare with the costs ofoutsourcing fulfillment.
Types of 3PLs Providers
There are four vitalcapabilities you need to be on the lookout for when comparing 3PLs:
- Shippingand receiving
Of course, size andspecialization also matter. Some third-party logistics providers lack thenative full-service capability and may only specialize in one or two areas. Onthe other hand, larger established firms may provide end-to-end execution and oftenintegrate seamlessly.
- Warehouse- and distribution-based 3PLs
Currently considered as themost common type of 3PL, warehouse and distribution based 3PLs store, ship, andhandle returns. Other more innovative warehouses can help you offer AmazonPrime-like shipping in a few days. If you’re looking forward to expandingglobally, then international warehouses could be of good use to you in terms ofbuilding a global supply chain.
Consider the following criteria when choosing a warehouse and distributionbased 3PL;
If you promise your customers expedited delivery, then you’ll definitely need alarger network of warehouses. You will also need to forecast inventory levels accuratelyin order to stock warehouses in your network appropriately.
Pricing: Request for a transparentpricing model—and get to understand how that model will change as your businessgrows. You need to know what will be included and what will cost you extra.
Shipping carrier rates: Perhapsyou have better shipping rates than the warehouse you’re evaluating. If thathappens to be the case, then ensure your warehouse partner will accept them.However, sometimes larger warehouse networks can negotiate deeper discountsthan single businesses.
Insurance: Determine if you wantpackages that are fully insured while in storage and during delivery &return. Get to understand whether what you’re getting is really an insurance orsimply a carrier-included liability.
Othersimilarly crucial capabilities include;
Daily cutoff time forfulfilling orders
Delivery service levels
- Transportation-based 3PLs
These are 3PLs that specializein transportation between locations. For instance, they could transportinventory between your company and warehouse, or between you and your retailbuyer. When choosing a transportation-based 3PLs, consider the following;
Methods of shipping
Level of Service
Pricing and discounts
Remember to think about import/export taxes and duties if you transport freightglobally.
Examples of traditional parcel transportation providers are like DHL, FedEx,UPS, and the USPS. Same-day delivery is usually handled by local couriers likePostmates and UberRush. Transportation marketplaces like connect buyers andsellers.
- Financial- and information-based 3PLs
At the moment you have scaledrevenue to eight or nine figures, you may want to consider a financial orinformation based 3PL Company. These firms provide industry-specific insightand can help optimize both simple and complex global supply chains. They alsoprovide internal controls related to cost accounting, freight auditing, andinventory management. Leading consultancies like AiHello, also add valuableinsights.
Pros of 3PLs
3PLs automates fulfillment foryou, thereby letting you focus on the rest. You may want to leave the bulkywork to the professionals as you spend time growing your business and not onmoving packages.
- Work with the pros
Shipment and order fulfillmentoptimization are standard 3PL specialties. You can build your own team, but sinceyou’re not focused full-time on fulfillment, you are likely to achievesubstandard results when matched against 3PLs.
- Manage internationalization
International expansionrequires a global fulfillment network. Processing the international ordersrequires documentation and accounting for customs and duties. Outsourcing responsibilitieslike processing international orders can make cross-border selling easier. Italso expedites delivery times, cuts the shipping costs, and improves customersatisfaction.
- Limit Overhead
Leasing warehouse space andhiring an order fulfillment team increases your overhead. Maintaining fulfillmentassets can be costly. Working with a 3PL can reduce costs so capital can bedirected toward return generating endeavors.
Cons of 3PLs
The biggest risks with 3PLs arelosing control over your inventory and completely trusting a 3PL with your brand.Remember, besides helping with order fulfillment, there are still other aspectsof branding that a 3PL may not take care of. For a serious seller, thefollowing Cons shouldn’t be such a big deal;
Your selected 3PL won’tinteract with your customers directly. So, when there is the late arrival oforders, your customers’ rage is channeled directly to you- whether it’s yourfault or not.
High costs will be incurredwhen integrating a 3PL’s software with your eCommerce store, SKU upload, andaccount access.
Out of your hands
Inventory stored in 3PLwarehouses will not be immediately accessible at your request should you ever encounterquality control issues.
In the end, your choice of a3PL can make or break the brand you are struggling to create. The right 3PL canhelp you with logistics, customer service, and even boost the repeat purchaserate. At AiHello, we understand the trouble most eCommerce owners go throughwhen it comes to order fulfillment. Finding someone to trust with salesforecasting, inventory, and other sensitive information doesn’t have to be arisk anymore. We will strive to provide the perfect balance betweenquantitative data and brand building.