The primary purpose of a third-party logistics (3PL) partner is to efficiently manage the receiving, storage, picking, packing, and shipping of products to consumers and retailers.
There are many ways to approach this workflow, and 3PLs will often specialize based on product type, order volume, and distribution needs.
But how do you know if partnering with a 3PL is the right option for you? What should you look for in a prospective provider?
Determining if a 3PL is right for your business - and which type of 3PL to use - can be a daunting experience requiring in-depth analysis. This article will help you better understand some areas and perspectives you need to consider so you can make the right decision for your business.
Like any new business partnership, there are a variety of pros and cons to partnering with a 3PL provider. These will depend on your current strategy for shipping and fulfilling orders, and what sort of 3PL third-party logistics provider your brand is seeking to partner with.
To know whether a third-party logistics partnership is the right decision for your brand, you need to review your current fulfillment strategy to understand whether outsourcing fulfillment will help you to achieve better cost savings and efficiency across your supply chain. This includes:
Not all of these factors will apply to every business, but it's important to review them carefully to understand your needs and conduct your 3PL search accordingly.
For many years, only two sales channels existed for retail brands:
It’s no secret that e-commerce is gaining more market share with each passing year. Yet other channels are gaining considerable traction. Amazon, drop-shipping, and store-based fulfillment and delivery methods have been growing in popularity since the pandemic as merchants seek better time and cost savings. Even within the Amazon umbrella, there are multiple fulfillment logistics plans available, including:
Amazon FBA is the original Amazon fulfillment program available to sellers on the platform. When your (or your third-party logistics partner) ship orders to Amazon, they provide warehouse space in a fulfillment center to store SKUs and fulfill customer orders as people purchase products on the Amazon online store. While this offers convenience, some ecommerce merchants feel that they lose control over their brand, as value-added extras like branded packaging cannot be used, and order fulfillment expenses can creep up over time.
Amazon SFP is a more prestigious program for Prime brands who either fulfill orders themselves or through a third-party logistics company or other outsourced fulfillment solution. Amazon SFP has requirements around how quickly these orders must be fulfilled and how they must be delivered. In return, sellers with a Prime badge benefit from greater visibility on the website.
In response to brands wanting fulfillment solutions for non-Amazon sales, the platform introduced Amazon MCF, a parallel fulfillment and shipping logistics service which allows for greater customization. MCF is highly valuable for omnichannel brands who want to leverage Amazon's massive logistics operations network, but still sell products via other channels.
If you're participating in any Amazon programs, it's worth considering whether third-party logistics companies can streamline this process by managing Amazon shipments on your behalf. Requirements for Amazon fulfillment programs and warehouse space are very precise and can change with little warning, which can create a lot of work for brands that are managing fulfillment in-house. Ideally, a prospective third-party logistics partner will already have clients participating in these programs, further validating their expertise.
Alternative e-commerce fulfillment options, such as dropshipping and store-based pick-up options, are recent developments to improve customer service and save money on shipping and fulfillment. This offers increased convenience for customers who already shop at these retailers, making them attractive strategies to grow and meet customer demand.
Incorporating multiple channels for sales and fulfillment logistics increases your flexibility, but this requires oversight of your entire supply chain and core competencies including real-time inventory management, value-added fulfillment services, and customer experience management. For this reason, omnichannel fulfillment is challenging for brands to execute independently.
To identify prospective third-party logistics providers for your business, it is important to know:
It's becoming more common for businesses to have only a handful of full-time staff and to outsource functions such as Legal, Financial, HR, and Operations. But the decision to outsource fulfillment may not align with how you run your business and envision growth. Ask yourself the following questions:
Be honest with yourself; you don’t want to outsource third-party logistics (or any other functions) if you know you would rather manage growth with an internal team.
However, know that owning and managing inventory, your own fulfillment centers, transportation procedures, shipping process, and more requires significant capital investment in the infrastructure, equipment, and people required to operate it. This is especially true during aggressive growth periods, such as seasonal sales spikes that demand well-organized supply chains which can be difficult for brands to achieve independently as their business scales. It's important to carefully consider the entire process and whether you can provide these service offerings.
“Rad Power Bikes has seen massive growth every year since the company was founded, and as demand and interest for ebikes has surged, we needed the ability to scale quickly. With a Seattle presence and a nationwide operation, Ryder was a clear choice for a fulfillment partner that allows us to deliver an unrivaled customer experience.” Mike McBreen, Chief Operating Officer at Rad Power Bikes.
It can be easy to view all third-party logistics providers as largely the same, but this is far from the truth. Understanding your products, typical order characteristics, sales channels, and delivery expectations will help you identify a 3PL partner that has the expertise and infrastructure to meet your requirements. Some questions to ask yourself about your products that will be important to potential 3PL partners:
For example, if you sell high-end furniture, you should seek a 3PL that has the infrastructure to pack and ship heavy products with a high DIM weight. If you sell thousands of apparel items every day and have a massive SKU base, you should look for third-party logistics providers that have the right technology in place to handle complex inventory management and SKU rationalization.
“Ryder has extensive experience working with large fashion retailers and was able to integrate completely with our existing management systems – something that many 3PLs don’t allow. This combination of flexibility and expertise made them the perfect choice to coordinate our US fulfillment operation.” Marcello Veronesi, CEO of Calzedonia USA.
As the requirements increase and become more complex, it gets more challenging (and expensive) to find an appropriate 3PL partner. But given the difficulty in meeting these service standards and regulations on your own, working with a 3PL may be the best option.
Conversely, if your product and order fulfillment requirements are straightforward, you will have more 3PLs available to you. But depending on your order volumes, if may not be cost-effective to outsource until your company grows. To sum up, you need to have your product and order fulfillment requirements clearly identified so you can share them with potential 3PL partners and make sure they can meet your needs.
As we explained above, not all third-party logistics (3PL) providers are alike. While some will offer a full spectrum of value-added services, other 3PLs will only offer standard pick, pack, and ship fulfillment services. The best option for your business will depend on the precise needs demanded by your inventory and end customer expectations. For example, if you want to create a memorable unboxing experience, then your 3PL needs to be able to implement services such as branded packaging, packaging inserts, and free samples.
While you might not require these services right now, there may be an opportunity in the future to bring them into your workflow. This is why it's a good idea to partner with a 3PL that can support your changing needs, rather than having to find another partner in the near future who does offer those services.
“When we started to look seriously at scaling our ecommerce fulfillment operation with Ryder, it was their embroidery capabilities that won us over. The ability, experience, and willingness to adapt that Ryder has shown via their value-added services have made them the ideal 3PL for us.” Steven Feczko, Director of Operations at Hedley & Bennett.
Thanks to General Rate Increases and Peak Season Surcharges, freight and shipping costs are continually increasing. This means delivery timeframes and transportation costs will continue to erode the gross margin of businesses.
As a general rule, working with a 3PL can offer you better shipping rates than what you can secure on your own. This is a benefit of the buying power that third-party logistics providers have by leveraging the combined shipping volume of all its clients. 3PLs do (and should) make money on their freight rates, but they should be able to lower your freight costs as well.
Moreover, delivery time is a very important variable when it comes to shipping orders. The faster you want orders delivered to your customer's doorsteps, the more expensive shipping will be. The standardization of two-day delivery anywhere in the continental United States by the likes of Amazon has made many consumers expect rapid delivery. However, it's important to consider whether your customers truly want (and perhaps expect) two-day delivery and if so, how a logistics partner can support this.
Making the move to a 3PL can be worrisome, particularly for companies that are practicing self-fulfillment and don’t have the benefit of understanding what working with a 3PL is like.
Feelings of 'losing control' over critical functions within the order fulfillment process can cloud the decision-making process. With this in mind, it's important to remember that no 3PL provider will do things the way you have done them — but this is the reason you are outsourcing this work.
There are many things you can do to prepare for a successful transition to a 3PL. In the simplest terms, make sure that the 3PL provider you select has a detailed and comprehensive new client onboarding process and plan. Ideally, they will have a department or team that is dedicated to leading the onboarding process and managing the project from beginning to end. With this support in place, your transition will be much smoother and you'll recognize the benefits of working with a 3PL sooner rather than later.
Despite the stress of making this type of move, don’t step over dollars to pick up the dimes. If your in-house operation or current 3PL is slowing your growth, it's time to make a move to a partner that will energize sales and support growth.
We suggest taking the time to conduct a thorough evaluation of several 3PLs with various members of your team and approaching the process with an open mind. This partnership will likely lead to a variety of benefits, perhaps the most important being the ability to grow your business as quickly as you can, without being encumbered by an operation that cannot keep pace.
Every brand is different, but now you have new and valuable perspectives that can help you move forward without hesitation.
