by All Pointswww.allpointsatl.com
To survive and thrive in today’s fast-paced e-commerce world, you have to deliver what your customers want, when they want it. Fast, reliable order fulfillment is the key to ensuring customer satisfaction and revenue growth for companies of all sizes.
Amazon sellers and other e-commerce businesses can super-charge their business growth by partnering with a third-party logistics (3PL) provider to outsource their logistic tasks. A recent study revealed that 86% of U.S.-based Fortune 500 companies use third-party logistics providers for various logistics and supply chain functions.
These logistics suppliers can provide transportation and ware-housing services at a lower cost with better results than mer-chants that attempt to keep logistics in-house. Outsourcing can also boost customer satisfaction while relying on a third party to fulfill orders accurately and promptly. In this e-book, we’ll take a deep dive into third-party logistics, its processes and benefits, and how you can get started today.
Third-party logistics, or 3PL, is a term used to describe out-sourcing e-commerce logistics functions to third-party companies. Some functions people choose to outsource to 3PL providers include:
Inventory storage and warehousing
Packing and shipping services
3PL companies provide a wide range of logis-tics services and solutions for companies looking to outsource these functions and others. Some third-party logistics suppliers offer a complete suite of integrated logistics solutions, while others specialize in specific niches or industries.
Third-party logistics providers exist in one of two main forms: large or small. Big companies have a large staff, while smaller companies have a small staff. Which one should you choose to partner with? Consider the following:
The main benefit of working with a small 3PL is that you’ll get a more personalized approach and form closer relationships with your 3PL team. Since they have fewer clients, they have more time to dedicate to fostering a relationship with you and making sure your needs stay met.
The downside to a small 3PL is they often don’t have the capacity to adequately handle the ups and downs that happen in logistics throughout the year. This means that during holiday rushes, they may have difficulty shipping your items in a timely manner. Small 3PL companies may also have warehouse size limitations. If you’re overstocked, they may not have room in their warehouse for your products.
The major benefit of working with a large 3PL provider is reliability. Typically, these large companies are better able to navigate sudden order onslaughts. They’re also more likely to have room in their warehouses for larger orders and inventory back-ups.
The downside of partnering with a large 3PL is the lack of personalization. No one will know your products on the level a small 3PL would. Instead, you might be just another barcode.
The four types of third-party logistics providers are:
This type of 3PL offers basic logistics services, including transportation and storage.
This 3PL offers basic logistics services as well as IT infrastructure and management. This is the ideal partner for companies that need more security and compliance management.
This provider handles most of a client’s logistics management, from the entire shipping process to carrier negotiation and relationship management.
This 3PL is the most expensive option, as it fully takes over all logistics activities. This is the best option for high-volume businesses.
Third-party logistics for e-commerce is a rapidly growing industry. The Covid-19 pandemic led to seismic growth in the e-commerce space, and that momentum is not slowing down anytime soon.
This growth led to nationwide warehouse short-ages and surging fulfillment costs, which illustrated the critical importance of flexibility and scalability for e-commerce merchant logistics. Considering 84% of online shoppers would never purchase from a brand again after a single negative delivery experience, trying to manage shipping and deliveries on top of everything else merchants must manage is a risky game. Consumer standards can be daunting to manage alone, raising the stakes even higher to find a qualified 3PL partner.
A technology-first approach to supply chain and fulfillment is required for e-commerce to be successful. There’s also a growing need to integrate all sales channels through a single platform. A fully integrated e-commerce third-party logistics net-work gives you full visibility into order and delivery status across all your sales channels, in addition to inventory levels and fulfillment statuses at your 3PL locations.
A good 3PL helps a wide range of businesses across industries. Examples of companies that rely on the services of third-party logistics providers include:
When a small e-commerce store launches, it’s usually not a problem to self-fulfill and manage orders. When that business starts to grow, however, it becomes increasingly difficult. Too much time may be spent packing orders and handling shipping and not enough time scaling the business. In addition, owners and managers often call on their friends and family to help them with their orders. It’s at this point where they start to run out of room in their homes or offices for their inventory, and they may rent a storage unit or warehouse space.
From overspending on storage costs to hiring the kid down the street to help fulfill orders, the costs start to pile up. That’s when 3PLs become a way to outsource fulfillment to spend more focus and time on product design, marketing, and other business development functions while also saving money in the long term.
Small businesses that have scaled and/or have between 15-100 employees can also benefit from partnering with a third-party logistics provider. Many 3PLs provide support to fast-growing companies as they tweak their fulfillment strategies after reaching the next level of growth.
A whopping 90% of Fortune 500 companies use a 3PL. With operations that span the globe and service millions of customers, it’s no wonder these companies need the specialized, efficient services of a 3PL.
An array of fast-growing industries have found success through partnerships with third-party logistics providers, including:
Time is of the essence — and lives are on the line — when it comes to shipping critical medical sup-plies, devices, and samples. It is of the utmost importance that this precious cargo gets from point A to point B as safely and quickly as possible. Many of these items must be shipped carefully to prevent spilling or breakage. Others require careful temperature and humidity control.Third-party logistics providers have the experience necessary to ship fragile items quickly and carefully.
The pharmaceutical industry relies on fast shipping as much as the medical industry, and products re-quire top-notch protection. Strict temperature control throughout the entire process is necessary to ship insulin and other life-saving medications that must be kept cool. Some 3PLs use trucks with advanced technology that send a notification if the temperature gets too warm or too cool.
Tons of materials are needed for construction projects. Many of them come from multiple vendors and warehouses across the country. When you choose to trust a 3PL to transport wood, flooring, and other materials to a job site, you’re ensuring things arrive on time, together, and undamaged. This helps keep construction projects on time and on budget.
Downtime is deadly in the manufacturing industry. When parts or ingredients are missing, it costs time and money. 3PLs that are experienced in moving large amounts of products long distances can help manufacturers maintain a steady flow of raw materials to keep production moving. They work to keep production on schedule and on budget by making sure materials and products get from point A to point B with limited interruption, thanks to their nationwide footprints and asset networks.
Manufacturers can also save money by using 3PLs since they don’t have to manage vehicles and drivers at far-flung locations; instead, they let the 3PL handle it.
Third-party logistics providers are becoming increasingly important for the manufacturing industry as it faces a historic labor shortage. In March 2021, national manufacturing activity reached a 37-year high. At the same time, Deloitte is predicting 2.1 million unfilled manufacturing jobs by 2030. By eliminating overhead costs and reducing in-house staffing requirements, third-party logistics providers can provide relief to these companies.
Trade shows are often chaotic and involve a lot of setting up, tearing down, and product placement and showcasing. This high level of construction and coordination requires precise timing and organization to pull off — two areas in which 3PLs specialize.
It’s important to partner with a 3PL company that knows the ins and outs of the trade show scene. They can guide you through the process, so you’re free to focus on the show and landing new clients.
Cosmetics are another product that needs care and climate control during the shipping process. Cosmetics merchants prefer their products to be shipped in temperature-controlled trailers that protect them from melting, cracking, or breaking.
Expensive luxury cosmetics are also a target for thieves, making the security of the shipping pro-cess another top priority. For this reason, cosmetics companies look for long-term 3PL partnerships with personnel and truck drivers they can get to know and trust.
The aerospace industry is highly technical. It’s filled with extremely expensive parts and raw materials that come together through engineering and building that allow travelers to get from point A to point B as they please.
A lot of the materials used in the aerospace industry are high-value, including metals, that need to be handled properly and moved quickly. A reliable 3PL provider can help keep production moving forward without global delays that cost significant time and money.
The United States is home to more than 85,000 hotels. As the industry continues to grow, 3PLs play a pivotal role in helping hotels remain competitive by handling the logistics for new construction, renovations, and refurbishment projects. Logistics providers help drive successful renovation projects by coordinating all supplies, equipment, furniture, and equipment deliveries.
As a hotel orders new products for each room, the third-party logistics provider receives, stores, transports, and installs the new items as needed.
Kitting, or grouping furniture and materials together by room, is another helpful service that 3PLs provide. Kitting makes the process much more organized and efficient.
Restaurants need timely deliveries, so their ingredients stay fresh for delicious dishes. 3PLs work with regional suppliers to source the freshest possible ingredients and deliver them quickly to preserve their quality and flavor.
Year-round retail stores benefit from 3PL services. But the efficiency and cost-savings 3PLs provide seasonal retail stores are unmatched.
Every fall, Spirit Halloween shops pop up in abandoned storefronts around the country. They bring with them mounds of costumes, makeup, and decorations — all items that need to be stored somewhere the other ten months of the year.
Thanks to the flexibility that 3PL warehousing provides, these seasonal shops have the ability to scale up their warehousing space during the off-season and down during the times their store-fronts are open. 3PL partnerships also eliminate the need for a dedicated fleet of vehicles to trans-port the items across the nation.
There are other systems of grouping logistics providers, such as:
1PL: First-party logistics is when a person or company stores their goods and transports them to the end user themselves. 1PL is mostly used at smaller businesses that ship locally.
2PL: Second-party logistics is where outsourcing logistics, including transport, warehousing, and storage, starts.
3PL: Third-party logistics refers to the out-sourcing of e-commerce logistics processes, including inventory management, warehousing, and fulfillment.
4PL: Fourth-party logistics refers to businesses that outsource their entire supply chain management and logistics to a single service provider.
5PL: Fifth-party logistics refers to businesses that can manage an entire network of supply chains.
A third-party logistics provider (3PL) and a fourth-party logistics provider (4PL) both work to facilitate eCommerce businesses’ freight management needs.
But there are a few differences between these two logistics providers.
3PLs typically focus on discrete supply chain functions of e-commerce businesses. 4PLs, on the other hand, concentrate more on the design and execution of the e-commerce business process while overseeing a number of moving parts of the supply chain.
After a customer places an order on your Amazon or other e-commerce store, what happens next? The 3PL order fulfillment process goes like this:
It goes without saying that an order you placed can’t get to you without inventory. In 3PL warehouses, the processes of accepting incoming inventory and storing it are both considered receiving.
Each 3PL has its own unique procedures for the receiving process.
A 3PL fulfillment center stores products when they receive the inventory for your order. The process is very organized, thanks to each SKU having a dedicated storage space to itself on a shelf, in a bin, or on a pallet — or however the 3PL chooses to store it.
Of course, the storage capacity varies from 3PL to 3PL, and it’s important to partner with a 3PL that has enough — or more than enough — storage space for your current inventory to ensure they don’t run out of room. If you’re growing your business, make sure your 3PL can scale with you.
As we mentioned, the 3PL fulfillment process starts as soon as a customer places an order. Some 3PLs may require you to manually upload orders to their database. When spreadsheets are used for this process, it can be a bit confusing.
Ideally, you’ll partner with a 3PL that uses a more advanced, innovative form of technology to seamlessly integrate the orders with your e-commerce platform to streamline the fulfillment process. This streamlined process creates more automated ship-ping by bringing everything into one location, from orders, shipments, and inventory tracking to stock levels, and immediately sending customer orders to the 3PL as soon as they’re placed.
When every item in the order is accounted for and on hand, the packing process begins. Obviously, a great deal of care is required during this step to ensure the goods reach the consumer in tip-top shape. Each 3PL has its own preferences for the packing supplies they use, but common packing items include:
Bubble mailer bags
Some 3PLs will include the cost of packing supplies in their overall cost, while others may bill you separately for it.
The 3PL is also tasked with choosing the best packaging materials to keep the goods safe while also keeping the weight of the items as low as possible to avoid additional shipping costs. Using appropriate packing materials can significantly reduce logistics costs.
It’s a good idea to partner with a third-party logistics company that lets you use custom packaging materials, like boxes and inserts, if you’re looking for brand recognition and awareness throughout the shipping process. Branded packaging plays a key role in leaving a lasting impression on customers, especially since most customers will have their first physical interaction with your brand via a package.
Here are some quick stats that emphasize the importance of branded packaging:
70% of customers form a brand impression solely based on the packaging their order arrives in.
55% of customers reported repeating business with a brand that provided custom packaging.
52% of customers say they’re willing to pay for more products if they like the packaging.
30% of businesses reported an increase in revenue when they improved their product packaging.
Now it’s finally time to ship your goods to the consumer. Most 3PLs buy and print shipping labels. Some may compare shipping prices from a number of carriers and choose the best price for each order, while others work with preferred carrier partners on an exclusive basis. Orders are picked up from the 3PL warehouse and shipped by UPS, USPS, FedEx, DHL, etc.
The shipping speed and carrier for each order are determined by the 3PLs policies, agreements, and partnerships in addition to the shipping options you offer the consumer and the consumer’s choices. For example, one consumer might decide to pay extra for overnight shipping while another chooses to get a discount for a “green shipping” option.
Once the order ships, the 3PL’s integrated technology sends the tracking information to the merchant and often the consumer as well.
Returns are an unfortunate but inevitable part of running an e-commerce or Amazon store. Many 3PLs provide return services as well. If this is the case, when a customer returns an order, it goes directly to the 3PL for processing, and they either restock the item to be redistributed or dispose of it.
Some merchants choose to have their 3PL offer return shipping labels to their customers to allow them to easily track the status of their returns. This takes the burden of handling returns off your hands, saving you time and resources and allowing you to focus on other higher-level tasks and duties.
According to a recent survey, nearly 90% of third-party logistics customers said their operations improved after working with a 3PL provider. There are a number of benefits — for both the merchant and consumer — of third-party logistics. Benefits for the seller include:
Logistics is no easy task, especially in 2023, with an ongoing supply chain crisis and an industry still trying to regain its footing after coming to a screeching halt during the Covid-19 pandemic. Logistics takes up a lot of time, energy, resources, and money — all things you can dedicate to other functions of your business when you partner with a third-party logistics supplier.
In addition, you’re partnering with experts in shipping, warehousing, and inventory control that focus on their areas of expertise. This frees you up to focus on yours — increasing customer satisfaction, fostering strong customer relationships, and ensuring you’re producing the best quality goods possible. Partnering with 3PL also means your staff can focus on customer service rather than dealing with shipping companies and tracking inventory.
3PL providers have more resources today than ever before. This means you have more options to make sure your customer’s needs are met. Interested in gaining a competitive advantage by offering next-day delivery? Your third-party logistics provider can likely make that happen with the click of a button. Now imagine trying to figure out the logistics, cost, and process of deploying next-day delivery on your own. That’s a lot of time away from customer-facing tasks!
Partnering with a 3PL lets you respond quickly to customer needs, which improves customer satisfaction — and your reputation.
As a recession looms, businesses of all sizes are looking for ways to cut costs, and employee costs are often one of the first things companies look to trim. When you partner with a 3PL, you can stay two steps ahead by not needing to hire — and then lay off — a large staff. 3PLs can provide a host of staffing solutions, including drivers and warehouse employees.
A lean workforce helps your bottom line and saves your most valuable resource: time. Instead of spending time on recruiting, interviewing, hiring, onboard-ing, and training plus managing schedules, payroll, and taxes, you can spend more time growing your business instead of managing a large number of employees.
In today’s complex global market, anticipating and accommodating consumer needs can be challenging. 3PL service providers are experts at navigating the entire logistics process and all the ebbs and flows that come with it. They know how and when to pivot if necessary to cut costs and continue meeting the customer where they are. In addition, their specialized experience and expertise span transportation documentation, importing and exporting, international compliance and economic regulations, and so on. They have up-to-date knowledge and skills in these critical areas that Jan from accounting can’t keep up with.
Customers want their orders delivered yesterday. They’ve grown accustomed to speedy shipping and expect nothing less. In fact, 62% of shoppers expect their free shipping orders to arrive in three business days. That means you can’t afford to not have fast shipping.
Third-party logistics providers use economies of scale to boost efficiency by:
Delivering your products to the customer faster
Reducing inventory with more frequent deliveries
Tracking warehouse inventory more efficiently
Partnering with a 3PL provider is also cost-effective, as you won’t have to worry about the expense of renting a warehouse, paying warehouse workers, and coordinating transportation. Instead, your 3PL provider will bill you for the space you use in their warehouse, while they worry about maintaining just the right amount of inventory.
When your logistics are run efficiently, production becomes more dependable, and customer satisfaction spikes because orders are received on time.
E-commerce merchants can easily scale their operations to keep up with surges in demand by partnering with third-party logistics companies. This feature is especially valuable for small and medium-sized businesses that may be struggling with upgrading their logistics to match consumer demand.
Consider this example: Remy makes custom charcuterie boards in the small town where he lives. One day his wife takes a TikTok of his work, and it blows up, getting one million+ views. Suddenly, Remy is an overnight sensation with thousands of orders. Unable to keep up with demand, Remy expands his manufacturing operations and partners with a third-party logistics provider. The 3PL has an existing nationwide shipping network and the means to fulfill Remy’s orders. Now, all Remy has to focus on is creating his boards while his 3PL partner goes to work supplying customers in a timely manner.
Working with a third-party logistics provider en-ables e-commerce merchants to be more responsive to surges in demand.
Did you know you could choose to partner with a third-party logistics company for certain times of the year? If your busy season is in December or July, for example, and it doesn’t make sense to pay for year-round 3PL services, some companies offer short-term or seasonal contracts.
If you’re selling in only one region, you’re drastically limiting the reach of your business and your business’ potential. When you partner with a 3PL, you can expand your reach. This is because third-party logistics providers have expensive networks of fulfillment centers that in-house fulfillment simply can’t compete with. A 3PL with fulfillment centers in major U.S. and international cities can help reduce shipping costs and the time it takes to get orders in your customers’ hands.
Take Amazon as an example. They’ve built the planet’s largest fulfillment network, with more than 200 fulfillment centers totaling more than 200 million square feet and more than 200,000 operations staff employees. When you partner with Amazon Supply Chain, you gain access to that robust global network and can use it to quickly and reliably deliver your goods to your customers around the world and across different sales channels.
Merchants that operate Amazon stores have two options for fulfillment:
Merchants that don’t sell on Amazon and instead sell via their own e-commerce websites or other channels are best suited to Amazon’s Multi-Channel Fulfillment (MCF) program.
These merchants can also sign up for Buy with Prime to offer free two-day shipping. You’ll also enjoy discounted shipping rates and real-time monitoring of your shipments with the Buy with Prime program.
Amazon’s Fulfillment by Amazon program offers a complete service for e-commerce sellers that of-fers the following benefits:
Packages are received, stored, and shipped for you
Return management, including collecting, restocking, and disposing of the merchandise
Cost savings by avoiding website and hosting services, high shipping fees, and paying people to pick and pack your goods
Access analytics for a real-time view of your inventory
Insights to understand when your stock levels drop too low or too high, which products are selling the best, and trending keywords shoppers are using to find your products
Customers can contact Amazon support any time of day or night
Connect with 300+ million daily shoppers
A recent survey found that 86% of shippers believe using a 3PL enhances customer service. Here are the top benefits for the customer of using a 3PL service.
It’s no secret that today’s consumers expect a seamless shopping experience — whether they’re shopping online via desktop or on the go with their smartphones. In fact, 90% of customers expect a seamless experience regardless of where the touchpoint is.
Today’s consumers also want delivery and in-store pickup options. A 3PL can help you achieve this with a strong order management system (OMS) to optimize inventory. This lets you fulfill orders from different sources, including stores, vendors, and DCs. It makes it a breeze to offer services that put the customer first, such as the option to buy a product online and pick it up in-store the same day.
As mentioned, consumers want their products in their hands as soon as possible — and they don’t want to pay an arm and a leg for shipping. In fact, 66% of consumers expect free shipping on every purchase.
Unfortunately, many e-commerce brands struggle to keep up with these consumer demands because they don’t have the infrastructure to provide nationwide overnight, one-day, and two-day delivery. But a 3PL provider does. Your 3PL supplier and their order management system can process orders more efficiently. They’ll also identify the fulfillment source closest to the customer for the fastest delivery possible.
What’s more, they likely have automation systems that increase the speed of the delivery process even more.
Third-party logistics also have networks of facilities strategically located around the country to allow you to fulfill two-day shipping. Some even have sufficient facilities to enable you to fulfill next-day shipping.
You’ll also save on freight costs thanks to their existing partnerships and relationships in the trucking industry.
Today’s consumers expect a personalized experience. In fact, 71% feel frustrated when a shopping experience is impersonal. From gift wrapping to engraving and monogramming, customers enjoy adding a unique touch to the things they buy. Personalizing the customer journey can help you stand out from your competition and win customer loyalty. But it’s labor-intensive and costly to offer these special touches. This is another area where your 3PL provider can help you.
Third-party logistics providers can help you expand your product and service offerings without excessive inventory or the need to hire extra staff.
Customers want to know in real-time whether the products they’re interested in are available online and in stores. 80% of customers report being less likely to visit a physical store if its website does not display the most recent product availability.
3PL can provide accurate, up-to-date information about your inventory, so you can always see what’s in stock and what’s not.
With more options than ever before, consumers demand excellent customer service these days. If you can’t provide it, they’ll jump ship. 63% of consumers report they would leave a brand they trusted due to a poor customer experience. You need all the help you can get to keep up with these demands.
A 3PL can be a helpful partner, especially during busy times of the year, such as the winter holidays, with their space, labor, and technology capabilities. These valuable resources provide added flexibility and staff to handle an increase in order volume during a holiday rush without missing a beat.
Third-party logistics providers must overcome a few obstacles in today’s climate, including:
Third-party logistics companies transport goods between different cities, states, and even countries and continents. This means there are many laws and regulations they must follow at all times. With government regulations that vary from city to city, state to state, and country to country, it’s challenging to ensure they’re consistently meeting these fluctuating regulations.
With a global labor shortage, it’s never been more challenging to recruit and retain workers — third-party logistics is no exception. Many 3PL providers are struggling to fill their open positions with skilled candidates with the required skills, training, and experience. In fact, 56% of 3PL report labor shortages have impacted their operations. However, unlike other periods of labor shortages, 29% of 3PLs believe this is a permanent shift.
For third-party logistics companies whose margins are already thin and unable to withstand declines in efficiency, this lack of talent is leading to a loss of productivity and efficiency.
The global labor shortage and supply chain crisis are throwing a one-two punch at logistics companies worldwide. As supply chain challenges caused largely by the Covid-19 pandemic and war in Ukraine continue to strain 3PL and shipper relationships, 3PLs are turning to technology as human talent becomes harder and harder to find. Over three-quarters of shippers say technology solutions are playing a more significant role today when choosing third-party logistics partners.
Sudden increases in fuel prices can have a devastating impact on third-party logistics companies. No company that operates delivery services is immune from the impact of rising fuel costs. When fuel prices go up, these companies typically see a decline in revenue as the amount they have to spend on fuel increases dramatically. The higher the price of fuel, the higher the prices that are passed on to the consumer.
As environmental concerns increase, lawmakers and consumers are becoming leery about the impact of the transportation industry on the environment. With enhanced local and state regulations against idling and emissions reduction, industry players are growing increasingly worried about how these new regulations will impact their operations, cost, and efficiency. If 3PL companies can’t find cost-effective ways to comply, following these regulations will likely cost them more.
It’s difficult for third-party logistics companies to meet all their clients’ needs because they differ from company to company. 3PLs that haven’t kept up with technological innovations are experiencing major headaches with the growing demand for fast shipping and real-time delivery updates.
Now that you have a good understanding of what third-party logistics is and the business impact they can deliver, you must determine whether you could benefit from enlisting their services. Here are some telltale signs that your e-commerce business needs a third-party logistics partner:
Sometimes businesses grow so fast that their logistics operations can’t keep up. A 3PL can help you scale these operations over time, so you’re never unable to meet demand as your business grows and evolves.
62% of American online consumers believe fast delivery is the most important part of a positive customer experience. What e-commerce business owner doesn’t want to tap into that? A 3PL provider can enable you to offer expedited shipping and real-time delivery tracking while ensuring fast, reliable fulfillment.
The cost of shipping, warehousing, and inventory is a heavy burden. When you partner with a 3PL company, they bear the brunt of that burden, including warehouse space, delivery vehicles, and personnel. When you don’t have to worry about investing in those resources, you free up working capital and can channel it into initiatives that supercharge your long-term business growth.
3PLs can help you optimize costs by managing your inventory, shipping, and warehouse operations efficiently.
As we mentioned earlier, partnering with a 3PL provider makes expanding your reach into new markets a breeze. Your 3PL will use their expertise and experience in national and international mar-kets to help you successfully:
Navigate new business landscapes
Deal with regulatory and operational challenges
Minimize the cost and complexity of logistics
If you’re seriously contemplating what third-party logistics can do for your Amazon or other e-commerce store, here are some important features to look for when choosing a 3PL company to partner with:
The main reason to partner with a 3PL company is to make your life as a business owner easier by outsourcing logistics functions, so you have one less thing to worry about.
Make sure the 3PL company you choose to partner with offers the following critical services:
Inventory management: Managing inventory involves a lot more than just storing your products. The 3PL you work with should enable you to easily sync inventory with your online store, view inventory levels, access real-time updates, and proactively re-order inventory to ensure your products are never out of stock.
Distributed inventory: When you work with a 3PL with several warehouses across the country, you can split your inventory across the warehouses to ship items from the fulfillment center closest to your customer. This is known as distributed inventory, which means you can offer two-day ground shipping to those customers who live near warehouses — a much cheaper option than expedited air shipping. If you’re just getting started with your e-commerce store and don’t have a high volume of shipments with customers across the country, you don’t have a need for this service. If you plan to scale your business fast, however, it’s something to keep in mind.
Returns management: Third-party logistics providers handle all returned orders for you. Some 3PLs even integrate with returns software to streamline the customer experience even more. You can choose to have returns restocked, quarantined, or disposed of. Find out how in-depth the 3PL’s returns process is and whether they offer the follow-ing services:
Checking for packaging and item damage
Restocking returns in new condition
Creating new SKUs for items that were used or slightly damaged to sell them at a discount
Discarding food or damaged products and calculating the loss
Customization: Remember how important providing a personalized customer experience is? Find a 3PL that can help you take your personalization to the next level through custom gift notes, packaging, and kitting.
Advanced data analytics: Data is a powerful tool that informs decisions and gives you an edge over your competition. 3PLs should offer analytics tools to give you deep insights into things such as:
The demographics of who’s buying your products
The number of customers making repeat purchases and the items they’re repurchasing
The search terms consumers are using to find your products
The top three products shoppers are buying instead of yours
International fulfillment/Global presence: If national or global expansion is important to you, make sure you find a third-party logistics partner with a multi-state and/or multi-country presence.
Choosing a 3PL partner familiar with Amazon FBA rules and regulations is important, considering Amazon’s unprecedented reach. Make sure you ask 3PL providers you’re meeting with if they’re familiar with Amazon FBA rules and regulations.
Amazon FBA has the following requirements:
Amazon has strict palletizing and packaging requirements for accepting international shipments. If you fail to follow them, Amazon will reject your shipment, causing a very expensive and troublesome — avoidable — mistake. This is why it’s so important to work with a logistics team familiar with Amazon’s requirements.
Amazon also typically requires that shipments arrive via pallets that are 48” x 40” and made of wood. Amazon does not accept plastic pallets, and goods that are palletized in China must contain a fumigation certificate.
You should aim to have your goods placed on pallets for air freight shipment in the United States since the added weight can cause shipping costs to spike. Goods that are being shipped via ocean freight should be palletized in China because it’s cheaper.
You should also find out how pallet storage costs are assessed when evaluating your warehouse options. Some 3PLs use monthly assessment systems that charge based on how much inventory you have stored on a particular day of the month.
Many sellers make the mistake of looking at per-pallet storage costs. The real costs lie in the so-called “small fees” that add up. That’s why it’s important to gather as many details as possible about the fees.
On-time shipping percentage: We’ve already established that delivery times can make or break your business. So it’s essential to ensure that the percentage of deliveries on-time is as high as possible.
Shipping accuracy: Sometimes packages end up at the wrong place. When it happens occasionally, it’s usually no big deal and to be expected. But, if it’s happening more than 1% of the time, it’s a big problem that could devastate your business.
Order accuracy: Shipments should not just arrive on time; they should contain what the customer ordered. There’s not much wiggle room for this. If your order accuracy falls below 99.8%, it’s time to invest in a new third-party logistics provider with higher order accuracy.
Inbound receiving time: If you don’t have inventory when a customer orders something, you have a problem on your hands. If a large shipment arrives at your 3PL warehouse, they need to move it into stock ASAP. Otherwise, you’ll lose sales and money while frustrating customers.
Order time to fill: This part of the process focuses on how long it takes for an order to be processed and ready for the carrier company to pick up.
Inventory accuracy: If your 3PL provider doesn’t have an accurate inventory management system, you will be unable to predict your supply needs.
Time to process returns: You should process returns quickly to avoid encountering issues in the reverse logistics process.
Return rate due to shipment damage/error: Packages are vulnerable to getting damaged during the journey from merchant to consumer. But if your packages are routinely returned due to damage, your packaging — or how your provider is packaging your items — is probably defective, whether the boxes are too small or not enough padding is being used.
Cost per unit shipped: It’s a good idea to periodically review your 3PL’s performance by taking the total cost to ship and dividing it by the number of packages shipped in that time period.
Another excellent benefit of partnering with a 3PL is the state-of-the-art technologies they will introduce you to. With that in mind, you’ll want to make sure the 3PL you choose to work with has its finger on the pulse of emerging technologies and trends to help fuel your business growth. These technologies help with vital business functions, such as inventory management, warehouse automation, and shipment routing and tracking, just to name a few.
You’re not working with a cutting-edge third-party logistics provider if you can’t get real-time updates on order statuses, inventory levels, and shipping and fulfillment costs.
The best 3PLs have software that proactively notifies customers of critical information. This is especially important because things can go wrong in a heartbeat in the world of logistics. By receiving immediate notification of the problem, you can work to fix it immediately, hopefully before the customer has a chance to notice.
For example, the software should send you an alert if a customer places an order with an address that’s undeliverable. Then, you can immediately reach out to the customer to fix the issue before their order turns into a late shipment or, worse, is canceled.
Some 3PLs specialize in specific industries, while others paint with a much broader stroke. Decide whether it’s important to partner with a 3PL in your specific niche or whether you don’t mind working with one that caters to a wider array of industries. No matter which option you choose, it’s critically important to ensure that the company you work with has experience serving companies in your industry. Try to get references from current or past clients of the 3PL company.
To keep up in today’s competitive business cli-mate, businesses need speed and reliability. Make sure the 3PL you choose to work with has the following:
A proven track record of delivering on time for customers around the world and across different industries.
Shipping speed options — including next-day and two-day delivery — to meet the needs of your business and customers.
The ability to handle increased or decreased order volume when your e-commerce store experiences sudden surges or drops in business.
Your reputation is your lifeblood as an e-commerce merchant. Late orders can turn into bad reviews in an instant. You need a 3PL provider you can count on.
The best third-party logistics providers have their processes nailed down so precisely that they rarely make mistakes. On the rare occasion that a mis-take happens, they know how to spring into action to fix it. Look for a 3PL provider with an on-time fulfillment rate of 99.9% or higher.
Lower your chances of setbacks by choosing a 3PL partner that offers end-to-end logistics that cover the entire supply chain. When you out-source your e-commerce warehousing, order fulfillment, transportation, and pick-and-pack to an experienced third-party logistics company, you’re putting your logistics in good hands while creating a streamlined, stress-free order fulfillment process for your team.
It’s important to find a 3PL company with services that fit within your budget. Pricing structures vary from 3PL to 3PL, so this is a step that should not be skipped.
Some third-party logistics providers offer simple, predictable pricing models for storage and fulfillment with the option to add services for warehousing, picking, packing, and shipping. Others use more complicated pricing models with hidden fees and long-term contracts. The provider you choose should be the one that offers the best services at the lowest cost.
Full truckload (FTL) and less than truckload (LTL) are two shipping options for merchants to ship their goods to their customers. The ideal third-party logistics company will offer both of these methods.
FTL is good for when you need to ship large orders. For small shipments, LTL works better because you can add your items to pallets and not be forced to pay for a full truckload. Customers that work with 3PLs that don’t offer flexible shipping options will always pay too much or be stressed over the inability to transport larger shipments in a timely fashion.
Whether you’re working with a 3PL provider down the block or across the globe, it’s important to check their hours of operation and opt for a 3PL company that’s open when you’re most likely to need them. Of course, using an overseas 3PL makes this more challenging, so consider using a company that at least has offices in your time zone.
Safety and customer service go hand in hand. A strong safety record has always been an important component of choosing a 3PL, but it’s more important than ever in today’s landscape of ever-changing safety regulations. This is why you must choose a 3PL partner with a good track record for safety and policies and a company culture that reflects a dedication to safe practices and responsibility.
Pro tip: Choose a third-party logistics provider that’s as close to you as possible. Although you’re likely interested in how a 3PL provider can take away your inventory headaches, there will likely come a time when you need to visit your 3PL to see your inventory IRL. And when you need to see your inventory up close and personal, it will likely be during an emergency. Imagine if all your items were barcoded incorrectly!
Now that you understand the functions and benefits of a third-party logistics provider, as well as what to look for in a 3PL partner, here are some tips to choose the right 3PL:
Clearly define and document your 3PL requirements, the results you expect, and your priorities.
Set down what — if any — logistics functions you will keep in-house.
Dedicate an internal team to choose and work with the 3PL.
Make sure the 3PL company has the ability to upscale operations if necessary.
Ask the following questions when meeting with a potential third-party logistics partner:
“Do you offer customizations to your services, contracts, etc.?” The one-size-fits-all approach may not work for your business now or in the future, so it’s important to choose a partner that’s flexible.
“Do you offer solutions in multiple segments of the supply chain, or do you focus on a specific niche or area?” If your organization has specialized needs, you may want to partner with a niche 3PL provider.
“Do you have client testimonials I can see?”
“Do you have any past or current clients I can call for a reference?”
“Do you have guaranteed handling times? What happens if they’re late?”
“Do you hire more staff around the holidays and other busy times of the year?”
“Are you equipped to handle mail and mail forwarding?”
“Do you provide insurance on my inventory?”
“Can I come to the warehouse at any time to view my products?”
“Can you integrate with my e-commerce platform?”
“Can you create pallets for me?”
“Can you handle a small number of orders?”
“Can you handle a large number of orders?”
“Can you handle food-grade requirements?”
“What’s your experience with Amazon?”
It’s also a good idea to verify the company’s financial health through a quick Google search. This can help your business avoid unexpected turmoil and risks because the third-party logistics company can’t deliver on their promises.
Third-party logistics providers are an exceptionally helpful tool for Amazon sellers and other e-commerce merchants.
If you’re looking to optimize your time and spend fewer resources on logistics, it may be time to partner with a 3PL. After reading this e-book, you should have a handle on the services 3PLs provide and their benefits, as well as what to look for in a 3PL and some questions to ask when speaking with different third-party logistics providers.