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Third Party Logistics Demystified: All You Need to Know

Ecommerce in 2021 is booming, and competitive shipping costs mean that customers expect fast and cheap options when it comes to delivering the goods.  Delivery prices are now one of the most important factors for customers when shopping online.


When your business is thriving and you need to keep up with sales, making the decision to outsource parts of your delivery process can seem a difficult decision. After working hard to build up trust in your brand, it is unsettling to think of putting your reputation in the hands of others. So how can third-party logistics ensure that your business becomes more efficient and cost-effective whilst growing? This article unveils the process of outsourcing to 3PL, step-by-step.


What exactly is 3PL?


Third-party logistics, or 3PL is the process of using an outsourced partner for the purpose of fulfiling your business’s orders. Third-party logistic providers offer a range of services that help streamline the distribution process on behalf of merchants.


With ecommerce industries soaring and the global 3PL market estimated to exceed USD 1.7trillion by 2025, logistics service companies are now an integral part of supply chain management. Specialised and expert solutions provide tailored, seamless processes for retailers when delivering products to customers.  Modern third-party logistics providers can however also offer much more than transportation or warehouse storage, using technology to optimise each step of the fulfilment process.


3PL and 4PL:- What’s the difference?


In a Fourth-Party Logistic (4PL) Model, the actual outsourcing of the fulfilment process is also managed by another party.  While 3PLs are generally more focused on specific operations such as warehousing and transportation, 4PLs oversee the organisation of the entire supply chain from client to customer. A 4PL provider will usually offer an operational strategy and have responsibility for its overall performance.


What can 3PL offer you?


Third-party logistics providers offer different services that could enhance the efficiency of your ecommerce fulfilment, as well as your customers’ experience. Some 3PL companies offer a single service such as transportation or inventory storage, others cover all aspects of supply chain services under one roof:  


  • Receiving - it is very common for businesses to use a 3PL to store and distribute its products from a warehouse. This eliminates the hefty cost of space and staff. 3PLs have leverage with freight carriers to negotiate the costs of inbound shipments. Once your inventory is received the provider will organise and store your goods. Warehouse technology is used to locate product, coordinate order fulfilment and manage your inventory; integrating software with your website means that it’s possible to keep customers updated with real-time stock availability through your online store. 
  • Picking - once a customer places an order, it’s communicated to the warehouse where the stock is being stored. This can be done via integrating the management system with the ecommerce platform. The items are located using the software and then ‘picked’. The size of an order can vary greatly depending on whether your business is B2C or B2B, so it’s essential to choose a 3PL provider that can meet the needs of your business. 
  • Packing - Packaging is extremely important - this is the customer’s first impression of your brand. The 3PL provider will work with the seller in order to agree their individual packing requirements. This will take into account dimensional weight and cost, aesthetic appearance as well as the security of the product.    
  • Shipping - 3PL providers can help simplify what could be the most complex and expensive part of the fulfilment process. Partnering with carriers or freight forwarding companies, 3PLs can negotiate the most cost-effective shipping strategy for your business. Distributing an inventory among different warehouse locations can also make it possible to offer faster delivery; two-day shipping is now an expectation from shoppers. The automation of shipment tracking can also be communicated to the retailer’s online store through integrated technology.
  • Returns - damage and order errors are common reasons why a product might need to be returned to the seller. A 3PL will agree on a structured procedure specifying how to receive and document the returned products. The returns procedure has become an important part of the shopping experience. 3PLs can provide shipping labels for customers to conveniently return and track their items.


What does 3PL bring to the table?


There are many benefits to choosing to work with third party logistics providers but there may be some things that you need to consider before making the decision to jump on-board.


✅ Pros


  • Save money and time  - investing in third party logistics can unburden your business from the onerous tasks involved when it comes to in-house fulfilment. The costs and time spent on managing warehouse space, labour, equipment, technology and transport can be cripplingly inefficient without the help of a 3PL. Transportation through a 3PL provider alone can reduce costs by up to 25%. With a good partner involved, time can be better spent on developing and growing your ecommerce enterprise.
  • Scalability and reach - if you have a spike in sales or want to introduce new products, a 3PL has the tools in place to handle fluctuations in demand or sudden growth. This eliminates the risks of investing in new infrastructure to support this. Multiple fulfilment centres across different locations allow for businesses to expand their customer reach.  When it comes to B2B fulfilment for large ecommerce retailers, 3PLs have the capacity to deal with bulk shipments through sophisticated integration of their technology with the seller’s Electronic Data Interchange (EDI)
  • Expertise in the industry - optimised logistical planning requires knowledge of numerous branches of expertise, from shipping regulations to transport documentation. A good 3PL will have in-depth industry experience preventing you from stumbling into barriers that could hold up your progress and create costly delays.


❌ Cons


  • Large upfront costs - while the long-term benefits can outweigh the initial financial hit, investing in a 3PL can be costly at the beginning. Extra services can mount up and it is important to constantly be aware of the changing needs of your business and negotiate the costs to fit these. A good 3PL provider should mean you see increased ROI and customer satisfaction. 
  • Less control over delivery - handing over supply chain management to a third party means trusting them with the reputation of your brand. If delivery fails to meet expected standards, the customer will hold you responsible. Although it is possible to oversee some of the processes through the automation of inventory management and integrated software, there is still a distance between you and your product that will need to be bridged by a good partnership.


  • Limited customised services - Some 3PLs deal with many clients on a large scale and despite aiming to shape their service to best fit your needs, this may not be suitable if you have specific requirements for your product e.g temperature controlled storage. You may need to consider your priorities, choosing between efficiency and scalability and the freedom to design your own individualised processes.


Is it the right time for 3PL for you?


This depends on which stage that your business is at and whether the services on offer are likely to increase your ROI. It may be time to consider using third party logistics if any of the following apply:


  • Your sales are growing rapidly: You’ve got orders that you just can’t keep up with.
  • You’re running out of storage space: You’ve got stock overflowing in every corner and you need a warehousing solution.
  • You’re expanding your horizons: You want to introduce new products or reach customers in different regions. 
  • You want to offer competitive shipping; 3PL providers can negotiate the most cost-effective prices with shipping partners.


Choosing a 3PL company that works for you.


There are certain things you will need to think about before choosing a 3PL provider. A successful partnership relies on trust, compatibility and shared values aiming to achieve customer satisfaction.


  • Capacity for growth - you may not be looking to immediately expand your business but if this changes in the future you do not want to have to change 3PL provider. Choose a provider that can accommodate your progressing needs. Whether you experience fluctuating seasonal sales or sudden market growth you will need the infrastructure in place to support this.   


  • Match up your technology - integrating your own technologies with sophisticated 3PL automated systems can elevate the productivity of your business and uplift the customer experience. Cutting edge technologies give information to drive your business, from pushing real time data to your online platform to providing tools to manage your inventory efficiently.


  • Check past performance - it’s a good idea to research references from past and present customers of the 3PL. Focus on reviews around delivery performance, how they have dealt with delays and what compensation they offer. Customers’ first hand accounts of their experiences will paint a picture of what your relationship with the provider will be like. 


The fulfilment process: What’s on offer with Omnipack.


Omnipack offers a comprehensive eCommerce fulfilment service taking care of each step of your supply chain:


  1. Goods inbound: Omnipack organise getting your products to their logistics centres. Goods are inbounded to the warehouses quickly and sorted within 24 hours.
  2. Warehousing: Your products are treated with meticulous care at Omnipack’s state-of-the-art warehousing facilities. Everything from temperature controls to specialised racking if needed, ensures that everything is treated properly.
  3. Pick and Pack: Omnipack get the order, pick and then pack the product. The process is kept simple by the warehouse technology and systems and expert packing services that meet your guidelines.
  4. Delivery: Omnipack know how much your customers rely on you to keep your promises and are devoted to delivering on those. Omnipack ship globally everyday, with highly competitive prices and a late cut off - up to 6pm.
  5. Returns: No need to worry, Omnipack will look after your returns as well. There are processes in place to carry out relevant quantity and quality checks. Omnipack can also help prepare products for re-use with laundry, ironing and repackaging services. If a product is good to go back out, it will be restored to your inventory. 


3PL Pricing: Get calculating for cost savings


The pricing of the service you receive from your 3PL provider will depend on your requirements. Costs will be broken down into different services such as onboarding, inventory receiving, storage, pick and pack fees, packaging, kitting fees and shipping. Some costs like customer support will be negotiated at a flat rate. Others will be priced per unit e.g storage can either be charged at an amount per bin/pallet/shelf per month it is stored, or by cubic foot per month.


In order to estimate the pricing of your fulfilment solution you will need to look at the number of units you wish to store per month, and the number of orders you predict per month and then calculate the costs by looking at your 3PL’s price model.


Many fulfilment providers offer cost calculating tools on their websites so that customers can make sure that they are making sensible cost-saving choices.


Summary: Pass your business into safe hands


When broken down, the mystery around third party logistics disappears. When your business is growing it makes sense to put the bulky legwork of logistics into the hands of the experts. Outsourcing parts of your business might seem complicated at first and you may have doubts about the credibility of providers. But tried and tested processes, knowledge and expertise as well as the most up-to-date technology can help simplify your supply chain process and take a load off your mind. It may just be worth taking a leap of faith to allow you business to get to that next level.


  • What does 3PL mean?

    3PL is short for “third-party logistics”. It’s an industry term that applies to organizations that supply services in the field of storage, shipping and other necessities of retail, especially eCommerce.

  • What is the difference between 3PL and 4PL?

    Fourth party logistics differs from third party logistics in that 4PL companies do not physically perform logistic processes, and their essence is to manage delivery processes by means of information processing. They add a technological element that streamlines and optimizes processes.

  • Why use third party Logistics?

    Third party logistics make sense for most companies because it allows them to take advantage of the expertise and lower costs of a specialist providing a service rather than spending on things like warehousing and order processing, which are typically outside the area of expertise. Just as with any other kind of outsourcing, the benefit comes from focusing on the core of your businesses while turning over other responsibilities to specialists.

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