Are you new to eCommerce?
Do you handle order fulfillment from your warehouse?
Great!
This is the easiest and most viable way to get your business off the ground, as long as the order volume is manageable and you have complete control over the fulfillment process.
But what will happen when you grow your operations (which you’d want to do sooner or later)?
The more hours you spend on in-house order fulfillment, the less time you’ll have for other core business activities, like customer relationship management, new product development, and omnichannel communication.
Solution? You should get external help and that’s where a 3PL comes in.
What is a 3PL?
A third-party logistics provider (3PL) is a service that businesses use to outsource their logistics and supply chain functions.
Here’s a list of things that third-party eCommerce fulfillment providers manage:
1. Transportation
- Vehicle selection and management
- Real-time tracking and updates
2. Warehousing
- Inventory storage and management
- Picking, packing, and dispatching orders
- Cross-docking and transloading services
3. Order Fulfillment
- Processing online and retail orders
- Setting delivery timelines
- Handling high-volume seasonal demand
4. Reverse Logistics
- Processing returns and exchanges
- Managing refurbishments or restocking
- Disposal or recycling of returned products
5. Inventory Management
- Monitoring stock levels
- Demand forecasting and restocking
- Providing inventory visibility
6. Customs and Compliance
- Handling customs documentation
- Ensuring compliance with international trade laws
- Taking care of duties, taxes, and tariffs
7. Technology and Analytics
- Real-time inventory and shipment tracking systems
- Data analytics for supply chain optimization
- Integration with e-commerce platforms
8. Value-Added Services
- Kitting, bundling, and product customization
- Quality control checks
- Labeling and packaging
- Optimizing logistics networks for cross-border operations
- Creating contingency plans for unforeseen events
- Strategic planning to reduce costs
- Improving lead times and overall efficiency
What is 3PL eCommerce Fulfillment?
The eCommerce fulfillment process involves overseeing the complete journey of an online order from the moment a customer places an order to when they receive it.
Many online retailers turn to 3PLs to handle it for them so that they can focus on their core operations. Though there might be slight variations in the order fulfillment process flowchart, 3PLs most commonly follow these seven steps (eight, if you count returns management as well):
- Receiving inventory
- Storing inventory
- Order processing
- Picking
- Packing
- Dispatch
- Delivery
- Returns processing
Read More: 7 Steps to Successful E-Commerce Order Fulfillment
The Pros and Cons of Outsourcing Order Fulfillment to a 3PL
As mentioned earlier, handling 100 orders a month might not be a big deal. But managing 10,000 orders a month requires 100 times more resources, staff, and automation to meet the demand. Simply put, when orders start pouring in, fulfilling them becomes increasingly arduous and costly.
In such circumstances, delegating the fulfillment to a third-party logistics provider (3PL) can be a game-changer for eCommerce businesses.
However, before deciding whether to partner with a 3PL, it’s important that you weigh the pros and cons of outsourced warehousing and fulfillment.
Here’s a comprehensive look at why you might, or might not, want to hand over the reins to a 3PL provider.
Pros
1. Industry Knowledge
Logistics is a highly specialized field, and experienced 3PLs have a deep understanding of supply chain management, shipping regulations, and best practices. Rather than pushing the rock uphill, your eCommerce business can tap into the vast experience of a third-party partner who already knows the ins and outs of fulfillment and has the tools to streamline your logistics operations.
2. Lower Operational Costs
Logistics management is in any way quite expensive. Between warehousing, transportation, labor, and technology, the expenses associated with fulfilling orders can add up quickly. But if you work with a 3PL, you can take advantage of their economies of scale and reduce your operational overheads considerably.
Also, most 3PL providers offer flexible pricing models that can be adjusted to meet your business’s fluctuating demands. Another advantage is that 3PLs can often negotiate better rates with carriers due to their high shipment volumes. You might not be able to secure competitive pricing on your own, but you can when you have a 3PL by your side.
3. Access to a Large Network of Providers
3PLs usually have a network of warehouses located across various cities, countries, and even continents. So, you can store products in facilities closer to your customers at no extra cost. Do you know what that means? Yes, faster deliveries and lower delivery costs. In fact, this network will come in handy, when you move into new regions or markets.
4. Happier Customers
Like it or not, but “customer happiness” is still the be-all and end-all in order fulfillment. You must deliver orders on time, provide customers with real-time visibility into the status of their orders, and have easy returns and refunds policies—your customers expect nothing less.
Most 3PLs use order fulfillment software to plan optimal delivery routes and track orders from point A to point B. They also facilitate seamless reverse logistics and refund fulfillment. When your customers know you have a simple process for returning items, why wouldn’t they want to order more from you?
5. Data-Driven Insights
When you integrate your eCommerce store with a 3PL’s logistics management system, you automatically unlock dozens of actionable metrics, which you can turn into the key performance indicators that matter most for your business. With real-time data insights just a click away, you can easily identify areas for improvement and implement corrective measures.
6. Easy to Scale
A 3PL is built to scale with your business. So, when order volume increases, your fulfillment partner can easily handle the additional workload. You don’t have to worry about adding warehouse space, hiring more staff, or investing in additional technology. A 3PL has the infrastructure and resources to scale operations quickly.
Cons
1. Saturated Market
With the growth of eCommerce, the market is filled with numerous 3PL options, each offering different capabilities, pricing structures, and service levels.
Thus, choosing the right 3PL for your business can be strenuous and nerve-wracking, as it requires thorough research, vetting, and careful consideration of your business’s unique needs. One wrong decision can lead to delayed deliveries, poor customer experiences, and wasted resources.
2. Loss of Control Over Shipping & Returns
Outsourcing fulfillment means you’ll give up a certain level of control over your shipping and returns processes. This can be a difficult transition, particularly if you’ve handled logistics internally before and are used to making decisions in real-time. When you partner with a 3PL, you’re trusting them to manage your products and ensure that they reach your customers in a timely and accurate manner.
3. Integration Challenges
Although most 3PL providers offer integrations with popular eCommerce platforms, it’s important that their technology works well with your infrastructure. If the integration is not seamless, it can result in data discrepancies, delays in order fulfillment, and other operational headaches.
5 Signs You Should Outsource Your Fulfillment to a 3PL
So, it’s clear that partnering with a 3PL is beneficial for eCommerce brands. The problem is not knowing when it’s the right time to make the shift.
Below are a few telltale signs that indicate it might be time to explore partnering with a 3PL to fulfill your orders.
1. Your Business is Growing Rapidly
Perhaps you’ve increased your delivery zone coverage. Handling order fulfillment operations in-house might have been sufficient when you were a small business. But when order volume increases, the pressure on your team intensifies. It won’t be long until you realize that monitoring stock levels, processing orders, and dispatching products are becoming extremely cumbersome and difficult to scale.
At this point, it’s crucial to continue providing your customers with a seamless ordering and fulfillment experience while driving growth. You definitely don’t want to lose existing customers in the pursuit of acquiring new ones.
By outsourcing fulfillment, you can take a lot of tasks off your plate and free up your team for tasks that add value to your business: lead generation, inbound marketing, trade show networking, etc.
2. Your Business is Sensitive to Seasonal Changes
Many businesses face seasonal fluctuations in demand. Whether it’s increased sales during the holiday season or spikes in demand due to promotions or product launches, managing these periods can be challenging. During these busy times, it’s important to have the right amount of staff and warehouse space to meet increased demand.
A 3PL provider can help you navigate these seasonal peaks and valleys by adjusting their resources based on your needs. When orders are high, they can scale operations quickly, and when demand slows, they can scale back accordingly.
In other words, instead of hiring temporary workers or stretching your team thin just to handle a few months of a surge in order volumes, consider 3PL eCommerce fulfillment. It will give you the agility to manage your operations without any hassle throughout the year.
3. You’re Running Out of Storage Space
Storage space is one of the biggest costs associated with order fulfillment. When your business grows, you might find yourself running out of warehouse space to store your products. Obviously, expanding the building or renting another to increase your storage capacity comes with its own costs, and may not be sustainable in the long term.
In this regard, 3PL providers offer flexible storage solutions at fairly reasonable pricing. This is also a good option to consider if you don’t want to tie up capital in long-term storage contracts or spend money on unused warehouse space when demand is low.
4. You Need More Efficient Reverse Logistics
Returns are inevitable in any business, and handling returns can be just as critical as fulfilling orders. A high volume of returns or exchanges can overwhelm your team and slow down your operations. When you’re managing returns in-house, you need to allocate time and resources to process product replacements, refunds, or restocking returned items.
By partnering with a 3PL, you can streamline reverse logistics and rest assured that product returns won’t affect your workflows negatively.
5. You Have Complex Shipping Needs
Some businesses face unique shipping challenges due to the nature of their products. Let’s say for example, you deal in hazardous materials, temperature-sensitive items, perishable goods, or international shipments.
Fulfilling these orders would naturally require specialized handling and compliance with custom regulations and documentation. If you’re not familiar with the specific rules or guidelines that apply to these products, you’ll constantly struggle to manage these complex prerequisites in-house.
A 3PL that specializes in these types of products will adhere to all necessary regulations and handle your shipments with the utmost care.
Final Thoughts
Should you or should you not outsource your fulfillment to a 3PL is an important decision that can have a huge impact on your business’s growth and profitability.
If you think you’ve outgrown in-house fulfillment and are experiencing any of the signs outlined above, then perhaps outsourcing your logistics to a 3PL is the best solution to streamline operations, scale faster, and improve customer experiences.
Already onboarded a 3PL? Now looking for an eCommerce order fulfillment software?
AR