What Is Third-Party Logistics (3PL)?

What is Third-Party Logistics (3PL)

Your business may benefit from working with a third-party logistics company, especially if order fulfillment is an essential component of your company’s operations. In-house fulfillment can become difficult, if not impossible, as your organization grows. Fortunately, if your business faces this concern, you can turn to a third-party logistics provider.

To determine whether partnering with a 3PL is right for your business, you need to know what these companies offer, how they work, what benefits you could enjoy from the partnership and what types of companies typically work with a 3PL partner.

What Is Third-Party Logistics?

Third-party logistics (3PL) occurs when a business outsources e-commerce logistics to a third party. E-commerce logistics that you can outsource include fulfillment, warehousing and inventory management. 3PL companies help e-commerce merchants accomplish more by using the infrastructure and tools needed to automate order fulfillment. With the growth of e-commerce, third-party logistics providers have been expanding their services. The right 3PL can meet your company’s exact needs.

How Do 3PL Companies Work?

Before you partner with a 3PL provider, you should understand how these companies work. Below is the entire process that begins after a customer submits their order:

  1. Receiving: A 3PL receives inventory to ship orders. Once the 3PL warehouse receives inventory, it can then be stored. 3PL companies have their own processes and capacities for storing and receiving inventory. For example, you may need to fill out an order, so the 3PL knows which products and how many units are being sent.
  2. Warehousing: After your inventory is received, the items are stored in the 3PL’s fulfillment centers, inside a bin or on a pallet or shelf. You want to work with a 3PL with the storage capacity your inventory requires. Your 3PL storage should be able to scale with your business as your order volume and product line grow. A 3PL should not be confused with on-demand warehousing companies, which simply match businesses with excess space in warehouses without operating these centers directly.
  3. Picking: The fulfillment process begins when a customer places an order. Some 3PLs require orders to be manually uploaded to their system, which can involve spreadsheets with customers’ shipping and order details. Others utilize sophisticated technology that directly integrates with your platform and these integrations put shipments, orders, stock levels and inventory tracking in one place to streamline the process. After the 3PL receives an order, a picker in the warehouse picking team receives the list of items, quantities and locations to collect the ordered products.
  4. Packing: When the items have been picked, the order is packed for shipping. Packing materials vary depending on items being shipped, your brand preferences and the 3PL’s capabilities. Common packing materials include boxes, bags, bubble mailers and packing tape. Some 3PLs include packing materials in their fulfillment management services, while others charge for packing materials.
  5. Shipping: After the order is packed, the next step is shipping. Most 3PLs will print shipping labels for you and work with a preferred carrier or compare shipping costs from different carriers. The carrier will pick up the order from the 3PL warehouse to ship. Shipping speed and carrier choice depend on the 3PL’s policies and partnerships and the shipping option the customer selected.
  6. Returns: Any e-commerce business can expect some returns and many 3PLs offer return processing services. Opt to have the 3PL provide your customers with return shipping labels so you won’t have to handle them in-house. The 3PL will process returns and, depending on the 3PL’s preferences and policies, will either restock or dispose of the items.

By partnering with a 3PL you can save time

What Are the Benefits of Working With a 3PL?

Partnering with a 3PL can offer your business several benefits.

Leverage Industry Expertise

As a business owner, you already have a lot on your plate. Becoming well-versed in shipping details and logistics is time-consuming, but partnering with a 3PL lets you work with a company with the industry expertise and knowledge you need. The 3PL will be up-to-date on the most recent industry complexities and trends, and they will have the partner network and technical resources needed to constantly make supply chain optimizations and improve supply chain efficiency. Doing so can help drive e-commerce success.

Maximize Profitability

Fulfilling orders in-house grows increasingly expensive as your company grows. Costs including warehouse space, warehouse management software, equipment, labor and insurance can quickly add up when you attempt to manage your inventory and fulfillment on your own.

You can save money and maximize your company’s profitability by working with a 3PL. This partnership eliminates the need to rent or buy warehouse space, technology, labor and logistics operations needed for in-house fulfillment. Your business can also save time outsourcing fulfillment duties to a 3PL. By partnering with a 3PL, you can get back the time you would otherwise need to spend packing boxes, building out fulfillment infrastructure or waiting at the post office.

Expand Your Company’s Reach

Your business may currently be limited in your reach, such as selling in only one region. When you partner with a 3PL, you may be able to expand your company’s reach. A 3PL has a network of fulfillment centers. When you work with a3PL with fulfillment centers in major cities around the country, you can reach more customers.

Since shipping orders from one location can mean that postage is more expensive for packages that need to travel through several shipping zones, you can reduce the transit time and cost of shipping for orders by working with a 3PL.

Who Should Consider a 3PL Partner?

Though any e-commerce business can benefit from working with a 3PL partner, there are a few signs that your company is ready to outsource fulfillment to a third-party logistics company:

  • You want to offer free, faster shipping: To compete with online retailers, you may want to offer free, speedy shipping. This can have a significant impact on your margins, but outsourcing to a 3PL can make faster shipping affordable and feasible.
  • Your company is running out of storage space for inventory: When you have a large order volume and need inventory on hand, you need storage space for these items. If you’re running out of space, you may want to outsource inventory warehousing to a 3PL.
  • Your business is shipping a large number of orders each month: If you can’t keep up with the order volume, this could be a sign it’s time to outsource your processes to a 3PL.

Contact Us at SourcePak

Contact Us at SourcePak

SourcePak is a contract manufacturer and distributor. As a vendor and sales contract distributor, we offer services to clients around the country. Our business has been built through client relationships and the successful solutions we have crafted for them. We deliver programs and products that are more cost-efficient, better quality and solve customer needs. Our services include:

When you partner with us, we will match your needs with a trusted solution. Contact us at SourcePak to learn more about our products and services.


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