If you're an eCommerce business, then you know that logistics can be challenging. You're constantly dealing with shipping, packaging, and trying to get your products to your customers as quickly and efficiently as possible. This is where third party logistics (3PL) providers come in. A good 3PL can help you manage your logistics processes and scale your business more easily. In this guide, we'll discuss what 3PL is, the benefits of using a third party logistics provider, and how to choose the right 3PL for your business.
According to statista, e-commerce accounted for nearly 20% of retail sales worldwide and forecasts indicate that by 2025, online shopping will make up close to a quarter of total global retail sales. With online sales trends on the up, it's obviously important that current retailers invest in the technology and customer experience components of online order fulfillment and distribution.
WHAT DOES 3PL STAND FOR?
3PL stands for Third Party Logistics. This is a company that helps other businesses with their shipping, packaging, and getting products to customers quickly and efficiently. 3PL can help businesses scale more easily and enter new international markets.
WHAT IS A 3PL?
Third party logistics companies provide order management services and help ecommerce businesses and retailers improve business processes by outsourcing the management of their supply chain, inventory levels and/or order fulfillment. Warehousing services, inventory management, order fulfillment, shipment coordination, retailer distribution, exchange and return management are just some of the services provided. Collaborating with a logistics partner allows retailers to focus on other aspects of their businesses activities. Instead of managing your own fulfilment services or handling distribution services in-house, goods are stored in the warehouse(s) of your chosen partner.
HOW DOES A 3PL WORK?
It's important to use third party logistics warehousing services because they help you stay competitive. The packaging and shipping of products can be expensive and difficult, but with ecommerce giants like Amazon offering 1-2 day fulfilment services and shipping, it's even more important to have a fast-acting fulfillment partner. They specialize in supply chain management and can help you optimise business processes across the fulfillment, distribution and transportation services for efficiency and cost effectiveness.
A 3PL provider works by receiving, order receipt, picking, packing and shipping your orders. Following that, the returns or reverse logistics is also a key role of a 3PL. Let's consider each of these processes in order to better understand how a 3PL works:
RECEIVING
The fulfillment process begins before your customer clicks “buy now”. Before a 3PL partner can ship an order to the customer, they need inventory at their warehouse. This is the process of warehouses or fulfillment centers receiving inventory. The products are entered into a warehouse management software for inventory management and tracking purposes. Each SKU has its own designated storage area in the warehouse, which could be a bin, shelf, or pallet. By doing this a 3PL can strategically store the right goods in the right place according to how fast those goods are expected to move and any special storage conditions like temperature control. It is important to check that your 3PL has plenty of storage space! You'll need them to be able to scale with your growth.
ORDER RECEIPT
With today's technology and ecommerce platforms like Shopify, Squarespace, Woocommerce and Odoo, receiving orders is an automated process. A 3PL partner will integrate their fulfilment system with your ecommerce platform to ensure that new orders are sent (or synced) either at designated times throughout the day, or continuously as your customers purchase for your site.
While the option to send orders instantly and continuously seems attractive, beware! In our experience there are always customers who purchase and then immediately realise they need to change their order for one reason or another. Syncing your orders to send to your 3PL at a specified time each day is actually the most efficient way to handle this as it allows time for last minute amends to orders before they are pushed to your 3PL for fulfilment.
Upon receipt of your orders, a 3PL will produce "pick lists" which then instruct their fulfillment team on what products need to be picked and where to locate them in the warehouse.
PICKING
Due to the direct integration with your ecommerce platform, the picking process begins soon after your customers have made their purchase. All picking information is accurate and timely due to no human interference or manual interruptions.
Picking is the process of physically finding your item in the warehouse, scanning the barcode of all items in an order to confirm they are the correct item and have been 'picked' from the shelf (your inventory).
PACKING
Once the items have been picked, it's time to start packing in order to get your customer's products ready for shipping. Packing materials such as boxes, bubble mailers, packing tape, poly bags and bubble wrap are the usual. If your brand is focused on sustainability, you'll need to ensure all of these materials fit your ethos.
Mailshop provide 100% paper based, recyclable and/or compostable packaging materials and encourage their use over all other materials.
Another unique trait of Mailshop as a 3PL partner is that we provide boutique packaging services. Personalised cards, gift wrapping, hand tied bows, custom and branded packaging - you name it, we do it!
Packaging can be a great way to improve the customer experience and build raving fans. Who doesn't love receiving a beautiful package?
SHIPPING
Next, it's time to dispatch orders. At Mailshop, this is done the same day the order is picked. On your behalf, your 3PL partner will generate shipping labels. Some 3PLs work with a range of carriers to get you the best deal; others network with preferred carriers.
The chosen carrier will pick up the product from the warehouse. Speed of shipping depends on the carrier and the service level agreed.
Once the order leaves the warehouse, your 3PL's fulfillment technology will push a notification back to your ecommerce platform to do 2 things:
Update the order to 'fulfilled' so you can keep track
Notify your customer that their order is on it's way, along with the tracking link so they can track the parcel all the way to their door
While some 3PL's send the notification direct to customers, it is best practice for this email to come from your ecommerce store. This keeps branding seamless and helps your customers feel that you're managing the relationship end-to-end.
RETURNS AND REVERSE LOGISTICS
Returns are inevitable! A reverse logistics procedure puts processes in place to efficiently manage the return of items to the warehouse. After a consumer returns an item, it may be restocked, refurbished, recycled, or disposed of. Every ecommerce company should have a plan in place for reverse logistics and that will depend greatly on the type of products being shipped.
BENEFITS OF USING A 3PL
1. Freedom to scale!
Let's face it, if you're fulfilling orders in house, you are bound by your resources. You know you can get a good social ad campaign going that will generate sales, but what if you can't keep up with orders and you let customers down? That can be damaging to your brand before you've even had the chance to make an impact. Invest in your relationship with a 3PL partner so that the management and fulfilment of the orders is taken care of. With that taken care of, you are free to scale - global!
2. Enter new markets with international shipping services.
International shipping, especially from NZ, can be a mine field! There are so many differing rules and taxes. Shipping costs and delays can also add to the complexities. An experienced, international logistics partner has all the right partnerships with international carriers to ensure your business can go global and your customers are getting the best shipping services for their goods.
3. Improve your customer service experience by handling returns and exchanges for you.
The returns process really is a great way to show your customers that you care. Make it easy, make it frictionless. Rely on your 3PL to show you the best way to make this work in a way that puts your customer first and you will benefit by building a more loyal base of customers.
4. A 3PL will save you money on shipping costs.
Sending parcels is the core business of your 3PL. That means the volume of parcels flying out the door is going to be far more than you could send on your own. This higher volume allows them to negotiate discounted rates with carriers. Whether you pass that on to your customers with free shipping deals or you put those cost savings toward the cost of fulfilment. A 3PL is the most cost effective way to send parcels domestically and internationally.
5. Save time so you can focus on your core business
New product lines, marketing, customer service and building a brand that your customers love is where you time is best spent. So outsourcing the storage, order fulfilment and shipping makes sense for eCommerce brands. It is certainly the strategy of those doing it best!
WHY DO COMPANIES CHOOSE TO WORK WITH 3PL PROVIDERS?
Typically, companies hit a tipping point. Either their DIY processes can no longer keep up with growth in sales or they find that the costs to resource the order fulfilment in-house is cutting into profit margins. It might seem costly to implement 3PL to begin with. Did you know that it can actually be quite cheap to have someone else pick, pack, and ship your orders from the warehouse? How cheap depends on the type of products you send and your order volumes. Fore example, if you only send a small volume of orders the storage rates and other inventory related fees are likely not going to be feasible. However, if you're growing or your aim is scale, 3PL is the best way to make the maximum return on your sales.
3PL MYTHS AND MISCONCEPTIONS
Many misconceptions have been expressed on how to use 3PL's. Here we will describe three commonly used terms.
One common myth is that a business needs to outsource their entire operation to a third party logistics provider. This is not the case. In fact, many businesses only outsource specific tasks or functions, such as warehousing and order fulfillment. Others may use a third party for customer service, marketing and ecommerec management in order to generate passive income.
Another common misconception when it comes to 3PL is that a business cannot use their own staff for logistics tasks. While it is true that many 3PL partners will not allow your staff to use the warehouse, at Mailshop we provide options for store reps to pick up their own goods. This is particularly useful for retailers with large wholesale orders, where it makes sense for reps or buyers to pick up rather than have the goods delivered to their store.
3PL NZ: WHY YOU SHOULD USE AN AUCKLAND BASED 3PL
According to Wikipedia, over 33% of NZ's population live in Auckland and 77% of NZ's population live in the North Island. The costs to ship between NZ's North and South Islands is high and enough of a reason to ensure your 3PL is located where your customers are. So take advantage of a key location and benefit from faster shipping timeframes and cost savings by using 3PL services based in Auckland.
WHAT IS A 3PL VS 4PL?
3PL - Third-Party Logistics: An organisation may outsource operations of transportation and logistics to a provider in a 3PL arrangement, which may subcontract out some or all of the execution. Additional services such as crating, boxing, and wrapping are available to add value to the supply chain.
4PL - Fourth-Party Logistics: The 4PL model is when an enterprise outsources not only the logistics activities, but also the execution to another provider. This type of provider typically offers strategic insight and management over the supply chain for their enterprise. A manufacturer would use a 4PL if they decided to outsource its entire logistics operations. In this scenario, the 4PL would be in communication with suppliers directly as inventory decreases for the client it manages.
CONCLUSION
We have defined the meaning of a 3PL and outlined many ways a third party logistics partner can improve your ecommerce businesses. When it comes to 3PLs, there are a lot of misconceptions and myths floating around. In this article, we aimed to clear up some of the most common ones. We also talked about why you should use an Auckland-based 3PL and what services they can provide for your business. If you have any other questions about 3PLs or would like more information on Mailshop's services, please don't hesitate to get in touch with us.