Of companies that use third-party logistics (3PL), 73% report that the partnership results in a more positive customer experience and provides new, innovative ways to improve logistics effectiveness. Even more organizations — 86% — say that using a 3PL has led to more cost-efficient logistics operations.
The value proposition of 3PL in today's e-commerce-driven economy is clear: streamlining logistics and making it cost-effective for companies to deliver products to their customers.
In fact, partnering with 3PL providers has made it possible for even small e-commerce companies to offer products to more people without hiring staff or owning space to handle inventory and shipping.
But what exactly goes on in a 3PL fulfillment process? What takes place between checkout and when the order arrives at your customer's doorstep? In this article, we'll shed some light on the third-party logistics process and how your company can use it to support your business's growth and customer satisfaction.
Understanding 3PL Fulfillment Basics
3PL fulfillment is outsourcing your company's supply chain operations to an external logistics provider. That's generally delegating:
- Warehousing
- Inventory management
- Picking and packing
- Shipping orders
In the 3PL fulfillment process, your company produces or orders products and sends them to a third-party fulfillment company, where they're stored, awaiting sales. When a customer places an order, the logistics company packs and ships the item and handles any returns. Such an arrangement is integral in selling goods online, especially for growing companies that don't have in-house logistics solutions.
Today, up-and-coming businesses don't need to invest in building costly logistics infrastructure from scratch. Instead, they can outsource the order fulfillment burden to a 3PL partner, allowing them to focus on core competencies rather than engaging in non-core but critical operations.
This process allows even the not-so-established businesses to be more efficient and competitive in their markets.
Key Components of the 3PL Fulfillment Process
While 3PL fulfillment processes can vary depending on the type of partnership, there are five key components.
Warehousing
The first role of a 3PL provider is to store your company's products. Typically, storage solutions are flexible. You can pick dedicated or shared space, depending on your product size or type. Whichever solution is appropriate, you'll get a well-organized storage solution with adequate security measures to protect your inventory from damage, environmental factors, and theft.
Although each provider has unique warehousing operations, most use advanced software that tracks inventory levels in real time to give you insights into stock availability. With these insights, you can prevent stockouts or overstocking and forecast demand.
Inventory Management
Your logistics partner will also ensure your products are always available to meet customer demand. Depending on the type of partnership, you can expect several inventory management solutions.
- Inventory tracking: Your business and 3PL provider will use an inventory management system that gives you real-time visibility into stock levels across all product locations. With these insights, you can monitor what items move quickly and what might be stagnant and make informed decisions about reordering and stock adjustments.
- Reordering: Most 3PL companies have modern reordering systems that analyze sales trends and alert you when inventory is low. You can then restock proactively to ensure products are available when customers need them, preventing potential lost sales.
- Inventory optimization: Because 3PL's inventory management system gives insights into sales data, your business can forecast demand accurately. In response, you can optimize your stock to reduce carrying costs and ensure efficient order fulfillment.
Order Processing
In 3PL logistics, order processing involves several steps.
- Order Receipt: The 3PL provider receives the customer's order details from your business's e-commerce platform or sales channel.
- Picking the Order: Using the warehouse management system, your 3PL provider locates the item based on an optimized picking route and retrieves it from the storage location.
- Packing:Based on the item size, weight, and fragility, the 3PL provider selects the suitable packaging material. This might include bubble wrap, boxes, custom inserts, or packing peanuts.
- Prepare it for shipment: The provider prints and attaches the package's tracking information and the customer's address after packaging. Then, they assign the order to the appropriate shipping carrier and method as the customer specified.
Shipping
Shoppers expect affordable and fast delivery. Partnering with a third-party provider can help you meet these demanding market standards. For affordability, third-party providers partner with several carriers and ship in high volumes. To that end, they often negotiate discounted shipping rates to save your customers on shipping fees.
Besides this, most providers store your inventory across multiple warehouses in different locations, allowing them to ship items from the nearest warehouse. This reduces the distance packages travel to speed up delivery times and lower shipping costs.
Return Management
Many 3PL fulfillment centers take on return management to ensure the smooth processing of product returns and exchanges. When a customer initiates a return, the 3PL provider receives the return request, handles reverse logistics, and inspects the item to determine their condition.
If the return is in good condition, they'll restock and update the inventory. If it's damaged, the 3PL provider will consult you to determine the best course of action. You'll then handle a refund to the customer.
3PL's Role in Supply Chain Management
Third-party logistics is redefining how businesses manage the supply chain. At its core, it links the supply chain and manages warehousing to save companies the operational and financial burden of running logistics.
Supply Chain Integration
When you partner with a 3PL provider, your organization gets solutions that link most supply chain practices, such as:
- Warehousing
- Inventory management
- Order management
- Transportation and distribution
Unifying these logistics processes allows you to coordinate different supply chain stages and minimize inefficiencies. On top of process coordination, 3PL providers use advanced analytics and supply chain technology to give you insights into all logistics processes. You can use this information to improve supply chain management.
Market Adaptation
You can utilize 3PL to adapt to dynamic market demands. A third-party provider can help you accommodate seasonal demand spikes or expand into new regions without the initial capital and infrastructure investment.
And to top it all off, 3PL companies keep you current with the latest industry trends and innovations, such as:
- Automation
- Data analytics
- Sustainable practices
As such, your business can implement cutting-edge logistics strategies that keep it competitive and aligned with consumer preferences.
Steps in the 3PL Fulfillment Process
The 3PL fulfillment process may vary from one provider to another. However, here are the key steps to expect when you partner with a 3PL company.
Step 1: Order Receiving
The first step in the fulfillment process is to stock inventory in your 3PL warehouse. Typically, the provider will require you to fill out a warehouse receiving order (WRO) — a document that lists inventory items and their quantities.
Once your inventory reaches the warehouse, your 3PL partner assesses the quality of each item and scans its barcode. This scanning allows the provider to confirm the accuracy of the WRO and ensure items are stored in the right place.
Next, your vendor will log the data into their inventory management system to update stock levels and prevent discrepancies.
Step 2: Inventory Management
After order receipt, the next step is to control stock. This step involves proactive stock monitoring to ensure products are available when your customers need them. During order preparation, your provider employs an organized picking strategy to enhance the speed and accuracy of e-commerce fulfillment.
Step 3: Order Processing
When a customer places an order, the warehouse management system (WMS) generates a list of the ordered products. It then assigns a warehouse employee to collect each item from its respective storage space. This WMS-generated list guides the employee along the most direct route to reduce unnecessary walking.
Next, your provider will scan your customer's order and set it aside for packing.
At the packing station, a team puts ordered items in a box and wraps them in suitable packing materials. Ideally, your 3PL partner will select secure but lightweight packing material to keep shipping expenses low.
Once the order is sealed, the provider attaches a shipping label with all the necessary information to get the goods to the customer.
Step 4: Shipping and Delivery
Before shipping, 3PL providers group orders ready for dispatch by destination areas. They organize all packages intended for a particular geographical area that requires a similar method of transportation.
From there, the 3PL company will choose the best carrier and shipping method based on the type of goods, customer specifications, and the fastest route.
Benefits of Using a 3PL Provider
The use of 3PL providers is getting traction as more businesses sell products online but don't want to handle the logistics. With a 3PL partnership, companies benefit from:
Scalability
As your business grows or has fluctuating demand, 3PL services can help you scale operations up or down. You can handle seasonal peaks or expand into new markets without high upfront costs in recruiting, hiring, or training a logistics team.
Specialized Expertise
3PL providers bring in-depth knowledge of logistics and the latest technology, such as advanced inventory management systems and real-time tracking. Taking advantage of such expertise can enhance logistics efficiencies, improve customer satisfaction, and keep you competitive in supply chain management.
Cost Savings
Third-party providers have established networks and relationships with carriers and ship in volumes, which often helps them secure better shipping rates. Besides this, partnering with a 3PL supply chain management firm saves on warehouse space, transportation, labor, and technology investments.
Enhancing Efficiency with Technology
Modern 3PL providers utilize specialized logistics technology to:
- Streamline warehousing practices
- Inventory management
- Order processing
- Tracking
- Shipping
The technology also helps organizations:
- Enhance operational efficiency
- Improve accuracy
- Utilize a centralized platform for managing logistics activities
Real-time tracking systems allow you and your customers to monitor shipment status throughout the delivery process. This reduces the customer's anxiety around order status while allowing for proactive management in case of delays.
Advanced analytical technology can also help you uncover shipment patterns, identify peak demand periods, and assess carrier performance. These insights are critical in improving logistics service delivery and customer experience.
Choosing the Right 3PL Provider
There are hundreds of 3PL providers, each claiming to be the perfect fit for your business. To help you narrow down the best candidate who will streamline your supply chain and increase overall efficiency, here's a quick guide for selecting a provider that matches your business needs.
Selection Factors
When selecting a 3PL partner, there's often an impulse to cover as much ground as possible by weighing many factors. But in essence, a mix of these four can help you establish whether a provider is the best fit for your business.
Experience
A 3PL provider without specific experience in your industry might struggle to meet your customer's unique needs. Examine if the 3PL partner can satisfy your business's short-term and future needs.
Technology Capabilities
Advanced technology is critical for seamless integration within existing systems and for providing real-time insights into your company's supply chain. Assess the 3PL provider's:
- Warehouse management technology
- Transport management system
- Other logistics software
Ensure the provider's solutions integrate with your current technology and meet your customer's expectations.
Services Offered
Evaluate whether a 3PL provider offers a comprehensive suite of services such as warehousing, inventory management, order fulfillment, shipping management, and return processing.
If you want to avoid handling logistics, consider a provider offering end-to-end services to streamline your logistics operations.
Locations
Operating out of one region can limit your business' potential. An ideal 3PL provider has an expansive network of fulfillment centers and can help you expand your reach. The ability to tap into a network of logistics centers and distribution warehouses in major cities allows you to reduce shipping costs and transit time for orders.
Vetting Providers
After screening vendors and narrowing down a few potential candidates, vet them to find the one best suited for the job:
- Define your business needs and goals: Outline specific requirements to help you assess which partner best meets your expectations.
- Filter providers based on their range of services: Consider a partner whose services align with your current business needs and support your long-term objectives.
- Assess the provider's technology capabilities: Ensure their technology integrates seamlessly with your existing platforms.
- Request case studies: Get insights into how the provider has solved specific challenges, improved efficiency, or supported their clients' growth.
- Request contact information for current or past clients: Seek their feedback to help you gauge the candidate's reliability and effectiveness.
Connect Your Supply Chain From End to End With the Right 3PL Company
Partnering with a reliable, reputable 3PL provider can offer your business scalability, cost savings, and expertise to thrive in a competitive marketplace. Whether you want to deliver products to direct end-users, Amazon warehouses, or big-box retailers, the right 3PL partner can help you provide a seamless customer experience and turn fulfillment into a competitive advantage.
At QuickBox, we will help you speed up your supply chain processes, meet customer delivery expectations, and carve out a competitive edge with our integrated solutions. We're always evolving and adapting with the modern online marketplace e-commerce to keep you ahead of market trends and competition.
Contact us today to discuss your fulfillment needs and discover how we can help you meet your customers' expectations.