3PL (Third-party-logistics) guide: everything you need to know

What is a 3PL?

A 3PL (or third-party-logistics) partner is an organisation that typically provides warehousing, fulfilment, transportation, and other forms of logistics support to retailers and eCommerce businesses.

When a business starts to grow, day-to-day operations can quickly become too cumbersome to handle in-house. A 3PL can help you with inventory storage, order fulfilment, last-mile delivery, returns management, inventory management, and more.

As eCommerce continues to boom, 3PLs are constantly in demand. For you, that means there are plenty of 3PLs available on the market, each with their own pros and cons, features and services, and specialisations.

After reading this article, you should have a thorough understanding of what a 3PL is, how a 3PL can help your business, how to determine whether you’re ready to outsource to a 3PL, and much more.

What does a 3PL do?

The purpose of a 3PL is to manage various aspects of logistics and fulfilment. Different 3PLs offer different services, but the majority of 3PLs will offer these core services:

Inventory tracking

When a 3PL processes your goods into inventory, they’ll also label, scan, and input tracking information into their inventory management system to provide you with status updates and stock visibility, wherever the stock is in the fulfilment process.

This helps both your business and the 3PL keep track of things (ensuring inventory doesn’t go missing), and can even be used to provide tracking information for your customers.

Storage

3PLs will have one or more warehousing facilities to keep your goods safe and pristine until a customer makes an order.

These facilities are equipped with shelves, racking, pallet storage areas, bins, and in some cases, temperature controlled areas (for chilled / frozen produce, etc), high value cages, and more.

Picking and packing

When an order is placed on your website or marketplace, the 3PL will pick the items from storage and pack them in suitable packaging ready to be dispatched.

Most 3PLs will choose the most suitable, cost-effective packaging on your behalf, or give you the option to use custom packaging.

Shipping

By integrating with your shopping channels, 3PLs will have access to all the necessary shipping information for each order, and print the required shipping labels once orders have been packed.

Most 3PLs have a network of carrier partners that collect from their facilities at multiple times throughout the day. You can leave it up to the 3PL to allocate the most cost-effective shipping service for each order, or opt-in to preferred shipping solutions.

Returns management

Most 3PLs offer a returns management service. As part of this service, the 3PL will process returns on your behalf. Customers will return products to a 3PL facility, where fulfilment staff will check the validity of the return, and if valid, place it back into storage.

Inventory Management

Tech-enabled 3PLs will also provide you with a sophisticated inventory management system. These systems are designed to give you clarity and control over inventory that’s with your 3PL, as well as detailed inventory insights that you can use to help grow your business.

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What’s the difference between a 3PL and a 4PL?

During your research, you may have heard the terms 3PL and 4PL being floated around quite a bit. While 3PLs and 4PLs operate in the same niche, their roles are quite different.

A 4PL’s responsibilities encompass much more than a 3PL. A 4PL will manage 3PLs on your behalf, as well as various elements of the end-to-end supply chain. They often operate as the middleman between your business and supply chain partners.

4PLs are much rarer than 3PLs, and exist primarily to serve enterprise level companies that have vast, complex supply chains. A 4PL will take practically take on-board practically every element of supply chain management, which can be great for companies who do not have the resources to manage such a task in-house.

How do 3PLs work?

Operationally, 3PLs are complex. They generally blend human resources and technology to ensure that orders can be fulfilled efficiently, with total visibility for all stakeholders.

In order for a 3PL to function properly, they will need to connect their inventory management system with your online storefronts. To do this, 3PLs use an API to sync the systems together, so they can communicate with each other seamlessly. This integration is the catalyst for the rest of the operation.

The way a 3PL’s facilities work depends on a number of factors, such as technology (like automation), size, and business model. As a rule, 3PLs follow a strict step-by-step process to fulfil an order, reducing the risk of human error, and creating a systematic baseline that all facilities under the 3PLs umbrella can follow.

3PL pricing models vary, but pricing should be a tailored solution for your business. It’s better to avoid 3PLs that feature an out-of-the-box pricing model, as this fails to understand the intricacies and bespoke requirements of every business.

As a rule, expect to pay a monthly subscription fee to access the 3PL’s inventory management platform and client support services, as well as pay-as-you-go fee on the various different services that make up a 3PL’s offering, such as picking, packing, and shipping.

Why should I work with a 3PL?

There are many benefits to working with a 3PL. Supply chains can be complicated, and as you scale, so does the complexity of your supply chain.

Practically all successful businesses reach a point where it becomes financially viable and operationally essential to seek external help in the form of a 3PL. If your business is beginning to experience growing pains, working with a 3PL can bring value in the following ways:

Expertise

By nature, a 3PL understands the logistics industry inside-out. They’re well positioned to support your business in developing and implementing a logistic strategy that’s unique to your size, industry, and requirements.

Partners

3PLs often work with partners that can provide additional value to their services and support for your business. For example, 3PLs will have good relationships with leading carriers in the UK, such as Royal Mail and DPD.

Many 3PLs also partner with companies in the wider eCommerce industry, such as digital marketing agencies, payment providers, packaging companies, and more. By working with a 3PL, you can often gain access to these partner services at a reduced rate.

Time-saving

One of the biggest benefits of working with a 3PL is the amount of time they can save you every day. Fulfilling orders takes time, whether it’s procuring packaging materials, packing orders, speaking with carriers, or handling returns.

The other big time-sink is inventory management, but a good 3PL will make it easy for you to check-in on stock and manage inventory effectively, without the need for complex spreadsheets and headache-inducing data analysis.

You can then reinvest this time and energy into other areas of your business, such as marketing, networking, product development, recruitment, or any other activity that will help you grow.

Smoother, faster growth

A 3PL has the capacity to continue to meet your needs as you grow your business. Growth can often be bottlenecked by space, workforce, technology, processes, and other factors. 3PLs are designed to reduce common growing pains associated with rapid growth.

And, when you consider the time saved via outsourcing to a 3PL, and the resources you no longer have to manage directly, you can put further energy into growing your business rapidly, rather than meeting the day-to-day needs of your customers.

What are the cons of working with a 3PL?

As with all things, we’d be remiss to not mention potential downfalls to working with a 3PL. While most cons can be overcome, issues can arise if you’re working with an inexperienced or inflexible 3PL.

Relinquishing control

You might be used to having full control over every aspect of your business, personally ensuring that things are running as intended.

Obviously, when you start working with a 3PL, you aren’t going to be able to personally oversee everything, which for some people, can be a source of anxiety. If your 3PL does a good job, these feelings will subside over time.

A good 3PL will understand this, and make ongoing communications with you a priority.

A 3PL may not understand your brand

Your business won’t be the only one in a 3PL’s client-pool, but they should have processes in place to fully understand your businesses’ goals, values, and ambitions.

It should be a 3PL’s priority to begin developing a deep understanding of your business right off the bat, straight from the initial phone call. Conversations should continue through onboarding, and through regular catch-ups with account management teams and customer service professionals.

Unfortunately, some 3PLs do not follow this process, which can have a detrimental effect on your relationship with them.

How do I know if I’m ready to work with a 3PL?

It’s generally unwise to start using a 3PL if you’re yet to start selling or are only shipping a handful of orders every week.

But, as your business grows, you’ll soon get to a point where fulfilling orders is becoming too time-consuming, or you’re making a lot of mistakes. If you resonate with either of these issues, then it’s probably time to start looking for a 3PL.

Another limiting factor when it comes to fulfilling orders in-house is space. Even if you’re selling smaller, lighter goods, boxes and containers can eventually stack up and take over your living space.

A 3PL allows you to store your stock elsewhere, letting you reclaim space in your home.

What should I look for in a 3PL?

In your search for a 3PL, you might be overwhelmed with the amount of options available. But like everything in life, some 3PLs will be more suited to your needs than others.

That’s the starting point; you need to figure out what your needs are before you approach potential 3PLs for more information.

If you require local fulfilment, for example, it won’t be necessary to approach 3PLs that offer international services. Similarly, if you aren’t planning on growing your business in the future, then you probably don’t need to speak to 3PLs with huge capacities.

That being said, here are some key areas that most eCommerce businesses should look for in any potential 3PL partner:

Track-record

A good 3PL will have demonstrated experience in working with eCommerce businesses like yours. Take a look at their website to see if they have any case studies that support this, and ask whether they have fulfilled products within your industry.

They should be able to give examples of clients who have succeeded, grown, and scaled while working with them.

Scalability

If you have significant growth aspirations, you need to look for a 3PL that can keep pace with you. If you choose a 3PL that’s too small, you may end up outgrowing them, resulting in a disrupted service to your customers and some unnecessary headaches for you.

Technology

Modern 3PLs should have sophisticated technology to support their operations, and data analysis on your side. 3PLs without robust tech in place will be far more inefficient than their tech-enabled counterparts, resulting in a slower, less accurate service for your customers, and poor data visibility for you.

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Location

Any 3PL you work with should be positioned closely to your customer base. It makes little sense to ship your inventory to a warehouse that’s a large distance away from where the majority of your customers are based. Strategic inventory positioning is key to cost-effective shipping and fast delivery.

Customisation

eCommerce businesses often use bespoke and tailor-made solutions to sell goods to their customers. A good 3PL should be similarly flexible, and be able to adapt to your specific requirements. Out-of-the-box 3PL solutions are generally best to be avoided.

Support

Navigating the world of eCommerce logistics is difficult; that’s one of the reasons you’ll likely be in search of a 3PL in the first place. A good 3PL will have a dedicated support team who are knowledgeable, friendly, and responsive. They should be able to provide day-to-day support as well as ongoing account management.

Culture

Your brand and company culture is an important aspect of your value proposition. Any 3PL you work with should be aligned with your worldview and values, as they will play an enormous role in your company.

How should I choose a 3PL?

Outsourcing to a 3PL isn’t a decision to be taken lightly. While pricing will, of course, be involved in your decision making, there’s much more to consider.

Ultimately, any 3PL you choose will be entrusted with lots of responsibility. Your customers rightly expect high standards, and so your chosen 3PL needs to understand that they will be acting as a custodian of your brand.

Moreover, it’s important to choose a 3PL that aligns with your business culture and values. It’s important for your customers, and it will make day-to-day communications between you both far easier.

To help you choose the right 3PL, here’s 20 questions you should ask during an initial consultation:

  • Do you provide international shipping?
  • Do you have service-level agreements (SLAs) with your clients?
  • How do you prevent the wrong items being sent to customers?
  • Do you offer a returns management service?
  • What security measures do you have in place?
  • Do you offer a secure area for high-value products?
  • Can my customers track their orders?
  • Do you have a customer service team?
  • Can I visit your facility?
  • How many hours a day / days a week do you operate?
  • Do you have back-up hardware and internet connections, to maximise uptime and
    efficiency?
  • Can you help me with business sales forecasting? For example, identifying best and worst-selling lines and stock levels?
  • Do you offer flexible pricing plans?
  • Do you offer custom packaging?
  • How do you reduce damages to products?
  • Do you offer multiple shipping options and services?
  • Do you offer same-day despatch on orders?
  • Do you have a culture of continuous improvement? What improvements have you
    recently implemented?
  • Do you have a pre-built integration with my eCommerce platform? How long will it take to set up?

Learn more about James and James, an industry leading 3PL

If you’re interested in learning more about what a 3PL can do, or are looking to start using 3PL services, James and James can help.

They’re an industry-leading 3PL that combines refined operations, an international network of fulfilment centres, and an award-winning inventory management platform to offer a cost-effective and optimised solution for growing eCommerce businesses.

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Our fulfilment solution is probably cheaper than you think. We have fulfilment options for every type of eCommerce business, from SMEs to large enterprises. Head over to our pricing page to learn more about our prices.

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Founded in 2010, James and James are the first digital-native 3PL in the world, and offer dedicated account management, custom packaging options, assembly services, and much more.

For a no-obligation discussion about your business, growth aspirations, and barriers standing in your way, contact us today on +44 (0)1604 801 915, or get in touch via our online contact form.