2,200-word blog for Hive: What is 3PL fulfillment?

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Order fulfillment is crucial for every e-commerce business, especially if they are growing, and fulfilling customer orders is no longer sustainable in-house. For rapidly growing e-commerce companies a 3PL provider can help manage order fulfillment requirements efficiently to delight customers.

What is 3PL (third party logistics)?

3PL stands for third-party logistics. Partnering with a 3PL company involves outsourcing your e-commerce inbound and outbound logistics operations. 3PL providers support e-commerce companies with inventory management, warehousing and order fulfillment, freeing e-commerce merchants to achieve more through the automation of retail order fulfillment.

How does a 3PL (third party logistics) company work?

3PL works by helping to manage certain aspects of the supply chain for e-commerce business. Third-party logistics providers can offer IT support, transportation solutions, distribution and fulfillment services, product storage and warehousing, shipping logistics and more.

One of the most effective ways for 3PL companies to connect with e-commerce businesses is through an Application Programming Interface (API). This type of link up between e-commerce companies and 3PL services allows for software applications to be integrated across the supply chain, enabling seamless communication through the internet.

Most 3PL providers offer custom API integrations that are specific to the needs of your business. One of the biggest advantages of APIs in 3PL is that it enables real-time information exchange, providing three major benefits for businesses:

The ability to send and receive messages almost instantly, which helps to increase customer satisfaction by keeping them up to date on orders at all times.

Access to real-time data across the entire supply chain cycle, boosting transparency and visibility at every stage of the logistics process.

APIs enable automated billing between carriers, shippers and 3PL providers which significantly reduces errors and ensures timely payments.

3PL vs 4PL: knowing the difference

If you are actively researching third-party logistics providers, you will likely come across 3PL and 4PL providers. 4PL logistics is different from a 3PL, offering a greater level of service to e-commerce merchants. 4PL partners manage any 3PL services that a business is using.

4PL companies tend to offer solutions which involve complete end-to-end supply chain management and incorporate 3PL services such as procuring materials, manufacturing, distribution and more.

Find out more about the difference between 3PL and 4PL here.

How the order fulfillment process works with a 3PL

Understanding what happens when you partner with a 3PL provider, removes some of the mystery associated with how third-party logistics providers fulfill customer orders.

Once a customer orders an item or items through your online store, here is how the 3PL order fulfillment process works:

Step 1 - Inventory is received

If an inventory item is not in stock, a 3PL provider is unable to ship to customers. Therefore, a 3PL warehouse has to accept incoming inventory and log it for storage. 3PL providers will each have their own processes and capacity for accepting and storing inventory.

Step 2 - 3PL warehouse storage

Once an e-commerce company has provided an inventory list, 3PL providers can allocate storage space in their fulfillment centers using any Stock Keeping Unit (SKUs) provided. Each SKU will be given a designated storage space - usually on a shelf, a pallet or in a storage bin.

Each 3PL will have different storage capacities. If you have a large inventory, it's important to partner with a 3PL that can provide the storage space you need. The same is true if you currently have a small product range, but you expect order volumes or your product line to grow. Partnering with a 3PL that can scale with you is crucial.

Step 3 - 3PL order picking

Once a customer has ordered, the 3PL fulfillment process is triggered. Depending on the 3PL provider, an e-commerce company may have to manually input orders into a system. This can be really time consuming and a waste of resources because it involves filling out spreadsheets with customer shipping details and other necessary information.

The more advanced 3PL partners, who have adopted technologies that can immediately integrate with your e-commerce store, offer a far faster and more efficient order picking process. One of the benefits of a 3PL fulfillment software integration is that a customer order can immediately be directed to a 3PL provider for actioning.

Once an order is logged by the 3PL partner, it is transferred to a warehouse picking team. A picking list is generated and warehouse staff then gather the items ready for packing and distribution.

Step 4 - Order packing

Once order items have been gathered, a 3PL provider will arrange secure packing ready for items to be shipped. The type of packaging used is subject to a 3PL's resources, their suppliers - meaning they may have a contract with a particular packaging brand - and the items that are being distributed.

Most 3PL companies can offer standard packaging materials including:

Bubble envelopes

Poly bags

Unbranded boxes and cartons

Paper-based dunnage

Dunnage

Packing tape

When partnering with a 3PL provider, try and work with a provider that packages products using recyclable materials. Customers and shipping industry bodies are increasingly eco-aware and campaigning to reduce the amount of packaging waste that ends up in landfill.

More experienced 3PL partners will select the best packaging for your products to make sure they are protected and to ensure the lowest possible dimensional weight. Packages will also be optimized to avoid shipments having to be split.

Keeping packages within a specific dimenionsal (DIM) weight is important for keeping costs down. DIM weight pricing is a technique used across the shipping industry that factors in how much space a package takes up in relation to its weight. Every shipment is charged based on a package's DIM weight or actual weight - whichever is the greater.

You should be aware that some 3PL providers may charge you a separate fee for packing your items outside of the order fulfillment services that they offer.

If you want your packaging to display your brand, you will need to partner with a 3PL service that provides customized packaging. Branded packaging can help to enhance the customer experience and make a lasting impression.

Step 5 - Distribution

Once customer orders are packed, they are ready for shipping. Most 3PL companies offer a complete distribution service that includes the purchase and printing of shipping labels on behalf of e-commerce companies. Some 3PL companies work with preferred carriers, while others will research a variety of carriers to secure the best shipping freight rates.

Leading carriers like FedEx, UPS and DHL offer a collection service from 3PL warehouses and transport them to a destination ready for shipping. Delivery speeds will vary depending on the terms and conditions of a 3PL's carrier provider and the shipping options that they offer.

3PL providers that utilize delivery management or shipment tracking technology will be able to automatically provide tracking and delivery confirmation alerts to ensure that orders are fulfilled.

Step 6 - Handling returns

Most 3PL providers offer a returns service, meaning that customers can ship return items directly to the fulfillment center for processing. 3PL providers will then determine whether the item can be restocked or disposed of, depending on your terms and conditions.

You can opt for a 3PL provider to supply shipping labels to customers for returning items. Instructing a 3PL service to handle returns is a convenient way for e-commerce businesses and customers to deal with items being sent back. Businesses do not have to try and manage returns in-house, while customers can monitor the status of their returns.

What to look for from a 3PL provider

Every 3PL provider is different, so how do you know what to look for when choosing a third-party logistics service for your e-commerce business? Here are some key services you should look out for when selecting a 3PL partner:

1 - B2B and B2C order fulfillment

High on the priority list should be a 3PL provider that can handle B2C and B2B order fulfillment requirements.

If you have a multichannel logistics operation, i.e. selling to businesses and direct to customers, a 3PL provider covering both channels allows you to efficiently manage demand. You can use one 3PL service to centralize your entire multichannel inventory management and order fulfillment requirements.

2 - Complete inventory management

An experienced 3PL will enable you to connect your inventory with your e-commerce store, allowing you to access real-time stock levels at every fulfillment center and proactively replenish stocks to avoid items being out of stock.

Inventory management involves so much more than just storing your products in a warehouse. You need a fully visible view of your inventory so you know what quantities you have and how many units of each product you have sold per day.

3 - Reasonable delivery times

Pre-COVID, and largely thanks to Amazon, delivery expectations among customers skyrocketed. In fact, 49% of shoppers said they would abandon carts due to slow delivery times, according to a Project 44 survey. However, customer delivery expectations have changed in the post-COVID era. Most shoppers now prefer free delivery over speed of delivery.

The Project 44 survey also revealed that 60% of shoppers are now willing to wait 3 - 4 days for items to be shipped. 18.8% said they would wait 5 - 6 days, while 16.6% said they would give retailers 7+ days to deliver. Meanwhile, 69.7% of shoppers said they would be less likely to shop with a retailer if a package is delayed and they are not informed.

Therefore, it's important to partner with a 3PL company that offers reasonable delivery times, but more importantly, communicates with customers if their items are going to be delayed.

4 - Widespread inventory

Partnering with a 3PL provider with multiple warehouse locations allows e-commerce businesses to divide inventory across different fulfillment centers. This allows e-commerce companies to distribute customer orders from the closest location.

Putting inventory closer to shipping destinations means quicker delivery times for customers and lower costs for e-commerce businesses. Having inventory in different locations also means that you are prepared if one particular fulfillment center is unable to deliver goods because of extenuating circumstances.

Plus, split inventory helps with inventory management. By storing items in multiple geographic locations, you will have a back-up if one warehouse is out of stock.

5 - International order fulfillment

The ability to scale your operation around the world requires a 3PL provider that can grow with you. Ideally, you want to find a 3PL that has a base in several countries. Working with a 3PL where all fulfillment centers operate on the same technology and benefit from the same support team provides you with a truly international fulfillment solution.

More on scaling your business internationally here.

6 - Superior data analytics

According to a recent Digital Journal report, the 3PL market could reach as much as $2.2 billion by 2030, largely driven by the increased adoption of technology. Automated technologies across the 3PL industry have led to the emergence of advanced data analytics.

3PL providers that can offer deep analytical insights into your business will help you to make better supply chain decisions and track key information. This can be order delivery times, best selling products and much more.

Find out how comprehensive data analytics can help scale your business.

The benefits of partnering with a 3PL provider

Outsourcing your order fulfillment requirements comes with many benefits, including:

Time and cost savings

Working with a 3PL means no overheads on warehouse space, labor, logistics operations or technology. Most 3PL partners can provide all this for you. As your business grows, costs increase when trying to fulfill orders yourself. Plus, the bigger your business gets, the more time consuming it can be to meet all the logistical demands of your e-commerce company.

Outsourcing to a 3PL offers you a lifeline, enabling you to meet demand and focus on more strategic objectives, such as product development and marketing.

Access to industry specialists

Partnering with a 3PL provider gives you access to a wide range of industry specialists, which is particularly useful if you are new to order fulfillment. Being able to rely on the knowledge of e-commerce logistics professionals can provide peace of mind.

A 3PL provider can also open doors to a wider network of professionals that can benefit your business such as marketing companies or custom packaging providers and more. All of which help to improve your supply chain.

Reach new customers

3PL providers can help you to reach more customers and scale up your business across the world. Most third-party logistics firms can offer multiple fulfillment centers based in major cities, which helps you to distribute faster and reduce shipping costs.