Understanding third-party logistics (3PL) and associated services is essential for growing your ecommerce business. This is especially true as your business expands, increasing your inventory and warehousing needs along with it.
In this guide, you'll learn about the services provided by third-party logistics, when to use them, and the benefits and disadvantages to consider.
What is third-party logistics? (3PL)
Third-party logistics (3PL) providers use specialised fulfilment centres to manage your ecommerce company logistics. They take care of everything from warehousing and fulfilling orders to shipping.
While 3PL usually offers flexible storage space and services, it's still important to consider the scalability of whichever provider you use if your business is expanding.
Services provided by a 3PL
Services provided by a 3PL include:
Warehousing
Warehousing is a key service offered by 3PL providers, supporting you with your inventory management needs. The 3PL provider will collect, organise and store your products for you. 3PL warehousing differs from standard storage warehousing – your 3PL provider offers a wide range of in-house logistical services.
Order fulfilment
Order fulfilment, often known as "picking and packing", is when your customer places an order and your 3PL provider is notified by you or automatically from your system. MYOB's inventory management software makes managing your inventory and shipping easy.
MYOB Acumatica customers can also use integrations like Crossfire to connect directly with their 3PL. As each order comes in, 3PL warehouse staff prepares it using a picking list that shows items, locations and quantities.
Order shipping
Order shipping occurs when a 3PL provider handles order shipping in-house. Once orders have been picked and packed, 3PL staff add shipping labels and send packages. They will also let your customer know when they dispatch the order.
Returns management
Most 3PL providers will manage your returns based on your policies and preferences. You will generally have to opt-in to this as an add-on service. The customer will send returns directly to the 3PL provider, who will notify you to process a refund or credit (according to your returns policy) and put the item back into the system and onto the shelf for possible re-sale.
What are the benefits of 3PL in business?
The benefits of 3PL in your business include reducing overhead costs, improving efficiency and boosting scalability.
Reduced overhead costs
Reduced overhead costs are an obvious benefit of using 3PL. Without the cost and time of managing your warehouse, you can focus on growing your business.
Improve supply chain efficiency
Improving supply chain efficiency is crucial to running a successful business and satisfying customers. 3PL providers can make that simple – they're experienced with customs clearances and have a trusted network of carriers across a range of industries. Their expertise is in controlling stock levels and keeping the supply chain moving efficiently.
Ability to scale fast
Your ability to scale might be hampered if you're still packing orders one by one from a corner of a garage. With 3PL, your business growth is limited only by demand.
What are the disadvantages of using a 3PL provider?
There are disadvantages to using a 3PL provider, especially if you are just starting out:
Less control over the supply chain
You have less control over the supply chain because a third party handles the entire process, from inventory management and warehousing to shipping and returns. Any lapse in performance on their side can reflect negatively on your business
Upfront investment
The upfront investment is higher with a 3PL, although working with one may let you scale your business effectively and save money over the long term. You'll need to consider your current capacity, expected growth and the value to your business if you outsource your inventory management and order fulfilment functions.
3PL order fulfilment process
A 3PL order fulfilment process happens in five steps:
1. 3PL receives and houses your inventory
Your 3PL provider receives and houses your inventory as you send it. Each item is barcoded and safely stored in a specific area, making it easy to find and simple to control stock levels.
2. Order received by 3PL
Your 3PL will receive your customers’ orders in almost real time if you've connected your 3PL to your ecommerce system. Otherwise they’ll receive the order when you notify them of it.
3. Picking inventory
When picking inventory, pickers will get details of the storage location, barcode and quantity of the items needed. They'll then collect the inventory, ready to pack.
4. Order is packed
Your order is packed securely, with any necessary protective measures. Your 3PL usually prints a shipping label on your behalf.
5. Order is shipped by 3PL or one of its freight partners
The order is then shipped directly by the 3PL provider or one of its freight partners.
When should you outsource to 3PL?
You should outsource to a 3PL provider if you're struggling to manage your inventory or your business is outgrowing your warehouse. Even if you're keeping up with orders right now, it can pay to consider using a 3PL if you plan to expand your business or you'd like to cut shipping costs.
Third-party logistics (3PL) FAQs
What is the difference between 3PL and 4PL in logistics?
The difference between 3PL and 4PL is that 3PL companies focus on logistics, whereas a 4PL handles an entire supply chain. 4PL providers are often best suited to larger companies, whereas 3PL is ideal for small and medium-sized businesses.
What is the difference between warehousing and 3PL?
The difference between warehousing and 3PL is that 3PL providers handle inventory management, warehousing, order fulfilment, shipping and logistics. Warehousing simply provides space to store your inventory.
Is a 3PL the same as a freight forwarding provider?
A 3PL provider is not the same as a freight forwarding provider. 3PL manages your inventory logistics, but a freight forwarding provider specialises in moving goods between two locations.
How is 3PL different to 2PL?
3PL is different to 2PL in that it offers a broader range of services for your inventory, including order fulfilment. Both offer warehousing and transportation services.
Put your business first with 3PL
By outsourcing your inventory logistics to a 3PL provider, you'll have fulfilment and inventory storage sorted, from warehousing to sending out orders and taking care of returns. It means you don't need to worry about storage space, dealing with inventory, or manually sending orders even as your business expands.
With MYOB Acumatica you can connect your enterprise resource planning system to your 3PL, enabling the seamless transfer of data from your business to theirs. Get in touch to find out more.
For small and medium-sized companies managing their own inventory, MYOB's inventory management software lets you connect one or more warehouses, depending on your plan, so you can accurately keep track of what's selling, what's on hand and what you need to restock. Get started today.
Disclaimer: Information provided in this article is of a general nature and does not consider your personal situation. It does not constitute legal, financial, or other professional advice and should not be relied upon as a statement of law, policy or advice. You should consider whether this information is appropriate to your needs and, if necessary, seek independent advice. This information is only accurate at the time of publication. Although every effort has been made to verify the accuracy of the information contained on this webpage, MYOB disclaims, to the extent permitted by law, all liability for the information contained on this webpage or any loss or damage suffered by any person directly or indirectly through relying on this information.