Key Points:
- A third-party logistics (3PL) provider is a business that executes order fulfillment on your behalf
- Growing businesses use 3PLs to save time, money, and improve their customer experience
- Choosing the right 3PL partner is a matter of cost, tech compatibility, and expertise
As your business grows, fulfilling orders on your own becomes a huge drain on time.
Maybe you’re already flush with orders but strapped for time. Perhaps you’ve recently realized that the hours you spend on fulfillment would be better used actually grow your business. If this sounds like you, partnering with a third-party logistics (3PL) company could be a smart move.
Table of Contents
What is a 3PL?
A 3PL is a company that assumes responsibility for your order fulfillment processes. You take in orders as usual. The 3PL fulfills them on your behalf. Your life gets easier and customers never know the difference.
Growing businesses use 3PLs to save time, money, and improve their customer experience. For many media to large businesses – including 86% of Fortune 500 companies – delegating some if not all of logistics operations to a “third party” is essential to staying competitive.
Every year, Easyship connects thousands of growing merchants to our global network of proven and reliable 3PLs. If you’re looking for help growing your business, our team of fulfillment experts is happy to help you find your ideal 3PL partnership at no charge.
3PLs Fulfill Orders And More
A third-party logistics (3PL) provider is a business that executes order fulfillment on your behalf. In other words, for a fee, you outsource some or all of your fulfillment operations.
These companies typically operate a network of warehouses, fulfillment centers, trucks, and other logistics infrastructure that allows them to receive, store and distribute inventory for clients.
In addition to fulfillment, logistics providers offer a range of services which include:
- Transportation and delivery
- Warehousing
- Picking and packing
- Inventory management
- Packaging
- Freight forwarding
- Returns management
Working with a 3PL involves a few adjustments in your operations. Here’s a quick overview of the fulfillment lifecycle with a third-party company.
The 7 Steps for 3PL Fulfillment
1. Receiving: The 3PL receives inventory from your supplier so it's on hand when orders need to be shipped.
2. Warehousing: Your inventory is stored in the company’s warehouse or fulfillment center. Inventory data is loaded into their warehouse management system (WMS), allowing you both to maintain visibility of inventory.
3. Picking: Products are picked from warehouse storage when your customer places an order.
4. Packing: Picked items are packed for shipping. 3PLs offer a range of packing materials, including poly mailers, boxes, and packing paper. These are professional packers that understand the importance of unboxing and customer experience.
5. Shipping: The 3PL prints a shipping label and ships the order. Shipping companies like USPS give 3PLs discounted rates due to their high shipment volumes, meaning you’ll save on shipping costs. You can ask your partner to use a preferred courier or use your own courier rates to save money.
6. Tracking: Shipped orders automatically generate tracking information for customers, and a notification for you. If you’re using Easyship with your eCommerce platform, the tracking details are sent automatically to the customer. Without this integration, you’ll need to manually send tracking links to customers once the shipment is in transit.
7. Returns: Many 3PLs process returns for you. In these cases, returns are restocked at the origin warehouse per your company policy. You can also have return shipping labels included with outgoing orders.
When Should You Use a 3PL?
Businesses use 3PLs when their logistics operations are either insufficient or expensive. Here are three common scenarios in which merchants use a logistics partner:
1. You’re fulfilling 20+ orders per day
It’s the best problem in all of eCommerce: too many orders and too little time. Outsourcing your fulfillment frees you from low-value tasks like picking and packing. This way, you can focus on meaningful work like marketing and sales that actually drives growth.
If this sounds like you, ask yourself: What are your current margins? How about in 6 months at your expected rate of growth? Compare these figures to the costs of using a 3PL. Can you put a price on all deliveries arriving on time? On your sanity? Using a partner means you’ll earn less per order, but you’ll recoup both valuable work hours and a feeling of equilibrium.
2. You’re low on storage space
Increasing order volumes demand extra storage space. Fulfilling orders from home leads to crowded living areas or the added cost of outside storage. Compare your current storage expenses (tolls on home life included) to the service estimates of several 3PLs. You may decide that paying for storage plus fulfillment is better than the DIY approach.
3. You want to offer faster delivery
Many 3PLs offer expedited delivery services. By contrast, it’s difficult to satisfy customer expectations for timely delivery when you’re buried in orders. Partnering with a fulfillment provider allows you to bolster the customer experience to generate loyalty and set your brand apart.
The Pros and Cons of 3PLs
Using a 3PL isn’t for every merchant. On one hand, you stand to gain valuable time and labor resources that could be used in growth areas like sales and marketing. The tradeoff is forking over hard-won cash.
As you weigh your options, consider these main advantages of working with a 3PL:
The Pros of Using a 3PL
1. Ship Internationally
ECommerce has gone global, but cost-effective global shipping requires a global fulfillment network. Using 3PLs in target global markets allows you to expedite deliveries, reduce import duty and taxes, and slash last-mile delivery costs.
As you calculate the costs of global fulfillment, you can use our Free Duty & Tax Calculator. You'll instantly get accurate duty and tax quotes on any shipment anywhere in the world.
2. Limit Overhead Costs
The costs associated with leasing warehouse space and hiring fulfillment staff are significant. For a fraction of the cost, you can lease these capabilities from fulfillment professionals and retain your capital for higher-yield spending.
3. Save on Shipping Costs
3PLs give you access to discounted shipping rates from global courier companies. Much like with Easyship’s up to 89% discount, you’ll save on shipping costs with a fulfillment center.
4. Enhance the Customer Experience
Today’s online shoppers expect fast shipping, often within one or two days. When your packages are shipped via a robust distribution network, blazing-fast delivery is possible on any order.
The Cons of Using a 3PL
Do any of the following drawbacks to 3PLs hit close to home? If so, you may want to pass for now.
1. Customer Services Is On You
3PLs handle logistics, not customers. This means you're still responsible for all customer-facing issues like delays, lost packages, etc. While this is no different than doing logistics yourself, it can be annoying to handle service complaints you had no hand in.
2. Brand Concerns
Your reputation with shoppers can tarnish if delivery delays, package loss, or damage become a common occurrence. To protect your brand, partner with a trusted company with a proven track record in your vertical.
3. Quality Control Difficulties
When your inventory is stored in someone else’s warehouse, it’s difficult to assess the quality of inventory received. Leading 3PLs will help you maintain quality control processes.
4. Setup Costs and Time
Hiring a 3PL incurs up-front costs that are recouped over the long term. Merchants with low order volumes will find these costs hard to bear.
You’ll also need to allocate time to integrate and sync your eCommerce platform with the provider’s warehouse management software. This gives you full visibility of inventory and shipments in every stage of fulfillment going forward. If you use Easyship, these processes are done in seconds because our technology integrates with top WMS platforms.
Related resource: What's a 4PL? The Difference between 4PL vs. 3PL
The Costs of Using 3PLs
Pricing for 3PLs varies depending on their service suite. Some companies offer an end-to-end solution, while others just do transportation or warehousing. Pricing tends to be flexible, and you usually pay only for what you need.
To quickly assess the costs of a partnership, just ask for a service estimate.
Here’s a list of fees you’ll encounter as you receive a service estimate:
- Onboarding: The fee for integrating your tech and getting operational.
- Inventory receiving: Charged when inventory is received from your supplier, either per hour, per unit, per pallet, or at a flat rate.
- Inventory storage: For using space in the fulfillment center, charged either per unit, per SKU, or a fixed fee by pallet, shelf, or bin.
- Pick and pack: Charged per item or at a certain item threshold in an order.
- Packaging: Packing materials like boxes and tonnage can be charged per item, or be included in fulfillment services.
- Kitting: Only if your items must be arranged in a specific way inboxes.
- Shipping: The cost to deliver an item from the fulfillment center to the customer varies by delivery distance, speed, package weight, and value-added features like insurance.
Unit-based pricing makes it easy to calculate the costs of using a 3PL. These flexible cost structures allow you to scale fulfillment expenses to growth, which makes them accessible to most growing merchants.
For personalized help with choosing a perfect partner, check out our fulfillment center page.
How To Choose a 3PL
3PL partnerships survive on cost but thrive on alignment. Are you at a point where it makes financial sense to pay for fulfillment? If yes, set out to find a great fit with one of the thousands of 3PL centers, such as UPS Supply Chain Solutions or FedEx Supply Chain.
Your ideal partner offers capabilities that match your goals for growth and customer satisfaction. For best results, look for the following traits:
- Experience in your vertical
- Specialization in your inventory type
- Proven track record with customers like yours
It’s important to foster a good relationship with your logistics provider. After all, this company will be your point of contact with customers, and their performance will largely determine your customer satisfaction. This is why the hallmarks of a successful partnership are open communication, clear expectations, and responsiveness.
Here’s what you’ll want to consider as you choose a 3PL:
1. Tech Compatibility
Integrations are vital to effective logistics outsourcing. Once integrated, you’ll have visibility of inventory, delivery successes, and quality control. Without a seamless integration, you’ll be forced to manually update inventory and order counts (which is a nightmare).
Questions to ask:
- Do you integrate directly with my eCommerce store? Via an API? Via an approved app?
- Do you use a standalone platform for inventory/logistics management? Is it easy to use?
- How do you communicate with me about orders, shipping notices, returns, etc.?
2. Fulfillment Center Locations
In logistics, the size of your distribution network matters. This is because greater proximity to customers enables fast delivery at lower prices. Typically, companies with larger networks can offer better delivery speeds, shipping rates, and customer satisfaction.
Questions to ask:
- How many warehouses do you operate?
- Do your warehouse locations match my high-volume shipping areas?
- How do you execute next-day shipping?
3. Pick For Growth
Choose a partner with a network you can grow into. Check your current and forecasted sales volumes against the 3PL’s listed capacity, especially during peak season. Look for a partner who can meet your volume demands now and for years to come.
Questions to ask:
- How many orders do you ship monthly?
- How many inventory shipments do you receive monthly?
- What’s your maximum capacity?
4. Evaluate Performance
Reading first-hand reviews is the best way to assess a 3PL’s performance. Use review sites like Clutch or G2 to find testimonials about prospective 3PL centers. You can also get free one-on-one guidance over the phone by contacting Easyship's team of global logistics experts.
Ideal candidates are experienced, agile, and value communication. Prospective partners should have a history of helping people in a spot like yours.
Questions to ask:
- Do you have customer references in my vertical? What’s your specialty?
- How has your capacity grown over time?
- How do you compensate for delays? Spikes in demand?
3PL vs. 4PL: What’s The Difference
3PLs are outsourced service companies that assume responsibility for your fulfillment logistics. They offer services like delivery transport, inventory management, and returns processing. Basically, this partner coordinates the movement of your inventory from suppliers to customers.
4PLs are 3PLs on steroids. These outsourced companies manage the entire supply chain for you, not just delivery logistics. In addition to fulfillment, 4PLs take control of your supplier relationships, 3PL management, business planning, and more. 4PLs handle everything from start to finish in the supply chain, whereas 3PLs limit themselves to the end stages.
3PLs Help Merchants Grow
3PLs are outsourced companies that execute fulfillment processes for eCommerce businesses. The benefits of using 3PLs are cost savings, efficiency, and an improved customer experience.
Choosing the right partner is a matter of cost, tech compatibility, and expertise. You want a partner who's experienced, set up to handle your inventory, and nimble in the face of supply chain disruptions.
Want advice on choosing the right 3PL? Get in touch with our global fulfillment experts. We’ve helped thousands of growing merchants to find their optimal fulfillment partner, regardless of target audience or region. For absolutely no charge, you’ll get a guided tour of Easyship’s global fulfillment network – and help choose the best partners for your unique businesses.
If you’re ready to use Easyship, create your free account. You’ll get instant access to our worldwide fulfillment network, plus up to 89% off shipping rates from 250+ couriers around the globe. You can create your free account here.
3PL FAQ
How do 3PLs make money?
These companies charge a fee for fulfillment services, including transportation, inventory management, warehousing, and more.
What is the difference between a freight forwarder and 3rd party logistics provider (3PL)?
A freight forwarder is a middleman between a freight shipping company and the client. They oversee the transportation of inventory to and from shipping destinations, coordinate fee payments, and more. 3PLs offer a more robust set of services, many of which revolve around final delivery to customers. Freight forwarders and 3PLs serve similar roles for businesses, but their area of focus and expertise is very different.
Will I lose control of my delivery process?
Yes, a 3PL assumes responsibility for your delivery process, among others. For this reason, it’s important to maintain visibility of your inventory, deliveries, and customer success by integrating your eCommerce platform with the systems of your logistics provider.
