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Published on: September 14, 2023
Updated: March 13, 2024
Third-party logistics, often abbreviated as 3PL, refers to the outsourcing of ecommerce logistics to a third-party company.
These logistics services can range from warehousing and distribution to transportation, parcel monitoring, last mile tracking, and even customer service. In other words, 3PLs can look after the backstage tasks that ensure customers receive their orders promptly and efficiently. 3PL companies are experts in handling all the nitty-gritty of getting orders from point A to B.
As for how 3PLs providers work, they typically integrate with ecommerce platforms using APIs or plugins. This integration allows for seamless order fulfillment, inventory management, and shipping. You can automatically forward orders to the 3PL, and they will take care of storing your products, packing orders, and shipping them to your customers.
Depending on your business and current setup, you can also decide to work with multiple 3PLs. Merchants who choose this route do so because it enables them to cover multiple regions. This strategy can optimize shipping times and costs, but it might also increase complexity in terms of management and coordination.
Pros of working with a 3PL | Cons of working with a 3PL |
---|---|
Provides specialized expertise | Less control over the customer experience |
Can scale up or down based on your needs | May run into dependency if you don’t have the right partner(s) |
Gives you the ability to focus on core business strengths | May encounter integration challenges |
Like with any business decision, working with a third-party logistics provider has its advantages and disadvantages. Consider the following.
Cost-effective. 3PLs can leverage their network and economies of scale to negotiate better rates on warehousing, transportation, and packaging. They can also provide variable cost models depending on your business’s needs.
Expertise. While ecommerce brands have tremendous product and industry expertise, they don’t always have the know-how to navigate the complexities of shipping and order fulfillment. 3PLs have extensive experience and knowledge in logistics and supply chain management. They stay updated on industry regulations, best practices, and technologies, providing expertise that businesses might not have in-house.
Scalability. As your business grows or experiences seasonal fluctuations, a 3PL can easily scale its services to match your needs. This flexibility is much harder to achieve with in-house logistics.
Focus on what you do best. When you have a 3PL provider, you can rest easy knowing that they’re handling logistics. This means you can focus on core business activities like product development, sales, and marketing.
Specialized technology. Most 3PLs invest in the latest logistics technology, giving their clients access to advanced tracking, reporting, and forecasting tools without the upfront investment.
Less control. When outsourcing logistics, businesses give up some control over that aspect of their operations. This can be a concern, particularly for brands that want to own the entire customer experience (including post-purchase evaluation).
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Start OptimizingDependency. Over-reliance on a 3PL can create issues if the provider experiences problems or if the business relationship ends. As such, it’s always important to work with a stable 3PL or have multiple partners to take care of your order fulfillment needs.
The good news is, forward-thinking 3PLs are taking measures to be more competitive. According to McKinsey, some providers are implementing a multi-client fulfillment model that allows resources such as labor, automation, and real estate to be shared among e-tailers, resulting in cost savings and greater flexibility. This approach provides a broader footprint, helping e-tailers get closer to customers, reduce lead times, and compete with fast delivery offered by market leaders.
Cost issues. While using a 3PL can lead to cost savings, it can also be expensive if not managed properly. Some businesses might find hidden costs in the contract or experience rate increases over time.
Integration challenges. Integrating a 3PL’s systems with your existing processes and software can sometimes be complex and time-consuming.
Reduced customer contact. Depending on how much you outsource, you might have less direct contact with your customers. This might impact your ability to gather valuable insights or provide personalized customer service.
Yes, most third-party logistics providers are equipped to handle returns—with some even offering omnichannel returns capabilities. Often referred to as “reverse logistics,” here’s how a 3PL would handle an ecommerce return.
If you’re considering working with a third-party logistics provider, here are some factors to weigh in your decision-making process.
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Increase LoyaltyYou can evaluate all of these factors by researching various providers. Start by checking out their website to get an overview of their offerings. You can take things a step further by reading online reviews or by checking websites like the Better Business Bureau to evaluate the provider’s ratings.
Doing this initial step should help you create a shortlist of third-party logistics providers you can work with. From here, you can start connecting with different providers and asking them more detailed questions about their services
Be sure to discuss their technological capabilities, how their systems integrate with your current platforms, and what data analytics they provide. If possible, ask for a demo or trial of their platform.
It’s a good idea to have several rounds of discussions and negotiations before making a decision. And remember, the cheapest option is not always the best. Focus on the value they can bring to your business, not just the cost.
Third-Party Logistics (3PL) refers to outsourcing ecommerce logistics processes to a third party, including warehousing, inventory management, and fulfillment services, to streamline operations and reduce costs.
Using a 3PL provider benefits an ecommerce business by allowing it to focus on its core activities while leveraging the expertise and resources of the 3PL for efficient logistics and distribution. This can lead to improved service levels, faster delivery times, and cost savings.
Yes, 3PL services are highly customizable. Providers work closely with businesses to tailor their services, such as warehousing solutions, fulfillment operations, and distribution strategies, to meet specific requirements and goals.
When choosing a 3PL provider, businesses should consider factors such as the provider’s experience in their industry, technological capabilities, scalability, cost structure, and the quality of customer service. It’s crucial to select a partner that aligns with the business’s logistics needs and growth objectives.
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