Third-party logistics companies are an outsource service that many eCommerce retailers partner with. As businesses grow and expand into different territories, handling everything in-house is no longer a viable or profitable option.
Understanding more about 3PL companies and what they do helps your business decide if it’s the right choice for you.
What is a 3PL company?
A third-party logistics (3PL) company handles part of or the entire eCommerce fulfillment process on your behalf. There are a number of services that you can outsource to these companies such as warehousing, inventory management and product logistics.
What is a third-party logistics process?
While many 3PL companies may differ in value-added services that they provide, essentially, these companies do the same thing. They ensure the order fulfillment process is completed.
These are the processes that they handle:
- Receiving goods. Items are received and checked to be of good quality.
- Warehousing. Products are stored in the warehouse until they’re bought.
- Picking and packing. When a product is bought, items are picked and packed to be delivered.
- Shipping. Products are delivered to the customer.
- Returns. Returned items are checked and stored in the warehouse.
Value-added services provided by a 3PL company
Besides just handling logistics, 3PL companies also provide other services which could benefit your company. 3PL companies have evolved from simply transporting goods to partner with your business to grow your sales.
Prior to engaging in a new market, there should be a thorough analysis of feasibility and pricing strategies. 3PL services that are familiar with your products and target market will be able to research and navigate the situation with you. Your business gains expert advice and a competitive edge in the market.
As a small business, you might be limited in your reach when finding retail partners. Experienced 3PL companies would already have established partnerships with large online retailers that can boost sales at higher profit margins while keeping risks low for manufacturers.
Technology automates processes and transforms your production efficiency. However, technology can also be very expensive to use. 3PL companies work with many clients and are specialized in having automated processes to provide high-quality services. This technology also becomes available to your business when you work with them.
Comprehensive reports will give you insight into data that shows real-time information. Information about labor productivity, inventory levels, product performance and picking accuracies will assist in making successful changes to your strategy. Meaningful data is beneficial for business decision making processes.
Benefits of using a 3PL company
Outsourcing to a 3PL company comes with the main benefit of freeing up resources and time to focus on product research and business growth. There are also many other benefits to using them which makes it a lucrative option.
1. Venturing into new markets
Exploring new markets requires extra resources and comes with great risks if it doesn’t work out. With international 3PL companies, you will be able to venture into new markets without the high investments.
For example, if you’re looking to venture into the US, partner with companies that are familiar with the market and already have warehouse logistics set up. This will give you access to a large market where you may not have an established presence.
Working with a 3PL company, you’re able to scale operations when necessary. During seasonal sales or peak periods, you’d be able to access more labor, warehouse space and transportation without having to invest in long term resources.
Flexibility allows you to keep growing your company and hiring resources as you go along. It reduces the number of redundant investments and underutilized manpower throughout the year.
3. Access to marketing strategists and experts
You will instantly have market experts on your team who can suggest strategies that could work for your business. Choosing a 3PL that is familiar with your industry will give you valuable information on improving your plan of action.
3PLs specialize in supply chain management and understand the complex under-workings of the logistics industry. They will be able to give you insight on increasing productivity and handling shipping effectively.
4. Lowers costs in the long run
Partnering with a third-party company saves you the cost of investment into warehouse spaces, labor and technology you would need to do everything in-house. 3PLs deal with bigger volumes and are able to bargain better discounts with shipping rates that your customers would be able to enjoy.
You’ll also be saving time on handling the nitty-gritty logistics, paperwork and staff training. You’re reducing the cost of resources and increasing your profit margins.
5. Handling logistics
As a business, you can streamline your tasks by handing over the logistics process. This frees your business up to focus on sales, growth and market expansion without having to worry about the mundane day to day operations.
If you’re shipping internationally, there is the added issue of customs and duties which could increase costs and delay shipping. 3PLs would be able to handle this on your behalf as they would already be familiar with the documentation needed and the varied rules for different countries.
6. Increased customer satisfaction
Quicker response times, speedy deliveries and accurate orders will increase customer satisfaction. 3PLs can provide fast deliveries because of warehouses located across the countries. Automated systems are able to reduce human error and increase order accuracy.
Customers can be kept in the loop with order tracking and last-mile status to know when to expect their parcels. 3PLs increase brand reliability by responding quickly to returns or questions by customers and provide great after-sales care.
Disadvantages of using a 3PL company
While the advantages of hiring a 3PL are many, there are also less exciting realities. It is impossible for something to be all good. So here are some things to be wary of.
1. Finding a trustworthy 3PL company is tricky
You are handing over a significant portion of your business to a third-party company that represents you so you have to find someone you can trust. This can be tricky and you might have to go through various options before picking the right one.
The selection process can be overwhelming as you navigate the pros and cons of different services each company can provide. Choose a company that aligns with the vision and mission of your business.
2. Upfront investments
3PLs reduce overhead costs in the long run but there are significant upfront payments you will have to make. You cannot choose a company solely based on the prices they offer because you will get what you pay for.
Understand what you’re investing in and how your investments into the right technology and logistics service will pay off in the long term. Investing in a high-quality 3PL will ensure you don’t risk bigger losses in the future.
3. Handing over control
You might be moving from in-house operations to an outsource service which means you have to hand over the controls. Previously, you would have had a say in each process of the operation but now you’ll have to trust the 3PL company to do their job.
You will still be able to monitor daily operations via detailed reports from each process. A reputable company will also have a good working relationship with you and feedback can be turned into realized actions. You might not be monitoring daily activities but with the right company, you will still be able to have the final say.
How to decide if you need a 3PL service?
Choosing to hire a 3PL service is a big investment decision and can be overwhelming as you look through the different options available. Some things to consider are business growth rates, options for new markets, volume rates and technology.
If your business growth has been steadily increasing, it is probably time to consider your need for a 3PL company. Are you forecasting considerable growth in the near future? Perhaps by outsourcing logistics, your business would benefit from focusing in-house resources on marketing efforts and product research.
Entering into a new unfamiliar market requires plenty of research and on the ground know-how. It might be best to reduce the risk of a new market by hiring a 3PL who would already understand this new region and have facilities ready.
Planning an international expansion should start with testing the waters and getting allies who are familiar with the legal processes that might pop up. You’ll be shown the ropes and set up with local vendors which would ease the process.
Increase in sales volumes can occur seasonally or as your business starts to gain traction. Often as volumes grow, mistakes and errors tend to occur if your warehouse is not ready for it.
A 3PL would be able to handle the fluctuating seasonal demand because of the flexibility of resources that they have. Choose a 3PL that is able to grow alongside your business so you won’t have to change your provider because they can’t meet your needs.
Technology can be a huge investment to consider especially when there are many systems to automate. Aside from the initial payments, you’re also considering maintenance, software updates and replacing hardware.
Choosing a 3PL that is already equipped with cutting edge technology would allow you to pay for using the technology without the added headache of maintenance and upgrades. Look out for companies that have technology that already works with the software you currently have.
Third-party logistics companies are known to be experts in their fields and provide services to ease the burden of growing eCommerce companies. 3PLs understand that it can be tricky to do everything well and partner with businesses to increase the efficiency of their logistics.
Take time to choose a company that you trust and believe will provide the best possible service for your business.