Third-party logistics providers (3PLs) are helping fast growing e-commerce brands scale sustainably and expand their operations in competitive markets.
In fact, 3PL services have become so popular that more than 90% of Fortune 500 companies are using them.
But what makes these services so popular? Wouldn’t you save more by keeping your operations in-house? Well, as it turns out, most companies don’t once they outgrow their startup phase.
3PL providers are widely used because they streamline supply chain operations and reduce your costs. That may seem counterintuitive, but the numbers don’t lie.
To understand how 3PLs can help your e-commerce business scale, let’s explore how they operate.
What is 3PL?
A 3PL lets companies outsource their supply chain, logistics, and order fulfillment processes. These operations typically include warehousing, inventory management, distribution, and shipping orders to customers.
Your 3PL will also serve as a data provider, helping you analyse a variety of trends and inventory requirements, so you can better forecast future orders. 3PLs manage many of your supply chain operations, including:
Third-party logistics providers manage your organization’s warehousing and inventory management. So, they’ll receive the inventory at their warehouse locations from your suppliers.
Most leading 3PLs offer distributed inventory services, so if you split your inventory across different locations, they’ll receive the stock at each site.
When customers place an order, your 3PL’s picking team will locate the required items from the warehouse. Experienced picking teams typically use barcode or RFID scanners to verify items, reducing the chances of wrong orders.
After locating the required items, your 3PL’s logistics team will securely pack the items. They’ll make sure fragile goods are protected and that boxes with the correct dimensions are used.
After the order is packed, your 3PL will have it shipped to the customer’s location via a carrier. 3PL providers work closely with major carriers to ship your orders safely, securely, and on time.
Need to process some returns? Your 3PL will take care of reverse logistics too, which is especially useful during the holiday season (when returns are higher).
How 3PLs help scale your business
Now that we’ve established how 3PLs take fulfillment operations off your hands, let’s discuss why outsourcing is cost-effective in the long run.
There are six areas of benefit that apply to most businesses, especially on the e-commerce side of things. Look at these segments to see if they’re where you spend a lot of time or money, and if you’d like to reduce those investments.
Long-term cost savings through optimisation
Some businesses shy away from 3PLs because of the upfront costs, but ultimately, you’ll save on expenses. 3PL providers improve your bottom line by:
● Optimising pick and pack processes, reducing wrong order requests, and increasing your customer’s experience (which helps with retention and repeat purchases).
● Providing the option to distribute your inventory, reducing logistics costs, and accelerating delivery times.
● Giving you access to discounts with carriers (leading 3PL providers usually negotiate bulk discount deals with carriers).
● Optimising your supply chain efficiency, reducing errors and wasted time.
Supply chain expertise
As your business grows, supply chain operations become more demanding and complex. 3PL providers’ expert fulfillment teams are equipped to handle increasing fulfillment, warehousing, and shipping needs.
For example, if you’re looking to expand into international shipping, you’ll need to cover the documentation, duties, different regulations, legal information, and customs.
3PL partners excel at streamlining these processes and delivering quick results, protecting you from potential delays and losses.
ECommerce inventory management is more complex than its brick-and-mortar counterpart because you’re operating on two different channels. The inventory is physical, but the store is digital, inviting inventory management challenges.
3PL providers use warehouse and inventory management software to sync your store and inventory data, streamlining supply chain operations. The software provides real-time insights into your inventory, preventing overselling and stock shortages.
Most advanced logistics software also accurately forecasts demand, allowing brands to set accurate reorder points and avoid inventory imbalances.
Additionally, 3PLs have experienced teams skilled at reducing errors and inaccuracies and improving operational efficiency.
Business-to-business (B2B) or business-to-retailer (B2R) fulfilment
B2B (or B2R) e-commerce fulfilment is a significant revenue stream for many e-commerce brands, but meeting B2R fulfilment requirements can be challenging.
In B2B fulfillment, businesses typically order in bulk and expect fast delivery. Additionally, order accuracy is incredibly vital—you can’t afford to make picking or packing mistakes. You’ll also have to tackle some technical challenges like:
● Fulfilling bulk orders at remote locations that require sea or air freight.
● Meeting compliance requirements, like customs, tax rules, SKU codes, invoicing structures, etc.
● Overcoming international trade barriers, including tariffs, subsidies, and tax requirements.
Because of these time-consuming complexities, many businesses outsource their B2B fulfillment to experienced 3PL providers.
3PLS can help you cut costs, improve supply chain efficiency, minimize delays and inaccuracies, and protect you from penalty fees. They also have strong relationships with major carriers, thus enjoying bulk discounts and priority support.
Access to new markets (expanding reach)
SMBs can struggle to break into new markets because their fulfillment network is limited. To reach customers in new regions, you’ll need nearby fulfillment centres to deliver orders on time and cost-effectively. But renting warehouse space and hiring more labor is expensive.
Fortunately, established 3PL providers have their own network of fulfillment centers. Thus, e-commerce businesses can partner with them, using their fulfilment network to advance into new markets, so you can expand your reach without hurting your bottom line.
Flexibility and scalability
Working with a 3PL lets e-commerce businesses scale seamlessly in response to demand fluctuations, growth, and market conditions. One of the best examples of 3PL flexibility is the peak holiday season.
In the holiday season, your e-commerce store will likely experience rapid spikes in demand. To meet fulfillment expectations, you’ll need to scale up your operations. Unless you’re working with a 3PL, this endeavor will entail hiring more staff.
Hiring more labor invites complications. Your new hires may not adjust well, and if they’re permanent employees, you’ll have to pay more labor costs post-holiday season too.
Conversely, if you’re working with a 3PL, the logistics provider scales their operations up or down depending on your needs. So, during the holiday season, they’ll allocate more fulfilment experts to manage your orders, and afterward, they’ll scale the operations down again.
As a result, you only pay for what you need.
Third-party logistics providers help e-commerce brands streamline their supply chain operations and grow sustainably.
They’ll optimise your fulfillment process, reduce errors, cut unnecessary expenses, manage reverse logistics, and take care of technical work like documentation and tax requirements.
If your business is growing fast and fulfillment operations are becoming more challenging, it might be time to partner with a 3PL service. The best fulfillment service companies have robust technology, a team of experts, and a track record of helping businesses grow.
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