You can’t deny the fact that order fulfillment is one of the most crucial parts of running an eCommerce store. Many online retailers choose to run logistics on their own with an in-house team that takes care of shipping operations. But as their company grows and order volumes increase, they start to look for third-party logistics providers (3PLs) to handle shipping and order fulfillment.
A third-party logistics company or 3PL is the key that manages the whole logistics process on the sellers’ behalf. 3PLs or third-party logistics companies can also be called carrier companies or fulfillment centers. As an online business newly starting out, the workings of third-party logistics companies may seem unclear. But if you plan to work with a third-party logistics provider in the future, it’s important to know how a 3PL company works and how it can benefit your business.
That’s why we have come up with this comprehensive guide. Here, we will discuss what a 3PL company is, how it works, and some advantages and disadvantages associated with it.
So, without further ado, let’s get started!
What Exactly Is a Third-Party Logistics Company or 3PL?
Third-party logistics companies or 3PLs are specialized logistics service providers used by online stores and eCommerce enterprises. Online companies can outsource their shipping, logistics, and fulfillment operations to these third-party logistics service providers. A third-party logistics provider picks, packs, and ships orders from warehouses to the customer’s doorstep.
An online retailer usually hires 3PLs when monthly order volumes increase considerably or to provide a smoother shipping experience to its customers. A 3PL company can help eCommerce businesses with warehousing, inventory management, and faster delivery services. A few of the biggest names in the 3PL industry include —FedEx, UPS, DTDC, BlueDart, and Aramex.
How Does a 3PL Work?
A third-party logistics company’s job starts with procuring inventory from the online seller and ends with order delivery to the customer (and with managing returns if necessary). A 3PL provider goes through the following steps to ensure products are delivered to the right customers at the right time.
1) Procurement
The first step in the shipping process is procuring inventory from the online store and storing it in the warehouse. A 3PL courier company can use various Warehouse Management Systems (WMS) to keep track of items in stock. This data is constantly updated in real time as orders are shipped or returns are received.
2) Warehousing
Once the products are received, a 3PL company assigns SKU (Stock Keeping Unit) codes to every item and stores it on specific shelves in the warehouse. This process helps in the easy retrieval of products at the time of order pickup.
3) Picking and Packaging
As soon as a customer places an order, pick-up teams are assigned a list of the items and quantity. The picking list also contains the specific locations in which order items are stored. Some third-party logistics providers require companies to manually input the order details. But oftentimes, they go for 3PL software companies to automatically synchronize order data with online marketplaces, websites, warehouse management systems, etc. Products are then packed in boxes, bags, bubble wrap, etc., and sent for shipping.
4) Shipping and Order Fulfillment
The shipping and order fulfillment stage begins with printing labels and generating AWB numbers. Orders are loaded onto the delivery fleet and sent for order fulfillment. How much time delivery takes depends on the kind of 3PL service and the time store owners/customers have opted for. Deliveries can take anywhere from a few hours to a couple of days.
5) Returns
The eCommerce industry is plagued with returns and if not managed properly, it can end up costing a startup a fortune. There are many 3PL service providers on the market that have specialized in reverse logistics. They take care of tasks like picking up orders from customers, product inspection and sorting, refurbishments, and so on.
What are the Advantages of Working with a 3PL?
Now that you have an overview of what a 3PL is and how it works, let’s understand what are the main advantages of relying on a 3PL service provider and why most businesses opt for it.
1) Lower Shipping Rates
Third-party logistics companies have better economies of scale and can therefore provide much cheaper rates on shipping than an in-house team. They can also offer many specialized services that an in-house logistics team can’t.
2) Faster Order Delivery
Third-party (3rd) logistics service provider companies have better delivery fleets and a wider delivery network that allows them to not only provide faster deliveries but also to many more locations. A 3PL company can do hyperlocal deliveries, same-day, and next-day deliveries as well as 24-hour deliveries to domestic and international locations.
3) Returns Management
A 3PL company can also manage product returns for an eCommerce business. It can make the returns process much faster and more efficient. On the other hand, a seamless return process further builds trust among your customers and makes them loyal to your brand.
4) Real-Time Order Tracking
3PL companies offer order tracking on all orders that can be easily accessed by customers. At the same time, it provides retailers with a centralized dashboard where they can monitor all their orders efficiently. In fact, it also sends order updates to customers via WhatsApp, SMS, or email, so they can remain free from anxiety.
5) Higher Customer Satisfaction
A third-party logistics company greatly improves the post-shipping customer experience by ensuring a smooth delivery process. These 3PL companies offer other value-added services, such as digital proof of delivery, multiple payment methods, including COD, and drop-off locations. These further increase customer satisfaction and retention.
6) Seamless Shipping of Dangerous Goods
Shipping dangerous goods is a critical process. You will have to adhere to regulatory compliance and go through a complex custom regulation and documentation process.
3PL companies are specialized in delivering dangerous goods. Now, if you pair up with a 3PL company, they will take care of everything, from picking, packing, customs clearance, duties, and taxes. As a result, you can successfully ship dangerous goods without any hassles, while staying compliant with regulatory policies.
7) Improvement of Your Primary Services
This is often an overlooked advantage of partnering with a 3PL service provider. If you delegate the most critical task, i.e. logistics, to a third-party logistics provider, you will be able to concentrate on other important areas of your business. These may include marketing, product sourcing, creating new business strategies, etc. Hence, if you’re an eCommerce owner, going for a 3PL provider is not an option, it’s a necessity.
What are the Disadvantages of Working with a 3PL?
While in general, third-party logistics or 3PL can help online businesses scale up much faster, they also come with a few disadvantages. Below, we have listed the most prominent disadvantages of 3PL providers that every eCommerce company should pay heed to before thinking of hiring one.
1) Lack of Control
By agreeing to work with a third-party logistics provider (3PL), an eCommerce company has to give up some control of its business. Lack of control may manifest in certain ways such as trusting your 3PL partner to uphold the SLA terms, maintain transparency throughout the shipping process, etc.
Sometimes, trust issues crop up when information between the seller and 3PL is not communicated swiftly. Technology can help relieve such issues. An online company may also feel vulnerable sharing company-specific information with a relatively unknown third-party logistics provider.
2) Problem in Finding a Trustworthy 3PL Partner
This is a major downer. The number of 3PL options available on the internet is mind-boggling. But the right one to choose from the sea is a tough choice. Since hiring a 3PL means delegating a lot of responsibilities and proprietary information to them, you need to make sure that your third-party logistics provider is a trustworthy one. The problem of finding a trustworthy 3PL partner can seem like a disadvantage to many eCommerce companies.
The best you can do in such a situation is to go through potential third-party logistics websites, surf through their services to check out which services are the most beneficial for your business, check out user and client reviews, and finally give them a call. Talking to your potential 3PL partner can help resolve a lot of issues in advance and give you a clearer understanding of the company’s worth and word.
3) Different Business Goals
This is another major disadvantage of a 3PL that can negatively impact a company’s business operations. The problem with a third-party logistics provider is that it is also a business and therefore is motivated by its own business goals.
When working in unison, it’s important to ensure that the values and goals of the commerce company align with those of the 3PL. If either of these companies chooses to work for the upliftment of its own goals, then the collaboration doesn’t work. When choosing a 3PL company to work with, it’s crucial to straighten these issues first.
4) Shipping Overcharges
It is widely known that shipping expenses add up eventually at the time of shipping. The chances of this happening increase manifold when working with a 3PL. Shipping overcharges caused due to hidden charges, extra added costs, unclear pricing, etc. are some common disadvantages that come with 3PLs. To avoid confusion at the time of payment, eCommerce companies should ask for a thorough breakdown of the shipping price before finalizing any deal.
Conclusion
Sure, everything comes with its own advantages and disadvantages. The same happens with 3PL carriers. However, which 3PL company you choose can cover up the loopholes we mentioned above. Overall, a good third-party logistics service can become the greatest friend of an eCommerce company by taking off the shipping load and increasing sales. Every online store should consider working with a 3PL company to improve shipping and bring more customers to their platform. Good luck!
