What is a third-party logistics (3PL) partner, and how to select one?

Having reliable third-party logistics can make a massive difference in your business operations. You can avoid issues like delayed delivery and poor warehouse management with the right third-party logistics provider. In this article, we go through what a 3PL partner is, the advantages of working with one, and tips for choosing the right partner.

What is a 3PL partner?

A third-party logistics partner or 3PL is a company that helps business owners and e-commerce merchants handle their supply chain. In simpler terms, working with a third logistics provider involves outsourcing your logistics needs to a 3rd party. Having a 3PL partner as a business owner helps save time on operations like warehousing, inventory management, and delivery.

Many companies experience negative impacts due to supply chain disruption.¹ However, working with a 3PL partner makes it easy to improve your operational logistics. With this, you don’t need to worry about delayed delivery, warehousing, or poor supply chain management.

A third-party partner is an extra layer to the supply chain that saves companies the cost and stress of storing products and delivering them to customers. The main goal of third-party logistics is to maximize the efficiency of your supply chain; they identify and fill up gaps in your supply chain management. With a 3PL partner, you only need to receive orders and send the information to your partner while ensuring it gets to your customers.

How does a 3PL work?

There is a reason why 90% of Fortune 500 companies work with third-party logistics to help.² It has to do with the fact that 3PL providers are experts in inventory management, warehousing, packaging, distribution, and shipping products to customers. Choosing a 3PL is one of the best ways to outsource your logistics needs as a company.

As the e-commerce business keeps growing, so does the 3PL market. Many online businesses are turning to them for help with supply chain management. Also, the 3PL market is expected to grow up to $1.75 trillion by 2026.³ Instead of managing your warehouse, you can have your 3PL partner store your products or even have the manufacturers ship to their warehouse directly.

A 3PL works by helping business owners take control of operational logistics. They provide transportation and logistics services for business owners across different industries. A 3PL offers services like warehouse storage, packaging, truckload shipping, fulfillment, and more.

Generally, a 3PL process looks like this:

• A 3PL partner stores your inventory in their warehouse
• When a customer places an order, you forward it to your 3PL provider, and a warehouse team member collects the items from the warehouse
• The 3PL provider will pack the items in shipping boxes with receipts, company labels, and shipping label
• A courier service that works with the 3PL collects the package from one of the 3PL distribution centers and delivers it to the customer

Also, how a 3PL works often depend on the company you work with and the service you demand from them. Therefore, you can skip some processes involved in 3PL depending on the service you need. Also, you can opt-in for the combination of all services.

Pros & cons of 3PLs

With the increase in online sales, many companies are starting to work with 3PL to improve supply chain management. Businesses that use a 3PL can remove the stress of supply and instead focus on other aspects of your business. Some of the benefits of working with a 3PL partner include:

1. Enhanced customer services

   One of the parts of the business that is stressful for many is getting goods to customers. Customers who don't like delayed deliveries will stop buying from a brand after 1 to 3 supply chain delays.⁴ However, having a third-party partner means taking care of your shipping and order fulfillment. When a customer makes an order, all you need is to send the information to your logistics provider, then ship the item from the warehouse to your customers. Customers will be satisfied when order fulfillment runs smoothly, and your business will grow.

2. Sell to a global audience

   One of the advantages of working with logistics services is that they simplify international shipping. You can sell your products internationally without worrying about customs and shipping because your 3PL partner will handle it. If you are looking to expand into international markets, you can rely on the support your 3PL partner can provide.

3. Inventory management

   Third-party logistics often have different warehouses across multiple distribution centers. This makes it easy to have your products at a warehouse close to the customers. Also, all orders will be processed by professionals with expertise in order fulfillment, so you have nothing to worry about.

4. Greater flexibility in product sourcing

   When you have a 3PL partner, it becomes easier to source goods from different manufacturers. You can have different types of goods in the same warehouse.

5. Saves you money

   3PL offers warehouse management services and has an extensive network within the logistics sector. This means you get to save on the costs of warehouse operations when you partner with a 3PL provider. Also, they can find the best logistics deals, enabling them to offer customers discounts. Also, 3PL services can help companies save on investments like transportation, hiring staff, inventory management, etc.

6. Easier returns

   3PL providers can help you process returns seamlessly. This makes it easy to solve customers’ complaints and get the goods back on the shelf.

7. Focus on other areas of your business

   Outsourcing warehousing and logistics operations to a third party allows companies to focus on their core competencies. You can enjoy the benefits of having a logistics department without using your internal resources. Also, all the aforementioned benefits give room for business growth and expansion, which is the goal of every business owner.

Cons

While working with a 3PL partner has many benefits, it doesn’t always work out for everyone. Some of the drawbacks of the 3PL process include:

1. Less control over delivery

   3PL companies take control of logistics operations, which may make some companies uncomfortable. Companies often have little control over inventory stored in a 3PL warehouse, and checking for quality control may prove difficult.

2. Large upfront expense

   Although 3PL proves to be cost-effective in the long run, it doesn’t take away the fact that it involves a large investment. You must pay for costs like an account set up, warehousing fees, logistics costs, parking fees, etc.

3. Different workflow

   Sometimes, a 3PL may have different hours of operation or workflow from yours. This may affect the timeliness of order fulfillment on your side.

What are the services that a 3PL partner offers?

Third-Party Logistics providers offer different kinds of services, all to help manage the supply chain. Some of the major services 3PL services include:

1. Transportation and order fulfillment

A 3PL partner can help companies transport goods to customers in different locations. Third-party providers track stock levels and ensure that items are delivered to your customers on time.

2. Warehouse and inventory management

3PL providers offer warehousing logistics to ensure goods are stored and delivered accordingly. These warehouses manage companies' stock, maintain inventory, and ship goods to customers when needed. Having a 3PL partner means you wouldn't have to worry about storing and distributing goods.

3. Supply chain management

Good supply chain management is essential for small business owners and big companies. If you partner with a 3PL provider, the company will ensure customers get their products on time regardless of location.

4. Distribution

3PL companies offer distribution services for the wholesale sector, making it easier to work on tasks like order fulfillment, custom labeling, and so on. Outsourcing these services allows your employees to focus on other aspects of your business.

5. Picking and packing

When a customer places an order, a third-party logistics provider picks up the item and packages it for shippers.

6. Freight forwarding

3PLs sometimes offer freight forwarding services to work on logistics concerns and get goods to customers at the right time. Freight forwarders determine the best shipping routes and modes of transportation to get goods across to customers. Usually, they act as a middleman between a company and shipping firms.

7. Shipping

3PL works with different logistics partners and sends your orders to customers on time. Also, some companies have a tracking system that allows customers and companies to track shipped items.

8. Reverse logistics/returns

Reverse logistics involves receiving and examining returned goods for damage. If a customer isn’t satisfied with their order, your 3PL partner will work on processing the return and putting them back on the shelf for sale. Also, they send a replacement product to the dissatisfied customer if applicable.

4 types of 3PL companies

As 3PL markets have grown over the years, so have logistics providers' services. Knowing the difference between the different types of 3PL companies will help you determine which type is most suitable for your business. The main types of 3PL companies include:

1. Standard or Transportation-based 3PL provider

This type of 3PL is the most popular, providing basic logistics services for eCommerce retailers. Standard 3PL offers minimal services like warehousing and transportation, so they are a low-cost option for small businesses.

2. 3PL service developer

3PL service developer offers IT infrastructure and management. With this type of 3PL, companies can track their goods using their system. This form of 3PL helps companies ensure that the delivery of goods is safe and fast.

3. 3PL customer adapters

3PL customer developer takes over a company’s logistics activities per the client's request. In other words, the company already has an existing logistics system, so the partner just takes over the operations instead of creating their own. This type of 3PL involves a lot of work and personnel, thus very expensive.

4. Full-service providers

As the name suggests, a full-service provider offers different 3PL services like transportation, warehousing, shipping, IT tracking, cross-docking, etc. In this case, the 3PL manages a company's warehouse and logistics. In essence, the 3PL providers become the logistics department instead of just offering their services. This type of 3PL is an excellent option for large companies needing comprehensive 3PL services.

How to choose a 3PL partner?

Are you considering working with a 3Pl partner? How do you ensure you pick the right company? Here are some tips to help you choose a 3PL partner;

1. Figure out if you need a 3PL partner

Before hiring a 3PL partner, you should figure out if you need 3PL services. Some of the questions you can ask to determine if you need a 3PL partner include:

• Are you struggling to fulfill orders?
• Is your warehouse space running out?
• Do you have enough resources to handle logistics and transportation?
• Do you have international customers and struggle to deliver to them?
• Can your existing resources handle a surge in demand?

If the answer to any of these questions is yes, then it’s a good idea to work with a 3PL partner. A good 3PL can help take control of order fulfillment, transportation, and warehouse management.

2. Do your research

As with other aspects of business, it's essential to do your research before choosing a 3PL partner. Not all 3PL partners are created equal, so make sure to look out for a company with the right resources. Start by researching different third-party logistics providers and shortlist those who stand out. Then, compare and contrast the 3PLs on your shortlist based on price, quality, and services they offer. Some of the questions you can ask your 3PL partner to gauge their quality and services include:

• How long have you been in the industry?
• How many warehouses do you own?
• Have you worked with companies similar to ours?
• Do you have testimonials or reviews from previous dealings?
• Can you handle the volume of our operations?

3. Consider the 3PL’s customer services and responsiveness

A good 3PL partner always prioritizes responsiveness and customer service. For this reason, you should look for companies with reliable customer support. You want a company that can quickly address issues or inquiries you may have. So, find out if the 3PL has a stand-by customer support agent and determine how fast they respond.

4. Choose a 3PL with close warehouses location

It’s best to work with 3PL providers with warehouses in locations close to your customers. If your 3PL has a warehouse in a location far from customers, you may be at a disadvantage regarding shipping. The closer the products are to your customers, the easier it is to get products across to customers. Another option is to work with a 3PL company with a network of conveniently located warehouses to meet your needs.

5. Consider what services you need from your 3PL partner

It’s a good idea to determine what you’ll be needing a 3PL partner for before working with one. Do you need them for just one service or a comprehensive service? Try to determine what exactly you need a 3PL partner and how it will help your business. Once you figure this out, you can make inquiries based on your needed service. For example, if the main service you need is warehouse management, ensure you work with a 3PL partner that can offer it.

6. Determine the industry they specialize

Some third-party logistics providers specialize in a particular niche, so finding someone who works in your industry is essential. For instance, a 3PL may specialize in electronics, chemicals, food items, etc. So when choosing a 3PL partner, ask them if they focus on a specific niche and whether you are a good fit for their business.

7. Pay attention to the technology they use

One of the best practices with choosing a 3PL is to confirm if they can integrate with your existing technology like warehouse management system, order processing software, etc. If they use something that aligns with your business, then they could be a great advantage for you.

8. Set clear expectations from the start

To make things easy for both of you, let your 3PL partner know what you expect from them. Set clear expectations before hiring them to ensure you are on the same page throughout your collaboration.

9. Evaluate the costs

3PL services don't come for free so try your best to find a company that offers good deals. One of the first things you ask a third-party logistics partner is how much their services will cost you. Make sure you choose a 3PL company with fees that won’t overwhelm your budget. Also, ask if there are any hidden fees or value add-ons not included in the quote.

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Alibaba.com is also teaming up with 3PL partners to lower overseas shipping costs faced by smaller exporters. Currently, more than 1,700 freight providers and 100 logistics companies are offering their services through Alibaba.com. By joining Alibaba.com’s global marketplace, business owners can tap into the platform’s network of third-party logistics providers to streamline their operations.

So want to set up an e-commerce store, reach a global audience, and remove the stress of handling logistics yourself? Open a seller account on Alibaba.com to simplify all the processes involved in selling and delivering goods.