What is 3rd Party Logistics?
If you’re in any kind of business that involves distribution, then you have most likely heard of 3rd party logistics fulfillment or 3PL. And, while you may have heard of it, you’re probably still wondering, “What is 3PL and how can it help my business?” Simply put, third-party logistics fulfillment is when a business outsources the storage and shipment of products for orders they cannot process themselves.
When an owner purchases product(s) from a manufacturer or distributor, the product is then sent to a 3rd party fulfillment center or warehouse. When these products are received by the 3rd party warehouse, a quality insurance check will occur before the items are placed into the fulfillment center’s inventory. The 3PL now takes responsibility for the items to be picked, packed, and shipped.
Typically, a 3PL will be in charge of tasks such as inventory management, warehouse management, order fulfillment, and occasionally sales channel management. Some 3PL companies may even be able to handle the physical transportation needed to complete desired actions.
Benefits of a 3PL
A 3PL should provide dynamic services that add extra value to your company. There are many benefits to using 3rd party fulfillment but here are a few noteworthy highlights:
- Faster shipping
In today’s online world, shipping has become a huge part of the customer service experience. Packages that arrive to customers faster will result in more satisfied customers. Selecting the correct location for your warehouse will have an enormous impact on your customers experience.When deciding on a 3PL, make sure you take a look into your analytics on where most of your customers are based, this can yield more desired results when selecting the location to your warehouse.
- Reduced operating costs
Keeping operating costs down is a key part of any business. Companies must spend their money wisely and using a 3PL can help alleviate that. In general operating costs are the costs of resources used by an organization just to maintain its existence.One of the operating costs that will be reduced is the leasing or renting of a warehouse space. When leasing or renting a warehouse space make sure to take everything into consideration when calculating the cost of a space.Be sure to include costs such as: the amount of space needed, the base rental rate and estimated operating expenses. Also water and electric can be a factor based on the rental agreement proposed by rental group or individual.Keep in mind that when using a 3PL, you only paying for the space that is being used. The less space you take up, the more you will save. When a business has its own warehouse, it is paying for all of the space all of the time. If you find that running and maintaining your own warehouse is going to be too costly, a 3rd party fulfillment center is probably a better answer for you.
- Reduced staff/payroll
A further reduction of operating costs is avoiding the need of hiring and training the correct staff. The dedicated time it takes for hiring and training staff can be a huge burden.Creating standard operating procedures and going over safety guidelines can also be a drain on company time and resources. These procedures can take several weeks, or even months, to create and implement but with a 3PL many of these problems are alleviated.Businesses should still create a Standard Operating Procedure (SOP) for how items are handled, but the third party fulfillment center should have a staff and a training program to execute your wishes in a faster period of time. The only payments your business will incur will be the ones that are associated with the 3PL.
- Expertise and consultation
Expertise in logistics management is a crucial benefit for new companies to the field or expanding businesses. The 3rd party logistics expertise should ideally help develop the growth of a business.Your goals and core concepts should be aligned with the fulfillment center for a smooth business relationship. The ability to improve on processes and adapt to new changes that your business needs to implement should be the first priority of a 3PL.A 3rd party fulfillment center should also be providing insight on your decisions and reasoning for why they believe certain aspects will or will not work. Their expertise should free up more time for you to focus on other aspects of your business such as driving sales and increasing your marketing efforts.
Choosing a 3PL
Choosing a 3PL is no simple task. Every business needs to understand that conducting thorough research before contacting a 3rd party fulfillment center is vital in selecting the best option for the company. The following is a list of ideas to keep in mind when researching and selecting a 3PL.
Most 3PLs can handle warehousing, order fulfillment and shipping but what else do these companies offer? Take a close look at all of the services provided as this can be crucial in the expansion of your business. These services should provide open access to how sales are doing, inventory on hand, and multi-channel fulfillment along with other services.When considering the services offered, you should ask yourself, “Can I customize these services to fit my business?” Questions such as “Do they utilize 3rd party inventory management software?” and “Can the 3rd party storage management seamlessly integrate with my current system?” are equally worth considering.When researching 3PLs be sure to check on all options available before you make your final decision, in order to pick the correct 3rd party fulfillment center for you!
As we mentioned earlier in this post, shipping is an enormous factor in providing quality customer service. Fulfillment centers usually will have discounted rates on shipping as these generate from bulk rate negotiations.Location of the fulfillment center is key. According to a poll on npr.org, 39% of shoppers explain that speed has the biggest impact on choosing products from an online store (2018). Since Amazon implemented 1-day shipping, consumers state that how fast they receive an online order ranks high in determining whether they will purchase from a particular site.This customer feedback provides crucial insight on why the location of your warehouse/3PL is important as it directly correlates to potential future profits. Remember, as a business you want to make your customers happy!
While affordability ranks high in determining the correct 3PL for your business, choosing the inexpensive option can be a detriment to your company. Be sure to have a breakdown of all fees that are associated with using a specific fulfillment center. 3PLs should provide an itemized bill detailing the services they offer along with what is negotiated in the contract.
- Customer Service
There are a multitude of factors that go into customer service. 3PLs should be able to handle customer service issues in a timely and appropriate manner. This can include but is not limited to: customers receiving wrong items, shipments never arriving, tracking number issues, and reverse fulfillment.Reverse fulfillment is the ability to accept items that are being returned. 3PLs should have an implemented process for accepting returns, with the ability to change parts of the process to adapt to your specific products. Customers do not want to wait for their money so fulfillment centers should be focused on getting these returns done in a speedy and productive fashion.SLA or service level metrics is an agreement between the customer and service provider that defines calculable goals that must be achieved by the service provider. SLA goes hand in hand with customer service, so having these figures ready when contacting 3PLs is important in achieving your goals.
The decision to incorporate third party logistics services into your daily business operations requires time, and onboarding can take multiple weeks, so businesses should plan accordingly. However, despite the time investment needed to begin, the possibility of enhancing areas of your business to increase profits and drive down costs is a huge benefit of adopting a 3PL.