The pressure to meet customer demands for fast, accurate delivery continues to rise. Online retail sales surpassed $1 trillion for the first time ever in 2022, accounting for 21% of all retail sales. If your fulfillment operation can’t keep up with the pressure of rising demand and complex processes, it may be time to call a third-party logistics provider (3PL).
A 3PL is an outsourced logistics partner that can manage some or all aspects of your warehouse and distribution operations. Typically, companies turn to 3PLs when their supply chain becomes too complex to manage internally or their circumstances change, such as growing e-commerce volumes.
A 3PL manages a client’s inventory in a warehouse or distribution center and then ships items as directed to the client’s customers. 3PL services include receiving, stocking, picking, packing and shipping goods. Value-added services, such as kitting, customization and reverse logistics, are also available.
A large 3PL may have multiple multi-tenant facilities, which means it manages inventory and distribution for many clients. The 3PL does not take ownership of any of the products in the warehouse. Some companies retain certain activities in-house, such as pallet-load quantities for store or distribution center replenishment and use a 3PL for smaller direct shipments. Other companies rely solely on a 3PL for all their warehouse and fulfillment functions. A 3PL can offer customized service options based on a company’s strategy and goals.
By outsourcing warehouse and logistics operations to expert partners, companies can take advantage of expertise, infrastructure and technology that would be too costly for all but the largest organizations.
Benefits of Using a 3PL for Fulfillment
Working with a 3PL for fulfillment services offers several advantages:
A 3PL offers multiple warehouses across the country staffed with trained workers, material handling equipment and the latest technology. An online retailer or other sender can take advantage of this well-developed infrastructure without significant capital investments. Also, the 3PL can scale operations up and down as needed in response to company growth and seasonal surges.
A 3PL typically offers a network of facilities that distributes inventory closer to the consumer. The 3PL can manage inventory in specific territories or for certain types of fulfillment, such as direct-to-consumer. The nationwide scope of a 3PL network enables expense-reduction strategies such as zone skipping. That’s when a 3PL stores inventory at strategic locations so it’s closer to customers for fast fulfillment, which is less expensive than shipping from a central facility.
Logistics may not be your company’s core competency. In that case, your organization is able to focus on its value proposition by using a 3PL to manage the complex details of inventory, fulfillment and shipping. You can set service-level agreements for elements such as order processing accuracy, delivery times and other critical factors. A 3PL manages logistics for many customers and hones processes and metrics to a sharp edge.
There are thousands of traditional truckload and less-than-truckload carriers in the market, and technology has enabled new entrants with gig-economy delivery services. Managing all those relationships becomes very complex. A 3PL maintains relationships with proven carriers that meet performance and quality standards and can engage those carriers as needed to manage capacity.
Because a 3PL manages large volumes of freight, it can negotiate favorable rates with carriers and better service when capacity is tight. The 3PL can identify the most cost-effective modes for fulfillment based on the shipment requirements. For example, companies can bank significant savings by using two-day delivery only when necessary.
Ultimately, the goal of working with a 3PL for fulfillment services is to deliver a better customer experience while improving cost efficiency.