Today, 90 percent of Fortune 500 companies are using third-party logistics services to power their operations—almost double the number of companies using this kind of support just 20 years ago.
The third-party logistics (3PL) model for shipping and supply chain management is already an integral part of many businesses, but that doesn’t necessarily mean that we all understand exactly how it all actually happens. How does 3PL work? How do they help businesses expand, and how does involving another entity streamline shipping and logistics.
Here’s what you need to know about how 3PL firms do what they do, and why it’s so beneficial for the companies that take advantage of their services.
How Does 3PL Work?
So what should you know about 3PL? Third-party logistics providers serve online businesses by providing outsourced logistics of their goods and products, including warehouse management and storage, shipping, procurement, and other activities at the fulfillment center. 3PL is a term that covers a broad range of services and can be a single provider, such as transportation or storing goods, but it can also refer to a system-wide bundle of services across the supply chain management field.
All of this is great, but what does it mean in terms of real-world application? What does a 3PL do?
If you’re asking, “What is 3PL all about?” perhaps it’s best to take a look at a hypothetical 3PL situation to understand the work of a 3PL firm in action:
A book publisher is in charge of all the people responsible for creating their book: the authors and editors, the graphic designers to put together an eye-catching cover, and all the staff they need to produce store-ready, published books. But, they don’t have the resources to handle consumer ordering or transportation of shipments—or maybe they just don’t want to deal with orders and transport—so they hire a 3PL fulfillment center to process their online orders for them.
From here, 3PL companies can do several things: They can handle the packing, shipping, and order fulfillment of the books, or they can deal with just one aspect of order fulfillment. In both cases, these are services provided by a 3PL.
How does this help the book publisher? In addition to freeing up their energies to focus on creating exceptional books, they can save money on supply and distribution services only when they’re needed. Their 3PL services offer cost-effective solutions by negotiating better shipping rates for the publisher while the publisher does what they do best: publish books.
What else does a third-party logistics company do? Any number of services within the supply chain, including:
- Picking and packing
- Order fulfillment
- Packaging and freight forwarding
- Inventory forecasting
- Managing and predicting order volume
- Supply chain management
A 3PL provider handles all the distribution and fulfillment duties for online retailers, saving companies like yours time and money so you can grow your business. They can also be the key to subscription marketing success.
What are the Benefits of Companies Using a 3PL?
Why do online retailers choose 3PLs? What are the benefits of getting supply chain management support? Here are a few reasons why it’s worth it to consider working with a third-party logistics provider:
- Enjoy Cost Savings: 3PL providers are logistics experts. They have expansive networks in the logistics sectors as well as more negotiating power and influence over shipping and storage costs and can offer volume discounts, all of which can minimize your overhead costs. You can also save on transportation costs, warehouse space, manpower, and tracking technology by working with a team that already has a proven system in place.
- Ongoing Expertise and Consulting: 3PL providers specialize in the logistics industry, which means they inherently have more knowledge about transport documentation, importing and exporting, as well as international compliance and economic regulations. If you’re planning to expand to new markets domestically or internationally, your 3PL firm can advise you on how to do so without costly delays or inefficiencies.
- Get Back to Core Competencies: You need someone to manage critical processes, but not all of these processes are as demanding as the handling of your core competencies. By outsourcing your logistics, you’ll have more leeway to focus on your company’s growth, product development, and new marketing strategies.
- Scale Up and Down as Needed: When you work with a 3PL, you gain flexibility and scalability to use supply and distribution resources based on your current business needs, whatever they may be. When sales are low, you’re not wasting money on excess warehouse space, and when you see a spike in sales, you can function as normal without having to deal with costly delays.
- Use Resources Wisely: One of the largest benefits of working with a 3PL firm is that you gain access to markets where you might not already have an established presence. You can manage inventory and expand into new markets without investing in new warehousing, equipment, and labor. You don’t have to wait to be able to pay for new storage space or to afford to pay new employees.
- Better Customer Satisfaction: 3PLs offer improved services, faster response times, and speedier deliveries, all of which result in a stronger reputation and a more reliable brand. You’ll have more satisfied customers who will continue to choose your brand over and over again.
Do I Need a Third-Party Logistics Provider?
Most retail companies can better their processes through the help of a 3PL firm, so in the majority of cases, the answer to the question, “Do I need a third-party logistics provider?” is a resounding, “Yes.”
Why should you consider a 3PL provider for the fulfillment process and supply chain management? It might be time to enlist the services of a 3PL firm if:
- You are stretched too thin handling the packing and shipping processes on your own
- You are looking to grow your business
- You are in search of cost-saving strategies, and you suspect you’re paying too much to store, transport, or ship your goods
- You want more effective supply chain management strategies
- You overpay for warehouse space, you run out of space, or are looking for a warehouse management partner
- You go through periods of low- and high-volume sales seasonally and need to scale more effectively
- You want to improve your customer service (especially related to shipping) and provide better overall customer experiences
- You want to save time and money with more cost-effective processes
- You want to devote more of your resources to product development
What are the Costs of a 3PL?
It’s important to understand what your fulfillment and supply chain management costs will look like before you decide whether or not a 3PL is right for you. Oftentimes, the increased productivity of no longer having to deal with the supply chain provides ample payoff, but even so, what are the costs associated with 3PL? That depends. Pricing depends on the services you need, but can include factors like:
- Potential set-up fees
- Inbound shipping and receiving
- Storing and warehousing your products
- Picking and packing
- Label printing
- Return management
- Consulting and account management
The good news is, with 3PL services you can pick and choose the services you most need at a level you can afford, making 3PL a real option for retailers of every size. While you can certainly employ a firm for full-service third-party logistics, you can also hire a 3PL organization to handle only the services that make sense for your business model and price point.
How Can I Improve My 3PL Performance?
Are you working with the right 3PL? As HubSpot stated in its In-Depth Guide to 3PL Pricing:
“With the right 3PL, you’re gaining a partner who not only understands your goals and needs but one who can grow your operations faster and more efficiently than you could ever do on your own. They know the ins and outs of the business, areas of wasted cash flow you can eliminate, how to best spend your resources, and let your team focus on the products that fuel your operation.”
Direct-to-consumer (DTC) businesses can certainly improve the performance of their 3PL by working with a provider who understands the way their business works. That’s what sets OceanX apart. Not only do we specialize in working with beauty and wellness DTC brands, that’s how we got our start.
With a finger on the pulse of what’s happening in the beauty and wellness industries, plus a vested interest in the success of your company and decades of logistics and supply chain management experience, we’ll help take your business where you want it to go. Especially when you’re dealing with a subscription model, no one understands the psychology of subscription quite like OceanX and is ready to deliver like we do—both literally and figuratively!
Are you ready to learn more about how a 3PL firm that understands the world of beauty and wellness can help you succeed? Download our informational guide today!