Many e-commerce sellers, especially those cross-border ones, cannot avoid shipping their products to different countries and districts, containing many steps and procedures. For convenience and insurance, some sellers choose to contract and outsource the logistics of their products to freight forwarders or sourcing agents.
With development, it has formed professional logistics service providers, like 3PL, 4PL and 5PL. But you may be confused about the differences between them. So this post will tell you all the necessary information about 3PL you should know.
What is 3PL Meaning in Supply Chain?
Third-party logistics, also 3PL, is a kind of pattern to outsource logistics business to a third-party company. The company is not the seller (first party) or the buyer (second party), but the third party cooperating with the first or the second party to provide professional logistics agency services, including shipment, storage, picking and packing, inventory management, packaging confirmation, fulfillment and freight forwarding.
How does 3PL Work? (3PL Services)
After knowing the basic meaning of 3PL, then you need to learn about concrete 3PL services. So this part will tell you how 3PL works with the 3PL solutions you may need in your businesses.
3PL Processing
3PL partners can get your orders and receive your goods from other factories in the supply chain. Then they update real-time inventory according to your orders and replenish stocks to prevent stockouts.
You can also give feedback on the inventory date to your customers so that they can know whether the product is out of stock or not. In this way, they can make your online business easier.
3PL Shipping and Distribution
3PL service providers will also realize the global shipping and distribution of your goods from the warehouse to your clients in various delivery methods, like FCL and LCL, consolidation and deconsolidation of the goods.
Cooperating with 3PL companies can help you reduce transportation costs and increase efficiency. They can optimize every step in the supply chain to make the whole process more flexible and complete. If the 3PL company is strong enough, it may have mature technology to track the shipping, or it may use GPS and other devices to track goods.
What’s more, some freight forwarders may be 3PL service providers as well. They would represent other service providers to manage the shipping and distribution of your goods, as a bridge between you and your providers.
3PL Storage and Inventory Management
New sellers or small businesses cannot have large enough space to store their goods, especially when there is a sudden surge in orders. In this case, you may need 3PL to help you.
Generally, 3PL owns many warehouses in different locations and develops your inventory allocation to lower shipping time and costs. 3PL logistics companies can manage the safe storage of your goods in their warehouses. They have a complete and mature set of management systems to store various types of products, including valuable or sensitive products.
They also have warehouse keepers to manage and check your product inventory so that they can ensure the amounts of your goods exactly in receiving and deliverying. So you don’t have to worry about storage problems with your products.
3PL Fulfillment
This is a key responsibility and service of the 3PL business. It’s a basic and most systemic part to integrate all the services above to provide the complete 3PL solutions for you. They can help you realize both B2B and B2C fulfillment.
To be exact, the 3PL services above can be provided by most companies. But you can judge the quality of the 3PL company through this service. It can include all the steps of your business, from receiving orders, picking and packing, inventory, to shipping and delivery, supporting both dropshipping and wholesale shipping.
Advanced Technology
The above aspects are traditional 3PL solutions by the 3PL companies, while advanced technology is more meaningful for sellers.
In the era of big data, any industry requires technical support. So with compatible technology, 3PL companies will be able to realize automatic operations and give feedback more quickly, including orders, inventory management, track online orders and returns. Also, their technology needs to keep up with your business requirements and changes and solve your issues in any case.
Actually, advanced technology makes the above services more intelligent and efficient. At present, this service is required by most sellers to meet their business requirements.
Then we will show the complete process in the following to conclude the 3PL services if you choose a 3PL service provider to help your business.
If you’re an e-commerce seller importing products from China and selling them in the USA, the basic 3PL processes will be as follows for your reference:
- Step 1:
You place orders from the factory or manufacturer and the factory produces your products.
- Step 2:
Then your 3PL partner will transport the products to their warehouse.
- Step 3:
After receiving goods in the 3PL warehouse, they will check in and store your goods, and make inspections.
- Step 4:
Your 3PL partner will also do inventory management according to your orders.
- Step 5:
After getting orders, they will arrange distribution in different warehouses according to the client locations.
- Step 6:
They will choose the best freight route to lower delivery time and cost.
- Step 7:
Finally, products will be sent to your clients.
More detailed processes also include uploading orders and delivery information to their systems to sync with your order management system for tracking and managing. It all depends on the technology level of your 3PL partners.
3PL vs Freight Forwarder
The concept of 3PL above may remind you of freight forwarders. Indeed, the logistics services of 3PL are similar to the freight transportation provided by freight forwarders.
As for the differences between 3PL and freight forwarders, what freight forwarders can provide just includes all freight steps and customs clearance; while 3PL can not only finish all logistics steps but also realize storage and inventory management and fulfillment to the end customers.
3PL warehouse management will be better than freight forwarders. For example, when you import products from China, freight forwarders can help you ship your ordered goods from manufacturers or suppliers to your destinations for sale.
In this process, few freight forwarders can provide storage services because their major business focuses on logistics routes in different shipping methods. Basically, most freight forwarders will not have their own warehouses, and only a few large forwarders may rent warehouses in the destination countries of their main routes.
To be precise, the functions of 3PL are more likely to have fulfillment plus the services provided by freight forwarders.
Who Provides 3PL Services? (3PL Services Providers)
3PL service providers refer to those who can provide a series of logistics services from the third party, like 3PL companies. They do not produce goods or sell products, but help sellers solve all logistics problems in your business, including inventory management, warehouse, shipment, fulfillment, etc. As your third-party logistics partner, the 3PL company should meet your business requirements in logistics as much as possible.
For example, you sell your products in different districts or countries. With the development of your business, your products are more and more popular with larger orders. In this case, you need more space to store goods, more resources and more staff to arrange and manage all steps. But as beginners, it’s hard for you to increase so much investment to get all resources. So choosing a 3PL service provider will solve these problems.
3PL Pros& Cons
Although both 3PL and general logistics belong to the logistics category, the former is more professional. It can undertake all the logistics services of the latter.
But not all businesses are suitable for the 3PL pattern, so this part lists the main benefits and disadvantages of 3PL in supply chains for your reference.
Benefits of 3PL
- Save your money and time:
3PL companies own a set of completed logistics service systems and their 3PL management can help you realize every step so that you can save time on finishing these steps by yourselves and save large costs in logistics, like finding a warehouse to store your goods.
- Rich resources:
3PL companies or service providers have abundant resource networks across different countries and districts. So they can provide suitable logistics schemes for your business at lower costs, faster services and better quality.
- Develop your logistics service level:
Usually, 3PL in supply chains can provide you with more comprehensive logistics services, which many small businesses cannot realize in the short or even long term, so it can help develop the logistics level you can provide to your customers.
More than that, you don’t need to worry about any issues with logistics but focus on your products to improve your business competitiveness further.
- Flexibility and scalability:
With 3PL partners, you’re not necessary to set up your own logistics institution. By cooperating with experienced and reliable 3PL service providers, you can respond to market changes in time.
They are helpful to speed up the process of launching your products on the market and expand their resources in terms of manpower, inventory space, transportation capacity, etc according to your business size and requirements. In other words, they will customize unique 3PL solutions for your business.
Disadvantages of 3PL
- You cannot follow up on your product inventory in real-time with less control.
- You have limited control over order fulfillment and the service experience of your customers.
- If there is something wrong with your products in the 3PL warehouse or the process of delivery, it’s not very convenient for you to inspect or deal with them.
- 3PL service providers won’t take responsibility for what you do for your clients. If anything is wrong with the products in the fulfillment, you have to solve it on your own, but not your 3PL partner to explain it to your customers.
- The upfront investment may be large for you, especially for new beginners, because hiring a 3PL company for the long term means a high cost when you don’t have so many orders.
FAQs about 3PL
1. Why is 3rd Party Logistics so important?
Third-party logistics acts as a powerful assistant for small and medium businesses, especially e-commerce sellers, to help them compete with some large online platforms, like Amazon. As we know, Amazon occupies the largest online market and you should have your own advantages to compete with it. 3PL can make you optimize shipping and fulfillment processes, and also save large costs in the logistics step.
2. Who needs 3PL Services?
Based on the 3PL meaning and services above, you can know not all enterprises suitable for 3PL in supply chains. So we will explain to you who needs 3PL services more in this part:
- e-Commerce sellers, especially small or new businesses
3PL services can help e-Commerce sellers to make up and integrate limited space and resources so that they can focus more on their products.
- Companies of medium size
With the help of 3PL, medium-sized companies can enlarge their size to satisfy their fast-growing orders. For example, their products can be delivered to customers in less time at more favorable prices, to develop their profitability.
- Large Companies of Fortune 500
You may be confused about why large companies need 3PL services as well. But in fact, the types and sizes of 3PL companies are various; the larger the companies, the more possible they are to cooperate with 3PL. So many large companies would outsource their businesses to one or more 3PL partners to satisfy their different requirements. In this way, they can control costs and increase efficiency.
3. How do you decide whether you need a 3PL company or freight forwarder?
It all depends on your business scale and requirements. If you just need to transport your goods from one location to another, freight forwarders are more suitable for you. If you want a partner to solve most steps in the process of your business with your own customers, a 3PL company will be better.
Anyway, there are also 3PL service providers in different sizes now, and service ranges and items are different as well. You can choose the most suitable one according to your business scale.
4. What should you consider when choosing a 3PL service provider?
There is no absolute single standard for you to decide whether a 3PL service provider is nice or not, because businesses of different sizes require different services according to their real demands. So we list some factors in this part for your reference to judge a 3PL company from different angles. You can decide the priority of these factors according to your actual business demand:
- Location of the service provider
- Security
- Business scope and ability
- Efficiency and quality
- Scalability and flexibility
- Reviews from its previous clients
- Provided technology level
The End
We hope this post is helpful for you to understand 3PL better. If you want to know more about other information about logistics, you can get more in our posts. If you’re still confused about 3PL, welcome to leave your comments or talk with us.
We’re StrategicSourcing, a leading sourcing agent in China. If you need 3PL services or you want to import or customize products from China, please CONTACT US without hesitation!
