How 3PL Works

As you grow your business, scaling your supply chain gets expensive and time consuming. If you tried to handle all your supply-chain functions in house, you would spend a lot of time and money looking for warehouses to buy or lease, negotiating deals to buy or lease delivery vehicles, and recruiting staff with the right skills.

But a lot of ecommerce businesses outsource supply-chain tasks to 3PL companies. When you partner with a 3PL, you use their infrastructure to handle all or part of your logistics needs.

Since 3PL is such a broad term, it can cause a lot of confusion for a small ecommerce business owner. So we’ll try to take the mystery out of 3PL.

The most common 3PL services include -

• Shipping
• Warehousing
• Order fulfillment

A lot of 3PLs offer all three services, but not all. Some offer 3PL shipping only. Others offer warehousing and fulfillment.

3PL Shipping

Every 3PL shipping company has its own unique business model, but they generally center around two models. The difference is in the amount of control you have over the choice of carriers.

Gainsharing Model

A gainsharing 3PL shops for carriers that offer low rates and books shipping for you. Then you pay the shipping rate plus a finder’s fee.

The low up-front costs of a gainsharing 3PL make this model appealing to a lot of small businesses.

If you partner with this type of 3PL, watch out - some will use inferior cut-rate carriers. I’m sure you know how going with the cheapest can sometimes cost you. You don’t want relations with your customers to suffer because of unreliable carriers.

If you go with a gainsharing 3PL, look for a dependable track record for at least the last two years.

Reseller Model

Shipping resellers can get deep volume discounts on freight rates. Then they add a margin or markup the rate and offer them to you. How much margin they add depends on the volume of freight you ship each month. In other words, if you ship less than 100 times per month, they will charge a higher margin than another account who ships more than 100 times per month.

When you work with a reseller, you can choose from several carriers. You stay in control of which carrier you use, so you don’t risk being stuck with shoddy service.

Shipment Types

Full Truckload (FTL). When you ship product without sharing cargo space with other shippers, it's called Full Truckload, or Truckload. If your cargo takes up half or more of trailer space, FTL is likely the most efficient option.

Less Than Truckload (LTL). When your shipment is too large to send through a parcel carrier, you might ship LTL. With LTL, you share cargo space with other shipments going the same direction. 

Final Mile or Last Mile. Sometimes you may need to ship FTL and have the load broken down into individual orders at a cross dock (more about cross docking later). The packages then go onto smaller delivery trucks. 

LTL typically hauls with a shorter trailer than FTL, so you might not need a final mile carrier. If your LTL shipment goes to a residential address, book a vehicle with a lift gate so the driver can unload at street level.

3PL Warehousing

Traditional Warehousing

A 3PL that provides warehousing can give you flexibility in managing inventory. You can easily scale your inventory according to product demand. That means during peak demand times, you can get more space with a phone call or an email. And during slower times, you won’t have idle warehouse space. 

Cross-Docking

It can be costly to keep product in inventory.

• Opportunity costs. You have money tied up in inventory, so that money isn’t available to spend if a profitable opportunity arises.
• Deterioration. Obviously this is a greater problem when your product has an expiration date, but even durable goods will show signs of aging if kept in storage for a long time.
• Obsolescence. The product may not be as trendy in the future.

Rather than keeping your product in storage, a cross-dock receives incoming freight, breaks it down, and then loads onto outbound trucks for distribution. 

• Inbound dock. Your product arrives at the dock. The cross-dock staff unloads, then breaks up the shipment to send each item to its destination.
• Outbound dock. Once the cross-dock workers have prepared the orders, they load the product onto outbound trucks. Often, the orders go onto final mile trucks, but some items might need to travel a little further with a line-haul carrier.

Cross-docking can greatly reduce the cost of inventory as long as your supplier can handle a surge in demand. 

3PL Fulfillment

Almost all 3PL warehouses offer some level of fulfillment service. If you are a Business to Business (B2B) merchant and mostly ship Full Truckload to your customers, you may only need a warehouse that will load outbound trucks and fill out a Bill of Lading (BOL).

But if you sell to consumers, or you’re a B2B that typically ships parcel or LTL, you may need other services. 

A 3PL warehouse that picks, packs and ships your product is often called a Fulfillment Center. Having a partnership with a 3PL fulfillment vendor can give you the freedom to focus on growing your ecommerce business.

Value Added Services

Other than storage, a 3PL Fulfillment Center might offer -

• Product packaging. If you manufacture product and need packaging, you might reduce costs and extra steps if your fulfillment partner offers custom packaging.
• Kitting. If you want to offer bundles and value packs, a kitting service lets you fill those orders based on real-time demand. For example, if you sell beard care products, your customers might buy beard oil, balm, comb, and brush separately. But you can offer them more value by offering a kit that includes all of these. When a customer orders the kit, the 3PL staff assembles it in the warehouse before sending it out for delivery.
• Point of Sale and End Cap displays. If you ship to brick-and-mortar retail stores, some fulfillment 3PLs offer to build the display in the warehouse No need to set up in the store. Just unbox it in place and it’s ready to go.

3PLs You Already Know

Amazon

That’s right - the world’s largest online retailer is a 3PL. 

Fulfillment by Amazon. You can sell your product through Amazon with Fulfillment by Amazon (FBA). You send them a quantity of your product, which they store in their warehouse. Then when a customer places an order, Amazon picks, packs, and ships it for you. 

Even though you own the product, Amazon treats it as if it’s theirs. That is, they pack it in a box with the Amazon printed logo. If you’re trying to promote your own brand, the retail giant’s shadow might be too large.

Seller Fulfilled Prime. With FBA, Amazon takes control of your inventory and you sell on their platform. You might not want to give them that much control. If you want to promote your own brand rather than Amazon’s, Seller Fulfilled Prime (SFP) might be the way to go. You keep the product in your own warehouse or with a 3PL partner.

And you get to display the Amazon Prime badge with your product’s description on Amazon’s website. But you have to agree to play by Amazon’s rules.

• Pick, pack, and ship the same day
• Fulfill Prime 2 day shipping at no charge
• Use approved shippers

Merchant Fulfilled Network.. This is like SFP, except that you don’t display the Amazon Prime badge and you can offer whatever shipping terms you want. If you’re trying to reach customers who don’t mind waiting for a few days so that they can get a bargain, this might be a good choice.

FedEx

In 2015, FedEX bought out GENCO and rebranded it as FedEx Supply Chain two years later. FedEx offers a lot of valuable services for ecommerce businesses.

FedEx Transportation Management. You can have a single point of contact for all your shipping needs. They offer online transportation management tools so that you can track shipments 24/7. You can also contact an account manager any time of day or night.

Warehouse operations. Fedex offers a wide range of warehouse services, They can provide dedicated or shared warehouses or even help you plan, design and start up your own. They can provide staffing for your warehouses so you won’t need to hire and train employees.

FedEx doesn’t just give you a place to park your goods until you sell them. They also offer supply chain engineering.

• Network Optimization. You get FedEx’s expertise to find out what changes to your supply chain system can make you more efficient.
• Warehouse location analysis. They’ll identify regional demand so you can fill orders more quickly and efficiently.
• Optimal mode selection. You have a lot of transportation options. FedEx will find the right shipping services that lower your costs and meet service requirements.

Fulfillment. FedEx Fulfillment gives you an online platform that you can integrate into most of your ecommerce systems.

• Marketplaces such as Walmart and Ebay
• Shopping carts from shopping platforms like Shopify and Magento
• Business tools like Quickbooks and Square

You’ll upload your inventory onto the FedEx Fulfillment platform, ship products to a FedEx warehouse, and you’re ready to sell online.

How 3PL Grows Your Bottom Line

You likely went into business for yourself because you found your passion. So, of course you want to grow that passion, and 3PL partnerships can provide logistics solutions that make growth more profitable. 

• You won’t need to invest a lot of capital. This leaves you with more money to focus on the parts of your business you’re passionate about, and make them more lucrative.
• Hiring and training new employees takes a lot of time and money. The average US employer spends about $4000 and 24 days to recruit one new employee.
• As a small business owner, you probably spend up to 40% of your time doing things that don’t make any money. You don’t have to take up precious time with the hiring process.
• On top of that, there’s money you’d spend posting on job boards or participating in career events.
• And background checks can cost as much as $80 per candidate.
• Don’t forget onboarding and training costs. It takes about 20-26 weeks to train a new hire, costing you about 1.5%-2% of revenues during that time.
• Many 3PLs can serve as a single point of contact for shipping, inventory storage and fulfillment. This frees up time you can use for profit-making pursuits.
• You can lower shipping costs because 3PLs can get volume discounts that you probably couldn't on your own.
• Many 3PLs have decades of experience in the industry, so they know how to operate efficiently. This means you can offer first-rate customer service, promoting customer loyalty and earning repeat business.

About Eniture Technology

Eniture Technology specializes in helping e-Commerce merchants grow by providing useful information, digital marketing services, off-the-shelf apps that solve common problems, and custom programming services. Please contact us if you need help growing your online business or implementing the concepts presented in this blog post.

If you are interested in offering LTL freight as an option on your online store, take advantage of our free guide on LTL freight.

If your products are smaller and you'd like to learn more about using parcel services effectively, check out our free guide, A Beginner's Guide to E-Commerce shipping.