3PL, or third-party logistics, represented by an overhead shot of a working warehouse

3PL: An Engine for eCommerce Growth

When trying to expand one’s business, a key strategic imperative for consideration is enhancing physical infrastructure and retail operations. In this article, we discuss how third-party logistics (3PL) providers can help you accelerate your order processing, convert more customers, and deliver a stellar end-to-end customer experience. We will also discuss how to find the right eCommerce fulfillment house and how to ensure they are delivering on their promises.

What Are Third-Party Logistics?

Warehousing is the action or process of storing goods in bulk, in a dedicated location. While warehousing predates the Roman empire, it wasn’t until the industrial revolution that warehouses became widely used. However, since the launch of eCommerce, online marketplaces, and payment platforms in the 1990s, fulfillment centers have been popping up around the globe. What’s more, this trend shows no sign of abatement.

As an online retailer you can perform order fulfillment completely in-house by delivering with your own vehicles. This is first-party logistics (1PL). More commonly, retailers will work with a number of courier providers. We refer to this setup as 2PL, with the delivery firms being the second party. Third party or 3PL providers are business process outsourcing specialists who manage the picking, packing, and distribution on behalf of eCommerce retailers. These “etailers” sell via popular eCommerce platforms such as Shopify, eBay, and Amazon. Therefore, they have orders coming in from multiple sales channels.

How 3PLs can help is by integrating all of these channels into their technology to process orders quickly and efficiently. Some 3PLs also offer additional services such as returns management, outsourced customer service, customs clearance, and product customization. Other providers go deeper into the supply chain. These are 4PLs that manage multiple fulfillment centers on behalf of the retailer. Meanwhile, 5PLs are even more involved, taking care of manufacturing, procurement, and strategy.


Finding the Right 3PL

When looking at different fulfillment providers, it helps to first take a step back and consider why you want to outsource fulfillment in the first place. Is it an alternative to expanding your own people and premises? Are you trying to lower your overhead, and only pay for what you need? Or do you want to expand your capabilities, such as customer service, by working with a 3PL that specializes in customer support outsourcing?

Some fulfillment warehouses are technology-driven. Meanwhile, others might pride themselves on their account management. Some will demand a minimum of 10 orders per day (on average). Others will expect a minimum of 300 daily orders.

Find a 3PL that is experienced with your product category, and you’ll be more likely to hit the ground running. Check their third-party reviews on platforms such as Trustpilot and Google My Business, along with the customer success stories displayed on their website. Consider reaching out to their publicly visible clients and ask for detailed feedback. Furthermore, check their employee reviews on a platform such as Glassdoor. After all, happy customers will be index linked to the service the logistics firm offers. If the 3PL is good at retaining staff, they’ll likely be good at retaining clients.


Ensuring 3PL Success

Before signing your 3PL contract, there is the negotiation stage. It is at this point that both parties agree on KPIs (key performance indicators), and OKRs (objectives and key results). From there, they establish a set of deliverables they agree to monitor in real-time and also at periodical intervals. Additionally, at point of contract the parties agree on pricing. It is important to note that 3PL pricing is multi-dimensional. That is, it includes picking and packaging fees, goods-in fees, returns charges, minimum monthly spend, order cut-off times, website and marketplace integration costs, storage fees and payment terms.

For greater clarity, here is a handy fulfilment centre guide that breaks down each UK 3PL by pricing, capabilities, and contract terms.

The eCommerce Fulfillment Process

Once you’ve found the perfect 3PL to suit your business’s needs and signed your contract, the first step is to be introduced to each key contact within the fulfillment company. Next, establish lines of communication between the 3PL and your team of retail decision-makers, consultants, and agencies where required.

The next step is to instruct your supplier(s) to ship items in bulk to your third-party fulfillment warehouse. At this point, your products will be organized into picking locations, ready for packing and distribution. Around the same time, the 3PL’s warehouse management system (WMS) will connect with your sales channels and/or order management system (OMS). Finally, orders can start flowing in.

As customers place orders online, this will create a picking notification for the picking team, along with packing instructions. The warehousing team will then visit the dedicated picking location to collect products ready for packaging the order at the packing bench. At this point, a shipping label is printed and applied to the parcel (or packet), ready for organizing by courier and collection by the carrier, such as DHL, Royal Mail, and DPD. At the point of shipment, your customer will receive a shipping notification with order tracking details. They will be offered various in-flight delivery options, which vary by carrier. These can include timed delivery windows and safe place selection. Some providers even include pictures of the parcel passing through the courier network. This helps to maintain trust in their services.


The Future of Logistics Outsourcing

Set to more than triple in market size by 2030, the 3PL market is experiencing rapid growth that’s even outstripping eCommerce growth in general, indicating greater market penetration. The shift to remote working has made it more difficult for growing retailers to develop their own order processing infrastructure, hence the need to leverage specialists’ expertise. This allows retail decision-makers to better focus on their own core competencies, such as sales, marketing, and new product development.

Online shoppers are increasingly demanding greater levels of personalization and fast, sustainable shipping and packaging. At the same time they anticipate an environmentally friendly approach. It’s often tough for retailers to achieve both. However, with the help of fulfillment firms and their respective shipping partners, meeting consumer expectations can become a reality rather than a pipe dream.