What is a 3PL, Anyways?

3PL is a term that gets mentioned a lot in the world of logistics. Most users of a 3PL don’t really understand exactly what it means, just that “they have a warehouse”. So, what is a 3PL anyway? 3PL stands for third-party logistics and is an organization’s use of a third-party warehouse or company to outsource elements of its distribution, warehousing, and/or other fulfillment services.

This relationship can be as simple as storing a couple of pallets at a warehouse without any fulfillment needs to a more complex arrangement like a manufacturing company outsourcing its entire distribution operations to a 3PL operator in a single-use facility. It also serve the world of online commerce with warehouses that exclusively fulfill for eCommerce retailers which we will get to later in the post.

Exploring the “PL” Spectrum in Commerce

To fully appreciate the value of 3PL services, it’s helpful to understand the different “PLs” in eCommerce. For instance, a 1PL is exemplified by companies like Amazon, which sell and fulfill orders from their inventory, maintaining complete control over their logistics. On the other end, there’s the 4PL model, where a 3PL might subcontract specific logistics tasks to another provider, offering an additional layer of specialization and flexibility.

The Evolving Landscape of 3PL in Modern Commerce

The last 5-10 years have seen significant changes in the 3PL landscape, largely driven by the surge in e-commerce. Many businesses are now considering outsourcing their fulfillment and distribution to providers as a more efficient and flexible solution. This shift mirrors the broader trend in the gig economy, exemplified by companies like Uber, which prioritize renting only the necessary capacity for a given service – a concept that aligns perfectly with the 3PL model.

Most warehouse operators across the US rent large facilities with customizable storage configurations and then pair that space offering with personnel that can accommodate nearly any logistics need. This allows the 3PL to be the expert in supply chain logistics so that the customers of the 3PL can focus on growing their own business rather than delving into the minutiae of logistical challenges that inevitably arise on a daily and weekly basis.

Here is an interactive infographic showing how 3rd party logistics works

Selecting the right 3PL partner is vital for your business and not all 3PLs are one and the same. Some specialize in certain niche industries or service lines (i.e freight forwarders) while others just stick to picking and packing orders.

You need to do your homework to ensure that the 3PL you partner with has the capabilities to solve all of your logistics needs. If they don’t have the capability for a specific need in-house, they should have partners in the industry that can fill these needs at a reasonable cost.

Here is a simple list of questions to vet out when interviewing a potential 3PL for eCommerce fulfillment:

Checklist Items When Considering a 3PL Partner:

1. Do they get orders out on the same day? Most marketplaces have strict requirements for fulfilling orders which are usually either the same day or the day after the order was placed. See the guidelines for Walmart Marketplace which are very similar to those from Amazon’s FBM program.
2. Automated Businesses Processes – your 3PL should be able to capture orders from your shopping cart or ERP system through an automated API or EDI connection. Most 3PLs can upload CSV files to their systems but you want to automate as many tasks as possible throughout the fulfillment process, especially as your orders scale in volume.
3. Make sure your 3PL can track inventory on a real-time basis and that you have visibility to your available stock levels anytime you want them. Ideally, your 3PL operates on a cloud-based system and you can see this information for yourself.
4. Shipping costs are a big factor when picking an e-commerce fulfillment partner and you want to make sure that your 3PL has multiple carrier options with competitive rates.
5. Kitting & Assembly services have grown in popularity with subscription boxes and variety packs. Amazon FBA recently announced that it will no longer be offering these services and that they will only accept ready-to-sell products going forward. Your 3PL should have a dedicated kitting & assembly team that can do FBA prep or perform other assembly services on your behalf. QC and batch processes are a must to avoid errors in sending customers incorrect products.

There are a slew of other considerations when selecting a 3PL partner but the list above is a good starting point for an eCommerce-focused merchant. Selecting the right 3PL can make your life significantly easier and stress-free.

When done correctly, the relationship should feel like an extension of your own company and you can move into your next phase of growth for the enterprise.

Selecting the wrong partner can have an exponentially adverse impact on your business and often ends up being a worse experience than doing e-commerce fulfillment yourself. You are constantly worried about the 3PL’s ability to execute, this can lead to falling short of your commitments to customers. It’s not a good spot to be in and unfortunately, many 3PL operators fall into this category.

Here are some indicators that you have a good 3PL partner that is value-additive to your company. This list is not exhaustive and some items will be more important based upon the nature of your operations.

10 Signs You Have a Good 3PL Partner

1. They fulfill orders the same day and rarely get behind in the normal course of business. They have published daily cutoff times and stick to them.
2. They have a technology stack that allows for orders to automatically be imported into their system and marked as fulfilled in the shopping cart when completed.
3. They can offer omni-channel fulfillment advice on a range of logistics issues on both inbound and outbound topics. Your 3PL should be your trusted supply chain expert.
4. They can handle omni-channel fulfillment and orders with special packing guidelines. The process to do this should be a self-serve model with dedicated personnel serving as a backup or assurance that these orders are being fulfilled correctly.
5. They have affordable shipping options and allow you to get orders sent to a customer in a reasonable amount of time and cost-effectively. They should also have international shipping expertise and knowledge of duties and tax regulations in foreign countries.
6. They can flex up or down with your inventory needs. They also offer storage in multiple different container types – i.e. small bins to oversize pallet locations and everything in between.
7. They can handle special promotions that are 10x your regular eCommerce fulfillment volume. Opportunities like going on TV can happen out of the blue for an eCommerce merchant and your 3PL provider should be able to deliver for you during these spikes in volume.
8. They use scanning devices to track all products both inbound and outbound. Audit logs are important to trace all product movement in the warehouse. Their receiving process should be able to produce clean variance reports of any discrepancies for you to address with your manufacturers.
9. They should be able to handle returns from customers in an expedient manner so that you can resend replacement products or issue refunds. They should also have the flexibility to put your corporate address on packing slips so returns can be sent directly to you if you need to do any special checks before the product can go back into stock.
10. Lastly, your 3rd party logistics company should have the ability to handle special projects (like product variety packs or custom labeling) in a systemized manner. You can throw nearly anything at them and they can handle it as well as you would yourself.