ULTIMATE GUIDE TO THIRD PARTY LOGISTICS

From 3PL basics to ecommerce strategy: 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.

A 3PL, or Third Party Logistics, is a term for 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. In fact a recent merchant survey revealed that 44% of merchants simplified their operations and management scope by outsourcing fulfillment. Outsourcing to a 3PL also cuts back on capital investments in warehouse management, labor, and equipment maintenance.

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.

Essential 3PL Services

There are a number of services a 3PL or 4PL should offer as a comprehensive fulfillment and delivery solution. Those services include:

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.

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.

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.

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.

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.

A major advantage of partnering with a 4PL is negotiated shipping rates with a trusted shipping provider.

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.

“With Ware2Go we now have the ability to service any region with the right product at the right time.”

Phil Ammendolia LS2 Helmets

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3PL VS 4PL

What Is 4PL?

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.

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.

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.

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.

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