What is a 3PL? How Third-Party Logistics Providers Benefit eCommerce Brands
3PL—a simple abbreviation for one of the most complex, integrated, helpful entities operating in the eCommerce landscape. 3PL stands for third-party logistics, and at a glance a 3PL partner provides eCommerce brands with solutions to their fulfillment needs. This includes:
- Matters of inventory management with advanced 3PL software
- Delivery speed with warehouse locations that bring products closer to customers
- Fulfillment: Order processing, picking, and packing
- Optimal shipping costs and options thanks to established relationships with major shipping carriers
If you are a growing eCommerce brand, internalizing the benefits of a 3PL in greater detail and learning what to look for when selecting one are crucial steps on your path to future growth. We’ll cover all that and more in this guide, starting with an explanation of the difference between a 3PL and other types of logistics and fulfillment avenues available. Pay attention; understanding these distinctions is key to understanding what logistics method is right for your business.
3PL vs. 1PL, 2PL, 4PL, and 5PL
Big 3PL Benefits
Epic eCommerce Integration
Intelligent Inventory Management
Picking and Packing Efficiency
Superior Shipping Options
3PL Expertise and Support
Stress Less; Grow More
3PL vs. 1PL, 2PL, 4PL, and 5PL
With so many logistics aspects to consider when mapping out your eCommerce brand’s journey to sustainable, successful growth and scalability, it can be overwhelming to commit to one option. Don’t worry; you can change later on. Small businesses may start out with one type of fulfillment strategy then change when the company outgrows it. Each type of logistics option involves different levels of supply chain involvement, ranging between handling everything yourself and outsourcing everything. So let’s talk PLs 1 – 5.
1PL (First-Party Logistics) Order Fulfillment
Here we have essentially the easiest form of order fulfillment. In this case, you—the eCommerce brand owner—use your own employees and methods of transportation to pick, pack, and deliver your customers their orders. All your logistics and order fulfillment assets are in-house (warehouse space, transportation, order fillers, delivery drivers, etc.) On the plus side there is no outsourcing; you have your hands directly in all the pies. The downside is that instead of running the more complex, scaling endeavors of your business, you are distracted by making sure a million and one things get done. You are trapped in logistics prison vs. focusing on being an entrepreneur and growing your eCommerce brand. Not only that, but the costs of fulfilling in-house rival the complexities of fulfilling in-house.
2PL (Second-Party Logistics) Order Fulfillment
By going up a level on the order fulfillment menu, you are adding in a middleman, but a helpful one. In this case the new supply chain layer to your business model is a professional shipping carrier like UPS, USPS, FedEx, and DHL. They will now handle all aspects of transportation involved with shipping your goods. The services they provide will differ in cost, speed, and transportation method, depending on what meets your needs and budget. However, the plus side is that outsourcing this supply chain layer frees up some of your logistics load. The downside is that second-party logistics providers still require a solid amount of your attention and resources because although their people are delivering the orders, your people are still filling the orders. If you want to clean that element off your plate too, (which most successful eCommerce brands do) then 3PLs are for you.
3PL (Third-Party Logistics) Order Fulfillment
Sometimes eCommerce brand owners can get nervous about the idea of outsourcing because their businesses are their babies. But don’t think of it as passing that baby on to some sketchy babysitter you hired off the street. With the right partner, your life and your business can grow, flourish, and thrive. Enter the 3PL.
3PLs like ShipMonk take away stress by bringing fulfillment technology, accuracy, and efficiency on all fronts to the logistics party. We have warehouse/fulfillment center locations across the globe that minimize shipping zones and border issues by bringing products closer to customers. Additionally, with a 3PL you get so much more than basic warehouse space for storing inventory. These geographically optimized, state-of-the-art facilities are fully-integrated order fulfillment centers where our experienced 3PL employees expertly process, pick, pack, and send out every eCommerce order that comes in.
With a 3PL like ShipMonk on your side you can also say goodbye to supply chain stress related to inventory management, distribution, order management, transportation, shipping, and claims processing. Our 3PL is proudly known for having:
- Best-in-class 3PL software to get you real-time, transparent data on all your order and inventory statuses, and help you scale efficiently
- Established relationships with major shipping carriers to get you optimized rates and shipping speeds
- Custom 3PL automation and robotics like AMRs designed to make processes simpler and faster, enhancing team member productivity
- Streamlined, fully-integrated operations that keep things running smoothly on all levels of your supply chain while keeping you in the loop
- A post-purchase suite that makes it easy for your customers to file and resolve claims themselves without the need for time-sucking manual engagement
With all those offerings, why wouldn’t you entrust your eCommerce brand’s order fulfillment to a 3PL partner? Shrug. Just for the sake of being thorough, let’s have a look at what a 4PL and 5PL offer as well.
4PL (Fourth-Party Logistics) Order Fulfillment
A fourth-party logistics situation means your eCommerce brand works with a provider that has 3PL capabilities plus an additional outside contractor who oversees your company’s overarching supply chain operation. This neutral third party acts as the admin and point person for managing the ins and outs of your 3PL order fulfillment situation, as well as all other supply chain partners you may work with (for example manufacturers, freight forwarders, outsourced customer service teams, etc.)
Note – 4PL companies are involved in logistics efforts, but they do not necessarily own warehouse space, fulfillment technology, or picking and packing equipment. The benefit of working with a fourth-party logistics provider, therefore, is not the efficiency or resources they bring to the table, but the oversight, feedback, and progress reports that help you see the big picture without getting consumed by it.
This could be a good option for some eCommerce brands, but if you’re considering a 4PL partnership, lead with these three qualifiers:
1. Do they have a successful history of dealing with vendors, and keeping them accountable?
2. Do they have strong software and IT capabilities for managing mass supply chain data?
3. Do they have strong Key Performance Indicators (KPIs) to show you’re getting your money’s worth?
5PL (Fifth-Party Logistics) Order Fulfillment
If we’re talking outsourcing your order fulfillment in every conceivable way, then we’re talking about fifth-party logistics. A 5PL manages an eCommerce brand’s entire supply chain from production to doorstep delivery. It’s kind of the large, enterprise logistics option. The big plus side is that 5PLs have strong, established relationships with different supply chain players (like the major shipping carriers). Since a 5PL can bring massive business to a shipping carrier, they can potentially leverage lower prices. The downside is that a 5PL means handing over the operational reins of your order fulfillment to another entity entirely.
We used the analogy earlier that compares your eCommerce brand to your baby. If we continue that connection, it’s kind of like the difference between hiring a nanny and sending your kid off to boarding school (the 5PL being the latter). In this total hands-off approach you outsource the management of your “baby” to some other entity entirely. The risk that comes with that, of course, is what can happen to your “baby” if you completely entrust its growth and care to someone else . . .
5PLs can also be so large that their level of expertise across domains may vary. For example, a certain 5PL might be fantastic at managing worldwide port-to-port freight operations for your inventory, but meanwhile they are rubbish at managing fulfillment operations and carrier deliveries.
Furthermore, if you rely on a 5PL for all your logistics needs, if the supply chain ever breaks up (ex. 2020-2021), you’re now wholly dependent on that partner to navigate these logistics challenges. That’s a lot of eggs in one basket, and with it a lot of risk. While you are really going to feel the pain if something happens to all your eggs, 5PLs are such large-scale entities that the daily pulse and consequences to your individual eCommerce brand aren’t going to make or break them the way they break you.
Additional Considerations before Working with a 4PLs or 5PL
Overall, at the 4PL and 5PL level you’re really starting to hand off responsibility for your business. If everything at all times runs smoothly, no problem. But if there’s a disconnect between the software efficiencies at the operations level (which are frequently outsourced), you’re going to have new challenges. Logistics providers at these levels commonly outsource functions like storage, picking, packing, etc., so if there are additional layers to inventory/order processing, practices and results may not always be as consistent as they would be with more direct logistics venues.
Furthermore, if you use a 4PL or 5PL your eCommerce brand is also incurring costs of having outsourced partners. As in, 4PLs and 5PLs don’t have the capability for certain levels of the fulfillment process (in terms of technology, space, and equipment), so they will outsource those elements then pass the extra cost on to you.
At the end of the day, with a 4PL and 5PL you’re completely outsourcing your shipping operations, warehousing, and order fulfillment management to entities that oversee the big picture from afar. That’s not ideal. If you outsource any aspect of your business, you want to trust that if there’s an issue, an on-the-ground partner can walk into the fulfillment center and solve the issue directly for you if software alone isn’t doing the trick. Hence a major benefit of working with a 3PL like ShipMonk.
Why 3PLs Are Ideal Partners
Because 3PLs embody so many steps of the supply chain journey they are often interchangeably referred to as order fulfillment companies. There is a distinction though. A 3PL gives eCommerce brands extra tools to balance the different operational demands of their businesses. In a nutshell, 3PLs reside in the sweet spot of fulfillment, features, and functionality; you don’t have to give up every aspect of control, but you have a partner that can execute critical components.
Not all 3PLs are the same though. For instance, some 3PLs have warehouses that are more basic whereas others like ShipMonk are optimized geographically, technologically, and strategically in terms of picking and packing efficiency. Another example is the crucial factor of 3PL software. ShipMonk utilizes our own proprietary 3PL software that allows transparency, seamless integration, and real-time results that make inventory management a breeze.
It’s critical that all advantages of a 3PL are clear in order for eCommerce brands to decide on the path that’s right for them. We’ll start with an overview and then spend more time with the specifics.
In quick review, the steps in your journey to order fulfillment look like this:
1. You work with a manufacturer to create and supply your inventory.
2. Those finished products get shipped to your 3PL fulfillment center or warehouse space.
3. That inventory is recorded and stored in a specific warehouse slotting location. A well-organized 3PL will slot your inventory into locations based on product size, turnover rate, and other important factors to provide optimal fulfillment speeds.
4. When a customer places an order on your eCommerce website, that information is pushed back to your 3PL for fulfillment. More “old school” 3PLs may rely on manual data pushes from their accounts. Technology-forward 3PLs (like ShipMonk) automatically pull order data via API from client websites. That information is retrieved and instantly processed, setting your order fulfillment in motion.
5. From there the eCommerce order is shipped by means of the shipping service and shipping carrier you/your customer have selected.
6. The eCommerce order is delivered to your customer.
Now that we have established the flow of 3PL operations, let’s dive back into the benefits. In quick review, the plusses of a third-party logistics provider include:
- Epic eCommerce Integration
- Intelligent Inventory Management
- Picking and Packing Efficiency and Accuracy
- Greater Geographical Footprint
- Superior Shipping Options
- Reduced Shipping Rates
- Simplification of Reverse Logistics
- 3PL Expertise and Support
- Less Stress; More Growth
Time to Take A Closer Look at These Big 3PL Benefits
Big 3PL Benefits
Epic eCommerce Integration
Technology is at the crux of advancement in any industry. However, with 3PLs it is the lifeblood that helps determine the flow of order fulfillment. An advanced third-party logistics provider like ShipMonk offers 3PL software with 75+ integrations that seamlessly works with all sales platforms to give eCommerce brand owners a comprehensive, user-friendly experience. Such 3PL software allows you to view and track inventory and sales so you can make informed, data-driven decisions and keep up-to-date on customer experiences and expectations.
Intelligent Inventory Management
3PL software data helps eCommerce brands order the right amount of inventory to prevent backorders and stockouts. 3PLs also organize your SKUs in ways that fit right in with your order flow so items get out the door faster. Overall, working with a third-party logistics provider helps you manage stock in an effective manner and get that stock to customers in an efficient manner. 3PLs even have systems in place to adjust for your supply chain fluctuations, seasonality, and real-time restocking needs—allowing your order management and inventory management to shine on all levels at all times of year! An epically important factor when peak season comes into play, am I right?
Picking and Packing Efficiency
When you work with a 3PL partner like ShipMonk, all eCommerce orders are received by our fully-integrated order fulfillment platform. From there, depending on the region the order came from, our closest fulfillment center will get started on the order fulfilling process. One of our AMRs (Automated Mobile Robots) picks the appropriate good(s) that were ordered. Our 3PL experts then pack your items, inserting the appropriate documentation and other paperwork, utilizing your custom-branded materials if necessary (including dunnage based on product weight and shape), and attaching shipping labels. Lastly, the packers will then send packages off to be shipped by the appropriate shipping carrier.
Superior Shipping Options
Depending on the size and reputation of your 3PL, shipping rates and services may vary. At ShipMonk, we offer an array of shipping options to benefit your eCommerce brand and utilize a ” virtual carrier network” that basically keeps you from being cuffed to any one option (i.e. the shipping carrier selected will always be the one that is optimal to your business). Additionally, our strategically spread out order fulfillment center locations minimize the shipping zones eCommerce orders need to travel through, thus saving both time and money. Overall, our preferred shipping services (ex. 2-day shipping), rates, and speeds lead to faster delivery times and thus happier customers.
Greater Geographical Footprint
While there is an understandable sense of fulfillment (pun most definitely intended) in sending out your customers’ eCommerce orders yourself, growing brands can’t rely on that for long. Outsourcing to a 3PL that warehouses your inventory not only eliminates the need for personal storage space, it brings your goods closer to your customers. That’s SUPER important. Because while it may not cost you much time or money to send a package from your business headquarters to a customer one zip code away, if your warehouse is far from the customer then shipping rates and shipping timelines can put pressure on your bottom line.
As mentioned above, having multiple locations that house your inventory allows ordered goods to reach customers faster and in a less costly manner because it eliminates shipping zones. How awesome is that? Answer—one word. VERY. Hence why ShipMonk has so many strategically-located order fulfillment centers worldwide, and counting.
Simplified Returns with Reverse Logistics
In the eCommerce order fulfillment realm there are three main logistics terms: inbound logistics, outbound logistics, and reverse logistics. In short, inbound logistics deals with supplying newly manufactured inventory to order fulfillment centers. Outbound logistics relates to fulfilling orders and getting them out of fulfillment centers, typically to DTC customers (direct-to-consumer) or B2B customers (business-to-business i.e. wholesalers or retailers). Reverse logistics deals with returns and exchanges. A 3PL, however, can handle all three. In the case of reverse logistics, this can save your eCommerce brand’s team from a lot of headache and hassle.
When an eCommerce order gets sent back to one of our fulfillment centers, our experts examine the product for defects and damage, and our 3PL software accounts for its status. If the product is in good condition, it can be returned to your inventory count and shelved until a new eCommerce order plucks it up to be packaged for another customer. If goods are unfit for resale, we provide eCommerce brands with various options, including:
- Donating items
- Disposing of items
- Returning items to supplier
- Selling items in secondary markets
Exchange processes may proceed from there with a new round of picking, packing, and shipping, but of course the cycle there varies by product and company policy. Everything, though, is done in a timely and efficient manner.
A 3PL like ShipMonk offers a bountiful spread of reverse logistics benefits that makes this returns process run smoothly. This helps you—the eCommerce brand—control costs and minimize granular involvement while ensuring your customers have a pleasant, seamless experience. ShipMonk also boasts a first-of-its kind post-purchase suite called MonkProtect that makes filing claims easy for your customers and resolving them easy for you.
3PL Expertise and Support
You wouldn’t ask a kid who just finished a semester of home economics to cater your wedding. You wouldn’t ask your neighborhood’s pee wee T-ball captain to coach the MLB teams competing in the World Series. And you wouldn’t ask a dude dressed as Han Solo to fly you home from Comic Con. There are experts for everything and in the realm of eCommerce order fulfillment, 3PLs ARE EXPERTS. Instead of worrying about learning everything about logistics yourself, and then training a bunch of employees in the same complex ways, it’s much simpler and smarter to hire experts to handle that aspect of your business so you can concentrate on high-level, high-impact tasks.
Expertise can also be instrumental in terms of customer support. At ShipMonk, our Client Experience team (often fondly referred to as “Happiness Engineers”) know logistics, and the needs of eCommerce brands, inside and out. They are set up with all the tools and experience to help you grow and scale. Meanwhile, our fulfillment technology provides support for the customer-facing side.
On the one hand, ShipMonk’s order fulfillment platform keeps you updated on the status of your inventory at all points in its supply chain journey. That level of transparency can improve your customer support by allowing you to manage delivery delays and thus manage buyer expectations regarding when their orders will arrive. Additionally, our 3PL post-purchase suite handles support in terms of customer claims. In sum, on all fronts, third-party logistics experts are dedicated to making sure your eCommerce brand and its customers have nothing to worry about.
Stress Less; Grow More (i.e. the ShipMonk Motto)
When you work with a 3PL partner you gain an ally that will have your back and handle your business (literally and figuratively) in all aspects of order fulfillment. Third-party logistics leaders like ShipMonk help make your expansion goals attainable and sustainable. They are—we are—at the core, the Ariadne to your eCommerce brand’s Theseus. For those of you who don’t delve into Greek mythology on the weekends, translation: we are your guide through the logistics labyrinth.
Outstanding Results of Outsourcing Order Fulfillment
Congratulations! You now have a thorough understanding of the popular question: “What is a 3PL?” and have learned how third-party logistics providers benefit eCommerce brands. As this was an in-depth guide to the order fulfillment world, we will end with an easy and concise question. After learning about all the ways a 3PL partner can help take your eCommerce brand to new heights and minimize your hassle, would you rather continue doing everything yourself or would you like to elevate your eCommerce operations to the next level?
If your answer is the latter, contact ShipMonk today. Outstanding results from outsourcing order fulfillment to a trusted 3PL partner is an opportunity worth exploring!