Keeping up with delivery demands is becoming tougher as consumer expectations for fast, efficient service evolve. As a business owner, you’ve likely faced the pressure of splitting your focus between managing your supply chain and growing top-line revenue.
To find out more about the benefits of using third party logistics, download Ware2Go’s eBook.
That’s where third-party logistics (3PL) providers come in. With 3PL, you can streamline your logistics, from inventory management to shipping, without the burden of handling it all in-house.
In this article, we’ll cover 3PL basics, ecommerce strategy, and everything you need to know about outsourced fulfillment through a third party logistics (3PL) provider.
What Is 3PL?
A 3PL, or Third Party Logistics company, is an outsourced logistics provider that offers warehousing and fulfillment services.
Many businesses find that outsourcing fulfillment to a 3PL frees up time and capital to invest in their core competencies to expand their business.
Having a dependable outsourced fulfillment partner enables you to grow your business with confidence, knowing that your customers will be met with the fast, reliable shipping they expect. A recent survey by Ware2Go, a UPS company,found that supply chain issues such as delayed shipments may decrease the chances of a repeat purchase by up to 87%. And in today’s world of increased customer acquisition costs, customer retention is key to sustainable growth and margin protection.
Outsourcing to a 3PL also cuts back on capital investments in warehouse management, labor, and equipment maintenance.
Why Do You Need a 3PL?
By outsourcing your supply chain to a 3PL partner, you’re relying on their resources and expertise to simplify your operations and free up time for you to focus on core competencies. Your team can keep their focus on sales and marketing or product development while your 3PL partner oversees inventory management, warehousing, fulfillment, and transportation.
How does a 3PL help your business:
- Streamlines supply chain operations: A third-party logistics (3PL) provider offers expertise and technology to manage your supply chain efficiently, automating processes like order orchestration and fulfillment while managing the day-to-day operations of warehousing and inventory management so you can focus on growing your core business.
- Reduces costs: Partnering with a 3PL can lower logistics costs by optimizing shipping, transportation, and operational expenses when you share costs across their entire book of merchants. They often have access to bulk shipping rates and advanced route optimization, cutting down on both direct and indirect logistics costs.
- Improves scalability: With a 3PL, your business gains the flexibility to scale up or down according to demand, which is especially valuable during peak seasons, rapid growth phases, or new product launches. This adaptability helps maintain service levels without tying up capital by building out internal capacity.
- Enhances delivery speed: A nationwide 3PL can significantly improve delivery times by distributing inventory closer to your end customers to decrease time in transit (TNT) on ground shipments. It’s also important to find a 3PL that offers same-day fulfillment to meet consumer expectations for fast shipping.
How Do Third-Party Logistics Providers Work?
A 3PL provider is a company that manages supply chain operations—including warehousing, transportation, and fulfillment—on behalf of another business. Companies experiencing rapid growth, seasonal demand fluctuations, or complex logistics needs can greatly benefit from partnering with a 3PL to streamline operations and improve cost-efficiency.
Here’s an overview of what a third-party logistics provider does:
- Receives products: The 3PL receives your product via freight shipment, verifies the shipment against an Advanced Shipment Notice (ASN), puts the product away, and marks it as received in their technology platform. The faster products are received the faster you can begin selling and realizing revenue.
- Manages inventory: Using warehouse storage and advanced warehouse management software, the 3PL tracks inventory levels, optimizes storage locations, and provides real-time data, helping you maintain optimal stock levels to avoid overselling or carrying too much inventory.
- Processes orders: Orders should be routed automatically from the sales channel to the appropriate warehouse based on inventory availability and proximity to the end customer.
- Picks and packs orders: Pickers receive orders, locate the inventory within the warehouse, and retrieve them from their pick locations. Orders are then carefully packed and labeled to ensure safety in transit.
- Ships products: 3PLs have negotiated rates with all major carriers and use software to help you pick the best rate at a per-shipment level. All major carriers pick up at 3PL locations. Once the carrier picks up the shipment, the responsibility of on-time delivery lies on the final mile carrier.
- Handles returns: A 3PL also manages product returns, processing them efficiently, keeping customers informed, and managing returned product according to your particular SOPs.
Is 3PL Right For You?
Outsourcing fulfillment to a 3PL can help free up bandwidth for your internal team to focus on their core competencies, rather than fulfilling and shipping orders. However, with the current state of the warehousing and labor markets, some 3PLs may be requiring long-term contracts and charging elevated rates.
It’s important to find a fulfillment partner that offers flexible contracts so you don’t end up paying for space and labor you’re not using, especially if your business experiences seasonal spikes in demand. If you’re looking for a flexible, asset-light solution that can grow with your business, your next step may be to talk to a 4PL (fourth-party logistics) partner.
SMB’s who are looking for the advantages of a 3PL but need flexibility and scalability to accommodate seasonal demand and de-risk growth opportunities should consider the quickly growing model of outsourced logistics known as 4PL.
Here’s a few points you can ask yourself to see if a 3PL is right for you:
- Are your logistics processes becoming too complex to manage in-house?
- Do you need more flexibility in handling seasonal or fluctuating demand?
- Are shipping and fulfillment costs starting to strain your budget?
- Is maintaining your own warehouse or transportation fleet becoming too expensive?
- Do you lack the technology or expertise to optimize your supply chain?
- Are you struggling to meet delivery deadlines or customer expectations?
- Do you need to expand your shipping capabilities to reach new markets or regions?
Essential 3PL Services
There are a number of services a 3PL or 4PL should offer as a comprehensive fulfillment and delivery solution.
Some 3PLs specialize in special product types or industry verticals, but at their core, all top-tier 3PLs should offer key services to simplify your operations. The table below outlines these key services and highlights how they can support growth, improve customer satisfaction, and optimize logistics costs.
| Service | Description | How it works | Key benefits |
| Inbounding | Inbounding involves unloading shipments, inspecting goods for accuracy and quality, and systematically organizing them within the warehouse. | 3PL partners will receive inbound shipments, reconcile the shipment to an Advance Shipment Notice (or ASN) to ensure accurate inventory reporting, and perform a basic quality control check before storing. Upon receiving, products will be scanned into the Warehouse Management System (WMS) and stored according to the merchant’s SOPs and product needs. | Accurate inbounds are the beginning of efficient inventory management. Immediately reconciling inbound shipments ensures accurate records, and inbounding quickly decreases time to revenue. |
| Storage | 3PLs securely house inventory within their warehouses, with options for long-term storage or short-term storage for fast-moving inventory. | Storage varies based on product needs. A qualified 4PL will have partnerships with 3PLs that offer refrigeration, temperature controlled storage (for products like supplements and nutraceuticals), and big and bulky storage options. Storage rates are usually determined by square footage of space occupied. | Storage prices are variable based on your risk tolerance for stockouts and ability to hold inventory. |
| Picking and Packing | Picking and packing refers to the actual process of picking products off the shelves and packing them into the box for shipment. | Depending on the size and requirements of the product this process is either done by manual labor or an automated system. A robust WMS will have safeguards in place to ensure that all orders are properly picked, cutting back on preventable returns. | Automated fulfillment technology and quick, efficient picks support faster delivery times. Picking accuracy reduces operating costs and improves customer satisfaction. |
| Custom Packing | For ecommerce sellers, delivery is an integral part of brand identity. For ecommerce sellers, delivery is an integral part of brand identity. Custom packaging can create a memorable customer experience or communicate your brand values as in the case of sustainable packaging. | Work closely with your 3PL partner to procure the custom packaging that not only conveys your brand but also protects your product in transit while reducing waste. Establish rigorous SOPs for packout procedures for brand consistency. | Custom packaging no only enhances brand recognition but also improves the unboxing experience, leaving a lasting impression on customers. It can also provide added protection during shipping, reducing the likelihood of product damage and increasing customer satisfaction. |
| Kitting & Bundling | Kitting and bundling, involves assembling multiple items into a single package or bundle to streamline the order fulfillment process. | 3PLs either create “kit-to-stock” bundles, where pre-assembled kits are stored in inventory for quick fulfillment, or “kit-to-order,” where kits are assembled only after an order is received. The kit-to-stock method allows for faster shipping, while kit-to-order offers more customization for specific customer needs. | Kitting items commonly bought together is a great tactic for increasing Average Order Volume (AOV), especially as a promotional tool. A qualified 3PL partner will offer custom kitting and bundling as a value added service. |
| Outbound Shipping | Outbound shipping is the final mile of delivery before it reaches the end customer. 3PLs offer both freight and small parcel outbound shipments for D2C and B2B shipments. | 3PLs coordinate pickup times with various carriers to ensure efficient handoffs and optimal shipping schedules to meet delivery deadlines. Once shipments are handed off to the carrier, the final-mile delivery status and tracking become the responsibility of the final mile carrier. | 3PLs streamline the outbound shipping process by leveraging their carrier relationships and scheduling expertise to secure better rates and timely pickups. |
| Returns | Returns are an integral part of the ecommerce shopping experience. It’s important to have a clear and simple returns process and policy that satisfies customer expectations without damaging your margins. | With return rates up to 12% higher than brick and mortar stores, ecommerce sellers should partner with a 3PL network with returns processing capabilities. For high value products especially, 3PLs should communicate the state of returned items and coordinate with merchants regarding repairing and reselling returned inventory. | Partnering with a 3PL simplifies the returns process by handing over all aspects of reverse logistics – from receiving and inspecting items to restocking inventory – to enhance operational efficiency and provide a smoother experience for customers. |
Ware2Go’s 3PL Network
Ware2Go is changing the traditional 3PL model to make 1 to 2-day delivery affordable for all merchants. A nationwide network of certified warehouses supported by technology to streamline fulfillment across all sales channels enables merchants to correctly position inventory to best serve ecommerce customers in key regions.
Reaching all of your best customers with 2-day ground eliminates long-zone shipments and overnight air — ultimately lowering your overall cost to serve.
Our 3PL network is fully customizable and scalable to fit your business goals and customer profile. Our team of fulfillment experts use your historical sales and shipping data to build a 3PL network to increase service levels to your best customers and lower your overall cost to serve.
For a custom network analysis, reach out to one of our in-house experts.
3PL For Ecommerce
3PL for ecommerce is a quickly-growing industry. The recent ecommerce boom led to shortages in warehouse space and surging fulfillment costs typically reserved for peak season. This has made negotiating with top-tier 3PLs particularly difficult for small to mid-sized merchants looking for competitive SLAs.
Additionally, ecommerce sellers especially need flexibility and scalability in their 3PL partnership. Digital sales channels allow ecommerce businesses to cast a wide net through targeted advertising, social media, and online marketplaces, but although ecommerce sales are not limited by geography or discoverability, they are subject to a growing consumer expectations for 1 to 2-day delivery regardless of the sales channel.
Consumer survey data shows that delivery experience actually drives customer satisfaction and brand preference on digital channels. 66% of merchants report higher cart conversion rates when fast shipping options are offered, and 84% of online shoppers reported that they would never purchase from a brand again after a single negative delivery experience. These standards may seem daunting for SMBs and certainly raise the stakes even higher in their search for a qualified 3PL partner for their ecommerce fulfillment needs.
When reviewing the SLAs, long-term contracts, and pricing structure of traditional 3PLs, small to mid-sized ecommerce sellers may begin to wonder if 3PL for ecommerce is actually the right fit for their fulfillment needs. In most cases a 4PL, or 3PL network will likely be a more flexible solution that offers the high service levels that ecommerce customers have come to expect.
eCommerce also requires a technology-first approach to supply chain and fulfillment with capability to integrate all sales channels through a single platform. A fully integrated ecommerce 3PL network gives sellers full visibility not only into order and delivery status across all sales channels but also inventory levels and fulfillment statuses across all 3PL locations.
3PL Software
Software and tech capabilities may be the biggest differentiators among 3PL services and between the 3PL and 4PL models. It seems that the rise of ecommerce has pushed digital sales channels to innovate quickly — prioritizing ease of use and accessibility for merchants of all sizes.
From ecommerce shopping carts to growing online marketplaces, online sales have never been easier to launch or scale.
The 3PL industry, on the other hand, has struggled to keep pace with ecommerce sales channels, leaving a major gap in the 3PL software market. The task at hand for 3PL software developers is to simplify supply chain management by automating processes, integrating systems, and aggregating data.
The most innovative fulfillment providers are stepping up to the challenge with a data-first approach to developing new fulfillment technology beyond traditional 3PL software and addressing these 3 major needs:
Automating Processes
Manual processes are hard to adapt quickly, and limit a merchant’s ability to respond to shifts in demand or promotional opportunities. The best new fulfillment technologies automate order and delivery tracking, inventory updates, and more.
Integrated Systems
As more merchants adopt a multichannel e-commerce strategy, having a full-picture view of inventory levels and order statuses across platforms and warehouse locations is pivotal. Integration also allows for flexibility in transit mode and order mix to serve all customers with the same service levels regardless of sales channel.
Aggregating Data
The fulfillment industry has long been sitting on a gold-mine of data: between shopping cart (OMS), Warehouse Management (WMS) and Transportation Management (TMS) data sets, but has lacked the expertise to aggregate the data to produce high-level reporting and actionable insights. The future of 3PL software — or more appropriately, fulfillment software — is aggregating this data to determine ideal warehouse placement, inventory distribution, and automated reorder points. Ware2Go’s new platform, NetWorkVu, is a free, easy-to-use tool that uses merchants’ historical sales and shipping data (either manually uploaded or via a shopping cart integration) to custom recommendations for network placement and a cost-benefit analysis of multiple fulfillment scenarios. Click here to upload your own data or download the BigCommerce app.
The Future of 3PL Software
Implementing cutting-edge 3PL software helps merchants transform their supply chain into a strategic revenue driver for their business. The data sets powered by emerging fulfillment technologies help merchants improve their bottom line by eliminating costly long-zone shipments and next day air and can even provide insights around sku profiles and new market opportunities.
What Is 4PL and How Is It Different Than 3PL?
4PL, or Fourth Party Logistics, is essentially an interconnected network of 3PLs. A 4PL provider has relationships with multiple 3PLs across the country, providing a nationwide warehouse network of full-service 3PLs.
4PLs employ a cloud-based warehouse management system (WMS), that gives merchants visibility into operations, inventory levels, and service levels across their various facilities. These fulfillment softwares also integrate with e-commerce platforms like Shopify or BigCommerce and ERPs like Oracle or SAP for automated reporting on inventory levels and order and delivery statuses.
Benefits Of 4PL
Ultimately, the very nature of a 4PL is flexible and scalable, which simplifies moving into new geographic markets. Access to 3PL locations across the country with varying storage capacity and capability enables SMBs to easily test into new markets and product categories, rather than being limited by the location and capabilities of a single 3PL partner.
A qualified 4PL will have warehouses in their network that can handle product needs from big and bulky to temperature and humidity controls located in strategic zones closest to demand centers.
While the terms 3PL and 4PL may sometimes be used interchangeably, there are some key differences in service levels, technology, and network capabilities to note when looking for the right outsourced fulfillment solution.
The main differentiators can be grouped into 4 categories: Storage Capacity, Geographic Footprint, Scalability, Technology, and Professional Support. Read our full 3PL vs 4PL analysis here.
Outsourcing Fulfillment to 4PL vs. 3PL
Many businesses looking to outsource will start with a regional 3PL close to their headquarters or manufacturer, but these regional 3PLs are limited in their geographic reach and often in their bandwidth and expertise to strategize with SMBs for long-term growth.
When merchants begin to expand into new geographic markets, they often contract additional 3PLs to better serve customers in their new markets. This can result in a patchwork fulfillment process, difficult to manage, with multiple lines of communication and inconsistent service levels.
A 4PL acts as a strategic partner, negotiating the best rates and SLAs across the 3PL network and helping merchants decide where to forward stock inventory in order to best serve their customers. 4PLs aggregate the inventory and shipping volumes of multiple merchants to negotiate the best SLAs and eliminate peak season surcharges.
Learn more about 3PL vs 4PL partnerships here.
Frequently Asked Questions
What does 3PL mean?
3PL stands for Third Party Logistics. It’s a legacy fulfillment model whereby businesses outsource their fulfillment and delivery services to a third party vendor. 3PLs vary in their geographic delivery footprint, service offerings, and storage availability.
What is a 3PL warehouse?
A 3PL warehouse is the physical location of a 3PL (Third Party Logistics) service provider. 3PL warehouses have widely diverse offerings in the way of product storage capabilities (cold storage, temperature-controlled, and big and bulky to name a few), SOPs, and technological capabilities.
What do 3PL companies do?
3PL companies offer a variety of services including inbounding shipments, picking and packing orders, final mile delivery, product storage, kitting and bundling, and returns processing.
Is Ware2Go a 3PL?
Ware2Go is a network of 3PL partners, commonly referred to as a 4PL (Fourth Party Logistics) company. As an integrated 3PL network, Ware2Go offers merchants the convenience of outsourced fulfillment associated with 3PL services on a national scale. Rather than contracting with multiple regional 3PLs, businesses of all sizes can achieve a nationwide 2-day delivery footprint through a single partnership with Ware2Go.
What differentiates Ware2Go from a 3PL?
Ware2Go’s solution is fully scalable with nationwide 2-day delivery coverage and a variety of certified warehouse partners to meet virtually any product storage requirement. The network is supported by a single WMS platform that integrates all sales channels and warehouses to set work flows and automatically route orders to the best warehouse based on geographic location and requirements. This integrated system allows visibility into higher level supply chain and fulfillment functions that position Ware2Go as a strategic partner with the ability to consult merchants on inventory levels, network distribution, market opportunities, and more.
When should you use a 3PL?
Outsourcing fulfillment to a 3PL or 4PL is usually a decision businesses make when their in-house fulfillment system is overwhelmed or they need to shift their business model to a greater reliance on variable rather than fixed costs. Partnering with a top-tier 3PL network like Ware2Go also gives merchants a strategic fulfillment partner that will recommend warehouse placement, inventory distribution, and new market opportunities.
Improve Your Fulfillment Service With a 3PL Service Provider
Partnering with a 3PL service provider can be a transformative step for enhancing your fulfillment strategy. By leveraging their expertise in logistics, warehousing, and order fulfillment, you can streamline operations, reduce overhead costs, and elevate customer satisfaction.
At Ware2Go, we specialize in optimizing supply chains with tailored solutions designed to meet your unique needs. Our team is ready to help you enhance your warehousing and fulfillment processes.
Book a chat with our team today to discover how Ware2Go can transform your logistics strategy and support your business growth.
