As your business scales, managing shipping and logistics becomes increasingly complex. That’s why businesses like yours use third-party logistics (3PL) providers for a range of services, from warehousing to shipping.
In this guide, you’ll tackle:
- What 3PL is.
- The 3PL logistics process.
- The pros and cons of 3PL warehouse providers.
- When to work with a 3PL provider.
Let’s jump in!
What is third-party logistics (3PL)?
Third-party logistics (3PL) refers to outsourcing logistics to external providers. Companies use 3PL providers to simplify their:
- Warehousing.
- Distribution.
- Transportation.
- Packing.
- Returns.
For example, let’s say you’re an e-commerce business that partners with a 3PL. During peak seasons, your third-party logistics provider:
- Ensures storage space for increased production.
- Coordinates faster distribution to meet seasonal demands.
- Handles increased orders and returns efficiently.
This partnership lets you focus on growing your business without logistical headaches. Better yet, it saves you time and money.
The third-party logistics process
Now that you know what 3PL is, what does the process look like from start to finish?
3PL warehouses and receiving
First, your goods arrive at the warehouse from your supplier or manufacturing site. Here, the third-party logistics provider:
- Unloads the goods.
- Inspects them for quality and accuracy.
- Documents inventory for tracking.
This ensures that you correctly account for your products and that they are in good condition before storage or distribution.
Inventory management
Next, your third-party provider uses an organized system to maintain optimal inventory levels. This includes:
- Ordering items from manufacturers.
- Storing items in the warehouse.
- Deciding when to move goods to the point of sale.
This ensures you meet customer demand without overstocks or shortages.
Order fulfillment
When an order is placed, the warehouse team:
- Retrieves the products from the fulfillment center.
- Packs them accordingly.
- Prepares them for shipment.
Freight shipping
Your third-party logistics provider then ships the packed orders directly to your customers.
3PL providers leverage their extensive network to find the best shipping method for cost-effective and timely delivery. This involves choosing between:
- Full truckload (FTL): Occurs when your goods fill an entire truck. It’s ideal for large shipments that need to get to their destination quickly.
- Less than truckload (LTL): Suited for smaller shipments that don’t require a full truck. It’s a cost-effective solution for smaller or less urgent deliveries.
Reverse logistics
The reverse logistics process occurs after a product is delivered. This step is vital for:
- Processing product returns.
- Managing exchanges or repairs.
- Recycling unsellable goods.
A circular 3PL approach reduces waste and optimizes your inventory management.
Power your 3PL process with integrated technology
Throughout the entire process, 3PL providers harness tools like:
- Warehouse management systems (WMS) for efficient inventory control.
- Transportation management systems (TMS) to refine your shipping process.
- Real-time data analytics for actionable insights and better forecasting.
By integrating these technologies into the 3PL process, you unlock:
- Real-time inventory management.
- Enhanced operational efficiency.
- Greater visibility and control.
3PL vs. 4PL: What’s the difference?
The main difference between 3PL and 4PL is the scope of their services.
3PL providers offer specific services, such as warehousing and inventory management. They bridge the gap between manufacturing and distribution, while you maintain overall control.
Conversely, 4PL providers oversee end-to-end supply chain management. They are the sole point of contact for all logistics needs. This saves you time but gives you less visibility and control over your supply chain.
Fourth-party logistics providers:
- Select and manage 3PL services.
- Handle physical logistics.
- Craft logistics strategies.
- Provide analytical insights.
Simply put, 3PL providers focus on specific logistics services, while 4PL providers manage your entire supply chain.
How does a 3PL warehouse work?
A 3PL warehouse simplifies your supply chain operations as it:
- Receives goods.
- Manages inventory.
- Fulfills orders.
- Ships products.
- Handles returns.
Beyond core competencies, 3PL warehouses offer value-added services like custom packaging. These services enhance your product’s value to the end customer.
Types of 3PL warehouses
Before settling on a warehouse partner, it’s important to know the different 3PL warehouse types:
- Standard warehousing: Handles essential tasks like picking, packing, and dispatching.
- Temperature-controlled warehousing: Keeps products at the right temperature for storage and transport.
- Hazardous material warehousing: Safely handles and transports dangerous goods.
- Automated warehousing: Uses advanced technology to handle high-volume businesses and logistics operations.
- Distribution centers: Receives products from manufacturers and distributes them to stores or customers.
Evaluate the features and services of each warehouse to find the best fit for your product requirements and goals.
What is 3PL warehouse management system?
Now that you know about 3PL warehouses, what is 3PL warehouse management system?
A 3PL warehouse management system (WMS) is a tool that simplifies day-to-day operations, from receiving to shipping.
For you, this means enhanced supply chain visibility. With real-time data and analytics, you can track:
- Inventory levels.
- Order status.
- Warehouse operations.
Plus, 3PL WMS offers seamless integrations with:
- CRM tools.
- TMS software.
- E-commerce platforms.
Advantages of 3PL warehouse providers
Outsourcing your logistics to 3PL providers lets you:
- Scale with your business goals.
- Leverage professional expertise for smooth workflows.
- Save on warehouse space and shipping costs.
- Boost customer satisfaction with efficient fulfillment and shipping.
- Use innovative technology for improved inventory and order handling.
Disadvantages of 3PL warehouse providers
While 3PL providers enhance efficiency, they also present risks. These include:
- Human-caused errors and inefficiencies.
- Extra costs and billing complexities.
- Compromised quality standards.
- A loss of control over your warehousing and distribution.
It’s important to weigh these drawbacks against the benefits before you partner with a warehouse provider.
Should you work with a 3PL provider?
Choosing to partner with a 3PL service provider hinges on your specific business goals and needs.
Drawing from our experience, you should consider partnering with a 3PL if:
- Your current logistics can’t keep up with demand.
- You want to focus on core business activities.
- You’re seeking a cost-effective logistics solution.
- You need specialized logistics expertise.
Recap: Warehouse 3PL
Using a 3PL provider boosts efficiency and keeps your customers happy, but it’s not without its limitations.
Partnering with a 3PL means finding the right balance between its advantages and potential risks, based on your business’ unique needs.
If you want to focus on what you do best and leave the logistics to the experts, partnering with a 3PL is your best bet.
Warehouse 3PL FAQs
Are 3rd-party logistics the same as order fulfillment?
No, 3rd-party logistics (3PL) encompasses a broad range of services that include order fulfillment. For example, 3PL also provides:
- Warehousing.
- Transportation.
- Inventory management.
What is dropshipping?
Dropshipping is the term for when a seller ships products from a third party to the customer upon sale.
How does 3PL pricing work?
3PL pricing varies based on the services you use. Total costs include:
- Transaction-based fees.
- Fixed monthly rates.
- Variable and upfront costs.
- Value-added services.
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