Here's Everything You Need to Know About 3PLs
What’s a 3PL?
It’s simple, you take the
orders as usual, but a third-party logistics provider (3PL) fulfills them.
Sounds seamless at first, doesn’t it? It’s the least concern for customers
about how an order they made online gets delivered to them. They’ll hardly give
it a second thought, provided their order arrives safely and in a timely
manner. A third-party logistics provider is a link in the supply chain industry
that brands use to outsource part or all of a company’s distribution and
fulfillment services.
Following the start and exponential growth of eCommerce, the market for 3PLs
exploded. Most established companies, like the Fortune 500 companies today,
rely on 3PLS for order fulfillment, and so should you!
It’s not only about order fulfillment, but 3PLs also receive new inventory from
your manufacturers before shipment to consumers. A well equipped 3PL can also
handle retail distribution and returns. In the end, they deliver your orders
with a stellar experience.
When Should
You Enlist a 3PL?
Why wait until the orders
overwhelm you? By the time the orders have overwhelmed you, you have probably
done so much damage to your brand than you probably don’t realize; you have
broken lots of promises to your loyal customers. To make matters worse, it
distracts you from your main goal of being wholly focused on your business
growth.
These three key questions will help you when determining whether you need a
3PL:
1. How many orders do you fulfill in a
day?
If you realize that you fulfill more than 10-20 orders in a day, so, you may
want to calculate the costs of partnering with a 3PL to help keep your profit
margins strong. Similarly, estimate your growth potential—these are
opportunities you may currently not be able to pursue–by outsourcing
fulfillment.
2. Do you often run out of inventory
storage space?
It’s not unheard of for brands to forget to include storage costs in their
fulfillment expense modeling. So, compare your current expenditure with estimates
from 3PLs. Then compare between bundling storage costs and outsourced
fulfillment; which one is a better value?
3. Is your business a coiled spring?
Are you expecting a sustained spike in order volume? Unlike one-off flash sales
or marketing promotions? How about you estimate the costs and headcount
necessary to meet demand on your own, and then compare with the costs of
outsourcing fulfillment.
Types of 3PLs Providers
There are four vital
capabilities you need to be on the lookout for when comparing 3PLs:
- Warehousing
- Transportation
- Distribution
- Shipping
and receiving
Of course, size and
specialization also matter. Some third-party logistics providers lack the
native full-service capability and may only specialize in one or two areas. On
the other hand, larger established firms may provide end-to-end execution and often
integrate seamlessly.
- Warehouse- and distribution-based 3PLs
Currently considered as the
most common type of 3PL, warehouse and distribution based 3PLs store, ship, and
handle returns. Other more innovative warehouses can help you offer Amazon
Prime-like shipping in a few days. If you’re looking forward to expanding
globally, then international warehouses could be of good use to you in terms of
building a global supply chain.
Consider the following criteria when choosing a warehouse and distribution
based 3PL;
Warehouse network:
If you promise your customers expedited delivery, then you’ll definitely need a
larger network of warehouses. You will also need to forecast inventory levels accurately
in order to stock warehouses in your network appropriately.
Pricing: Request for a transparent
pricing model—and get to understand how that model will change as your business
grows. You need to know what will be included and what will cost you extra.
Shipping carrier rates: Perhaps
you have better shipping rates than the warehouse you’re evaluating. If that
happens to be the case, then ensure your warehouse partner will accept them.
However, sometimes larger warehouse networks can negotiate deeper discounts
than single businesses.
Insurance: Determine if you want
packages that are fully insured while in storage and during delivery &
return. Get to understand whether what you’re getting is really an insurance or
simply a carrier-included liability.
Other
similarly crucial capabilities include;
Daily cutoff time for
fulfilling orders
Delivery service levels
Management tools
- Transportation-based 3PLs
These are 3PLs that specialize
in transportation between locations. For instance, they could transport
inventory between your company and warehouse, or between you and your retail
buyer. When choosing a transportation-based 3PLs, consider the following;
Origin location
Destination location
Timeframes
Methods of shipping
Level of Service
Pricing and discounts
Remember to think about import/export taxes and duties if you transport freight
globally.
Examples of traditional parcel transportation providers are like DHL, FedEx,
UPS, and the USPS. Same-day delivery is usually handled by local couriers like
Postmates and UberRush. Transportation marketplaces like connect buyers and
sellers.
- Financial- and information-based 3PLs
At the moment you have scaled
revenue to eight or nine figures, you may want to consider a financial or
information based 3PL Company. These firms provide industry-specific insight
and can help optimize both simple and complex global supply chains. They also
provide internal controls related to cost accounting, freight auditing, and
inventory management. Leading consultancies like AiHello, also add valuable
insights.
Pros of 3PLs
3PLs automates fulfillment for
you, thereby letting you focus on the rest. You may want to leave the bulky
work to the professionals as you spend time growing your business and not on
moving packages.
- Work with the pros
Shipment and order fulfillment
optimization are standard 3PL specialties. You can build your own team, but since
you’re not focused full-time on fulfillment, you are likely to achieve
substandard results when matched against 3PLs.
- Manage internationalization
International expansion
requires a global fulfillment network. Processing the international orders
requires documentation and accounting for customs and duties. Outsourcing responsibilities
like processing international orders can make cross-border selling easier. It
also expedites delivery times, cuts the shipping costs, and improves customer
satisfaction.
- Limit Overhead
Leasing warehouse space and
hiring an order fulfillment team increases your overhead. Maintaining fulfillment
assets can be costly. Working with a 3PL can reduce costs so capital can be
directed toward return generating endeavors.
Cons of 3PLs
The biggest risks with 3PLs are
losing control over your inventory and completely trusting a 3PL with your brand.
Remember, besides helping with order fulfillment, there are still other aspects
of branding that a 3PL may not take care of. For a serious seller, the
following Cons shouldn’t be such a big deal;
Hidden responsibility
Your selected 3PL won’t
interact with your customers directly. So, when there is the late arrival of
orders, your customers' rage is channeled directly to you- whether it's your
fault or not.
Cost factor
High costs will be incurred
when integrating a 3PL's software with your eCommerce store, SKU upload, and
account access.
Out of your hands
Inventory stored in 3PL
warehouses will not be immediately accessible at your request should you ever encounter
quality control issues.
Conclusion
In the end, your choice of a
3PL can make or break the brand you are struggling to create. The right 3PL can
help you with logistics, customer service, and even boost the repeat purchase
rate. At AiHello, we understand the trouble most eCommerce owners go through
when it comes to order fulfillment. Finding someone to trust with sales
forecasting, inventory, and other sensitive information doesn’t have to be a
risk anymore. We will strive to provide the perfect balance between
quantitative data and brand building.
