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Inventory Management

Mar 18, 2021

3PL - What Is It? Your Guide to Third Party Logistics

Third Party Logistics (3PL) allows e-commerce businesses to outsource warehousing, inventory, and order fulfillment.

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When it comes to warehousing logistics, companies face two choices: handle it all themselves or hire a 3PL (third party logistics) company. But exactly what is a 3PL and is it right for your business? Let’s explore more about what a 3PL is (and isn’t), how a 3PL works, and what to expect from a 3PL service.

3PL – What Is It?

3PL stands for third-party logistics. This model breaks with tradition where businesses handle all aspects of operations internally and instead outsources tasks related to warehousing and logistics. These tasks may include picking, packing, kitting, storing, and shipping, to name a few.

What 3PL Providers Do

Any business that relies on physical inventory and order fulfillment knows that a logistics strategy is key to growth. As your business starts getting more orders, your logistics operations will need to expand, too. Otherwise, you risk limiting the volume you’re capable of handling, and therefore may miss out on sales and new business opportunities.

This is where a 3PL provider can help you shine. Outsourcing to a 3PL company means handing over the responsibility of warehouse management. Your 3PL provider stores your inventory and is responsible for order fulfillment. This way, these processes (and the logistics behind them) become a hands-off process for you so you can focus on growing your business.

In many cases, outsourcing these tasks is more cost-effective for businesses than handling them in-house. The reason for this is because 3PL service providers usually operate in large warehouses and handle multiple clients within the same location. You’re paying for just a fraction of their space and personnel.

Common 3PL services include:

  • Kitting
  • Picking and packing
  • Shipping and receiving
  • Freight shipping
  • Inventory storage and management
  • Returns processing (reverse logistics)
  • Customer support

Different 3PL services specialize in different niches or industries. For example, if you sell large, bulky items, you’ll want a 3PL service that can accommodate those items and is familiar with freight shipping requirements. Others may specialize in perishable items or cold storage.

Some 3PLs may offer storage and fulfillment services for other businesses as well as their own. These are referred to as hybrid 3PLs.

Because not all 3PLs are created equal, it’s important to consider what you need from a logistics provider to ensure the best fit.

3PL Warehouse Basics

We’ve already answered: “What is a 3PL?” Most of our Zenventory clients follow up this question with: “How does a 3PL actually work?” Let’s look at an example scenario.

Step 1: Receiving

Let’s say you’re an e-commerce company that sells grocery items and you hire a 3PL service. From there, you will ship your inventory of perishable and nonperishable goods to your third-party logistics provider. Or, if using a local partner, they might pick up your items.

The service provider will take care of organizing these items in their warehouse. Cold items will be kept in coolers or freezers. New items will be placed behind older items. Everything will be stored safely to reduce spoilage and the potential for cross-contamination.

Step 2: Order Fulfillment

When your customer places an order, the order is shared with your 3PL. In some cases, you may have to manually load orders into the 3PL’s software. Or, if they use Zenventory, orders will automatically go to your 3PL with no extra work on your part.

After receiving the order, your third-party logistics team will locate the items in their warehouse, pack them, and ship them.

During the packing process, the third-party logistics provider will pay attention to how items are arranged in the box. For example, if cold items are being shipped, they may include ice packs. Or if household items are being shipped with grocery items, then they might place household items in sealed bags.

Step 3: Shipping

3PLs will print and apply the shipping label to the package and provide you and your customers with tracking information. Zenventory centralizes this aspect alongside inventory and order fulfillment for a seamless experience.

Many 3PLs will check rates from multiple shipping carriers to give you the best rate. However, this is not always the case. You should check with your service provider before hiring them to find out how they choose the best way to ship items.

In some cases, your third-party logistics may also handle customer returns and support on your behalf.

Business Benefits of a 3PL Service

Moving on from “What is a 3PL?”, it’s equally important to ask “Why choose a 3PL service?” Looking at third-party logistics from a business case, it provides companies with a number of benefits compared to DIY options.

Improved Accuracy and Speed

Consider what it takes to start a warehousing and inventory operation from scratch. You need equipment, space, and personnel, not to mention tools to help you manage the day-to-day operations.

This is a necessary cost of doing business; however, you don’t have to start this process from scratch.

Take advantage of the processes, workflows, and technology a specialist can bring to your business. Chances are, they have warehousing and inventory down to a science and can help you move faster and more accurately than if you handled it yourself.

Reduced Overhead Costs

Logistics costs can add up quickly when you go it alone. The cost savings are one of the biggest reasons why 3PL services are becoming a preferred alternative. They negotiate rates with shipping companies to help you keep costs down. They can also order packing materials and supplies in bulk to help you save even more.

Shipping and Handling Compliance

Shipping a travel mug or a dog bed might not come with any unique considerations. But what about fine art? Wine? Household chemicals?

3PL providers are the experts when it comes to shipping and handling compliance. They can help you navigate shipping challenges and ensure items are packed safely and securely for the best results.

3PL Pricing Models

Third-party logistics companies factor in several operational activities to determine pricing. Among these activities that a 3PL may charge for are:

  • Receiving and putting goods away
  • Storage costs – Often your 3PL will charge a certain amount per cubic foot.
  • Fulfillment fees – Some 3PLs charge flat-rate fees for items based on size, weight, and category. You may also direct your provider on a specific method for packing and shipping paying actual or discounted carrier fees. Typically fulfillment fees include pick and pack, packaging, and shipping with a carrier.
  • Returns processing – A flat fee to handle item returns which may include disposal or restocking.

3PL: Next Steps

You now understand what a 3PL. So, now it's your turn to answer if a 3PL is right for you.


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