Third-party logistics, or 3PL for short, is a service to outsource your operational logistics from warehousing to delivery. It’s an effective way for ecommerce retailers to remove the time-consuming tasks of order fulfillment from their daily operations.
Third-party logistics companies provide retail businesses with various services involved in ecommerce supply chain management, including warehousing, transportation of merchandise, picking and packing products, forecasting, order fulfillment, packaging, and shipping. If you are an ecommerce business owner who isn’t using a 3PL provider, it is something worth considering. Like every tool you use in your business’s operations, there are advantages and drawbacks to using 3PL services. Let’s take a look at both.
Advantages of Using a 3PL Provider
There are a number of significant advantages to using a 3PL provider. Of course, the biggest advantage is allowing someone else to handle certain logistics, so you have more time to focus on other aspects of your business – like sales, product development, and marketing – that are going to further your ecommerce success. Here are some additional advantages to outsourcing with a 3PL company:
1. You Can Save Money
When you utilize a 3PL for warehousing, you save money by not having to maintain your own warehouse and accompanying staff. Additionally, if you use a company that provides inventory forecasting services, you may save money through the optimization of your stock levels and inventory storage fees.
It also allows you to save the time required to pick, package, and ship items. That means that you’re able to focus more on the growth of your business – marketing products, increasing sales, and increasing revenue.
2. You Have Access To Experts And industry Tools
When you use a 3PL company that specializes in specific logistics of your ecommerce business, you automatically have access to expertise and knowledge in those areas that you might not have had – especially if you are new to ecommerce. Warehousing, order fulfillment, and shipping are aspects of ecommerce that inevitably come with challenges.
By handing those functions off to an expert, you can really make a difference in your operations and have time to focus on increasing your business’s value to existing and potential customers. Plus, your inventory is located at an order fulfillment warehouse, so you won’t have to perform manual audits of your products yourself.
The provider takes on those duties, and their findings include integration with your ecommerce inventory management tools so you always know your precise stock levels.
3. You Can Simplify International Logistics
If you sell products internationally, or if you want to expand your business to do so, using a 3PL provider will simplify the process dramatically. 3PL companies can handle customs, documentation, duties, and other international challenges that can be costly and may delay your shipments.
Normally, foreign retailers would have to compete with local shipping rates and times, but by outsourcing fulfillment, you can maintain a base close to your new shoppers, even if on the other side of the world.
Also, 3PL providers will know all the ins and outs of dealing with different countries.
4. Your Shipping Will Cost Less
Shipping costs can be a huge expense for ecommerce sellers. Because shipping rates are typically driven by volume, working with a 3PL provider gives you access to more economical freight charges.
Additionally, most providers allow sellers to benefit from the collective volume of their entire warehouse – saving you even more. Read this guide to see more details on how much outsourcing fulfillment costs.
Drawbacks of Using a 3PL Provider
Using a 3PL company isn’t for every ecommerce business. The following are some of the drawbacks for you to consider when you’re deciding whether it’s right for your company.
1. You Don’t Have as Much Control Over the Delivery Process
You are giving up control of the whole fulfillment process. You have to be comfortable with another entity being completely responsible for this aspect of your business. This doesn’t necessarily have to be a disadvantage, though, if you choose your partner carefully. Just watch out for the 7 red flags when choosing a 3PL.
If any issues with shipping and delivery arise, it can be more challenging to solve when you are using a 3PL provider. Your customer will be looking to you to make the situation right, not your 3PL, and that can be tricky. Finding a quality, reputable 3PL that has great customer reviews can help you avoid working with a company that has issues in this area, but you will likely still have small issues that come up and have to be dealt with.
2. You’ll Have a Larger Upfront Investment
Typically, hiring a 3PL provider will pay for itself in the long run, but the initial cost can seem high in the beginning. You’ll likely be charged for the storage, picking, packaging, and shipping your items to customers. If you have a lot of great selling products, you can still save money, but if you have products that sit on the shelves, then it may get expensive.
Careful consideration and attention to fees will tell you whether outsourcing is worth it financially. If your business doesn’t warrant a substantial storage area, or you don’t have many orders, using a 3PL may be cost-prohibitive.
3. You Will Be Distanced from Your Products
Depending on the 3PL you choose to work with, you may be far away from your merchandise. This can be inconvenient if you have any quality control issues, or feel like you need to physically inspect your inventory for some reason. Always having a small supply of stock on hand so that you know exactly what your products are like is one way to combat this if it’s feasible for you to do so.
Is Using a 3PL Right for Your Business?
The above pros and cons may give you a good idea of whether a 3PL is right for your company. But, keep in mind that there are a variety of 3PLs and they offer varying levels of services and support. Some only deal with warehousing and order fulfillment, while others offer to forecast or only focus on shipping. It’s worth your time to put effort into researching 3PLs to see if there is one that is right for you. Using a 3PL can greatly enhance your ability to focus on growing your company and improving your customers’ experiences.
Have you ever heard of 4PLs? If not, we’ve put together a quick guide on what 4PLs are and what makes them different from 3PLs.
Editor’s Note: This blog post was originally published October 2017 and was updated in May 2021 to reflect more accurate and relevant information.