Should you Outsource Ecommerce Fulfillment to a 3PL Provider or Invest in a Warehouse?
As your ecommerce business grows so does your operations need to evolve to meet the changing demands of your business. In running an ecommerce business; fulfillment logistics is one of the most important aspects. You need to reconsider your fulfillment logistics strategy every so often as your ecommerce business expounds. At a certain point in the growth of your business, you will be required to either obtain a warehouse and hire a team to fulfill orders, or outsource fulfillment to a third-party logistics (3PL) company.
With investing in a warehouse; ecommerce businesses retain total control over their distribution processes. However, a 3PL can have access to logistics software that would otherwise be too expensive to obtain. Outsourcing to a 3PL also frees ecommerce businesses to focus on other areas of the business.
What Does 3PL Mean?
3PL stands for Third Party Logistics Company. It is an outsourced company that runs all or a certain part of a company’s logistics operations and operates transportation, freight management, and other activities. 3PL handles some or all aspects of the order fulfillment process, including inventory, packaging items, and shipping orders. The 3PL you outsource fulfillment to should be a true partner for your business, not just a transactional vendor. Credible 3PL providers have both fulfillment centers and technology that connects to your ecommerce website to remotely oversee the different stages of fulfillment.
A 3PL can best meet your specific needs by scaling and customizing services. It can be up to you as an ecommerce business just how much a 3PL helps with. A 3PL company can deliver a bundle of services that run across multiple aspects of your supply chain or can provide a single service for your supply chain. 3PL services work with your ecommerce business operations to provide visibility to all aspects of the supply chain. A leading 3PL creates value in ways that enhance your operational, financial, and end customer performance.
Ecommerce businesses manage their own fulfillment to maintain control over inventory and warehouse operations. In-house fulfillment, warehouse fulfillment—regardless of what you call it enables ecommerce businesses to manage how their inventory is stored, picked, and eventually shipped to their customers. Another thing that can sway ecommerce to self-fulfillment is unique packaging and order customization. Third-party warehouses can charge a premium for customized packaging.
How Does 3PL Work?
The vast array of options is what makes 3PL feasible. A 3PL provider is available for just about every type of business, from a small ecommerce to a global ecommerce giant. 3PL services are available in every sector: procurement, distribution, transportation, and growth. This makes it possible for small businesses and startups to tap expertise along every step of the cycle.
This creates opportunities for myriad business development and is a key ingredient in the innovation that’s driving the next generation of agile, data-driven business.
The four basic parts of the supply-to-sale cycle are procurement, transportation, distribution, and growth. Every ecommerce touches a part of this cycle. Businesses can oversee every facet operating a warehouse. But when you factor in staff costs, expertise needed, and overhead; a warehouse operation is not necessarily the most profitable.
3PL services streamline sourcing and manufacturing
A 3PL company can help you develop, manufacture, and source ready-made goods. Depending on your sourcing and reorder needs; 3PL procurement service charge either per project fees or account retainer fees. 3PL procurement might charge a service or consultancy fee if you are looking for a one-time manufacturing run for a product.
3PL services handle inbound shipping
You may be bringing goods in from a domestic facility or overseas supplier. A 3PL transportation service can find the carriers, streamline the paperwork, meet your schedule, and do it all cost-effectively. 3PL transportation services include domestic freight, import/export needs and overseas shipping services. Typically, 3PL transportation creates its fees into your final transportation charge. 3PL transportation service fees are lower than what you’d pay working directly with a freight carrier.
3PL manages distribution
Fast-growing sector of the 3PL industry is distribution, influenced by the fulfillment needs of ecommerce companies. 3PL distribution services focus is on the efficient storage of goods and efficient shipment to customers. 3PL distribution scales quickly in response to growth and is less costly than operating a warehouse.
3PL expands your sales reach
3PL providers help ecommerce businesses with front-end sales and marketing efforts as well. Thus; 3PL can help you grow by extending your sales reach into online markets. A 3PL can help ecommerce businesses solidify concepts with logo design, brand messaging, and branded packaging. A 3PL can connect and populate your eBay, Walmart and Amazon sales channels with products. 3PL sales service costs can be included in an overall fulfillment fee or billed as add-ons.
Why Do Companies Use 3PL?
Ecommerce companies use 3PL to manage their logistics operations in a productive and cost-efficient manner. A 3PL can run a single part or a multiple of different supply chain processes within an ecommerce company. There are many other reasons why ecommerce businesses use 3PLs.
A 3PL solution can make modifications to each connection in the supply chain when needed. Thus; an ecommerce business benefits from the continuous improvements made to its logistics process.
Scalability is one of the biggest advantages of using a 3PL provider. Ecommerce companies can scale shipping higher or lower at a moment’s notice. This ensures resources are not wasted. Scalability is essential in growing businesses. You may have to make continual adjustments to the supply chain strategy because sales may not be consistent year after year.
3PLs offer lower transportation rates thanks to their relationships with carriers and experienced freight brokers. They can negotiate lower rates for you and eliminate unnecessary costs. Ecommerce margins are thin and rarely cover the cost of full-scale fulfillment operations. Therefore, it is simply cost-effective and more efficient to outsource fulfillment to a 3PL.
A 3PL is composed of supply chain experts with experience managing supply chains for a variety of businesses. Warehouse operation lacks special expertise that a 3PL has. For example, in-house you may lack an efficient kitting process, which could increase labor and force costs higher.
Seamless connection to sales channels and excellent IT capabilities
A modern tech-enabled 3PL has streamlined fulfillment and shipping solutions for the ecommerce industry. This provides seamlessly integrated systems for your business that connect to all the places you sell online and automatically send orders to the 3PL after placement. It also provides real-time inventory tracking reports and automated order tracking.