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Table of Contents
More Fulfillment Content
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Get the latest e-commerce industry news, best practices, and product updates!
Table of Contents
Share This
More Fulfillment Content
Get the latest e-commerce industry news, best practices, and product updates!
A 3PL fulfillment company provides small and medium e-commerce business owners with logistical and fulfillment support. Learn more about how they can help your business grow.
Third-party fulfillment, also known as 3PL, is a beneficial fulfillment method, but many people do not understand what it means. So, if you want to know more about it, read on as we will discuss 3PL in more detail.
What is a 3PL Fulfillment?
Let us begin with the basics and explain what 3PL is, and why the term is getting tons of traction these days. 3PL, as the name itself explains, is third-party logistics. Plenty of e-commerce businesses operate on a traditional model, which means they handle most, if not all, operations in-house. This can be pretty troublesome for new companies, as most of them do not have the connections or economic capacity to handle all of it by themselves.
Here is where third-party logistics fulfillment companies come in. These companies are pros in the business who can handle all of your fulfillment processes, including keeping inventory, packaging, and shipping of all of the products your customers will order. They can do all of it for a fraction of the cost it would take to handle it all by yourself. With the rise of new small e-commerce companies worldwide, 3PL fulfillment companies are now more essential than ever. Here are all the things you need to know before you hire them:
3PL Myths and Misconceptions
Since 3PL is a comparatively new practice,
some myths and misconceptions
surround it. But do not worry, as we are going to debunk them so you can know more about 3PL and potentially use them for your online business.
1. Many online retailers think their companies are too small for 3PL, and they will not be able to afford it. Storing, packing, and shipping orders all by yourself can be a nightmare sometimes. That is why every business, no matter how small, needs to hire a 3PL partner. These logistics companies are trusted and more experienced than you in the field. That’s why you can be worry-free and focus more on customer satisfaction than fulfillment.
2. Many business owners tend to think that hiring a 3PL will mean they will eventually lose control of their own business. This is entirely false. These companies will only help you maintain inventory, and package and ship items as needed. Unlike how most people think, hiring a third-party logistics company will eliminate the excessive worry and work that goes into logistics and fulfillment, especially for a new business like yours. This will help you gain more control over the other important aspects of your business, like product improvement and customer satisfaction.
3. Another myth surrounding 3PL is that it is expensive, and most businesses cannot afford it. Obviously, you have to pay a fee when you hire them, and depending on the volume of products you ship, these prices may vary from company to company. But 3PL as an investment is far more cost-saving in the long run than if you decide to handle the logistics and fulfillment by yourself. Since they ship many products every day, these 3PL companies can offer you a lesser shipping price, using the so-called ‘economies of scale’. Not only that, but their fulfillment warehouses and fulfillment centers can also store your inventory. A small company should hire a 3PL fulfillment company if it wants to save on shipping costs and expand its business further.
What are the Differences Between 3PL and Fulfillment?
The main difference between 3PL and fulfillment comes down to integration. A 3PL company usually offers warehouse storage space, inventory management, and proper shipping. But a fulfillment company can provide you with many detailed and customized fulfillment services such as custom packaging and labeling, kitting, advanced technology, and much more.
A 3PL fulfillment company combines the best of both worlds – you can get customisable fulfillment services and the security of a good 3PL company. This can help you scale up your business and expand much further.Best Practices and Benefits
Best Practices and Benefits of 3PL
Now that we have talked about what 3PL fulfillment is and cleared up some of the misconceptions that people may have about it, let us look into some of the key benefits of hiring a 3PL fulfillment company.
Reduced Shipping Costs
One of the greatest benefits of hiring a 3PL fulfillment company is that your shipping costs will be reduced by a lot. Trusted 3PL companies have an extensive network, and since they ship in bulk, they can negotiate prices and get a significant discount on shipping costs. This means your overhead costs will be drastically cut if you hire them instead of handling these operations by yourself. Your products will also be safer, as they have a reputation to uphold and thus will be careful about shipment.
Give More Attention to Core Competencies
One of the most significant drawbacks of handling the fulfillment process all by yourself is that you cannot focus on other essential aspects of your business, such as product management and customer satisfaction. When you are not worried about logistics – an integral part of any business – you can instead focus on other core competencies and improve your business model.
You Benefit From Their Expertise
For a business owner, it is hard to keep track of the ever-changing world of logistics. Especially if you plan to ship to a broader region like a whole country or globally, 3PL companies are experienced in the matter. Instead of worrying about shipment costs and inventory, you can benefit from their expertise. They also have access to modern technology that helps make the fulfillment process faster and more reliable. 3PL fulfillment is a one-stop fulfillment and logistics solution for small and medium e-commerce businesses.
Expand Your Business
With 3PL companies, you will be able to expand your business into new markets and regions without worrying about individual costs of inventory, shipment, and delivery. This will help you reach markets you have not been able to before, and you can expand your business and not worry about the logistical parts of it.
Customer Satisfaction
We have already talked about all the benefits of 3PL, but this one is no less important than the others. With a 3PL fulfillment company’s help, your shipping and response time will improve significantly. This will bring about brand reliability, and the customers will be happier with your product and the services.
Who Uses 3PL Fulfillment?
Many small and medium e-commerce businesses use 3PL fulfillment as their logistics and fulfillment service provider. We know that 3PL fulfillment solutions are most profitable for small and medium e-commerce businesses. But research also shows that about 90% of all Fortune 500 companies also use 3PL fulfillment services. Here are some industries that use 3PL fulfillment solutions for their businesses:
1. Accessories
2. Health and Wellness
3. Apparel
4. Electronics
5. Cosmetics
Many other industries use 3PL fulfillment solutions, and it is becoming increasingly popular with each passing day.
Reducing Logistics Costs with 3PL Fulfillment
One of the harshest truths every business owner learns is that the cost of logistics, transportation, and warehousing is constantly on the rise. It will be significantly more costly if a business tries to handle all its logistics needs by itself.
Fulfillment is already expensive, but it can be even costlier for e-commerce businesses as they ship to a broader market, with shipping costs also rising. But if you hire a 3PL fulfillment company for your business, they will handle your logistics and fulfillment for a fraction of the price, and here is how:
Lesser Shipment Costs
Since these 3PL companies ship higher volumes of products everyday, they get better pricing while hiring shipping companies. This means they can also provide their customers, a.k.a. e-commerce business owners, better rates and better services. This will reduce your shipping costs by a lot more than what you would have to pay if you tried to handle it yourself.
Cut Back on WMS Costs
Many business owners do not think of this when they start a business, but warehousing is one of the most expensive parts of owning a business, especially if you want to have a well-functioning WMS or Warehouse Management System. Managing inventory and fulfillment requires a lot of workforce and technology. These technologies are indispensable but very costly, and most small companies will not be able to afford them. But if you hire a 3PL company that already has a technologically advanced WMS in place, you can pay them for their services and avoid these ridiculous prices altogether.
Reduced Cost of Handling Returns
Returns management in a small company can be expensive. Collecting, repackaging, and shipping back a product is only half of it. You also have to package, label, and ship another replacement product to the customer. This process must be repeated every time a customer wants a return.
But with a 3PL fulfillment partner, you can cut back on the hassle and cost of returns management, as they will do it for you. When you are hiring a 3PL company, make sure to talk to them about returns.
Less Product Damage
Getting a warehousing space yourself may result in low-quality equipment and storage space, which can damage your products. This also goes for shipment, and if you are not shipping through a trusted (and often expensive) shipping company, the items may get damaged.
But suppose you hire a 3PL fulfillment company with well-equipped storage space and connections to trusted shipment and delivery companies. In that case, you can rest easy about your products, as they will handle them with care, and the cost of replacing damaged products will be a minimum for your company.
3PL Fulfillment Model
Now that you know a lot about 3PL, you might be wondering how it all works exactly? Here is a step-by-step 3PL fulfillment model for you to understand it better:
The first step is receiving, which means getting the inventory. This happens when the business that hired the 3PL company has to move their stock to the 3PL company warehouse.
After they have received your inventory, the 3PL fulfillment company will then store it in their warehouses. This part of the process is called warehousing.
The next step is known as picking. This happens when a customer places an order to your business. If the 3PL company has a system that automatically detects when someone places an order with you, they will be able to start the picking process. This includes getting the right product from the warehouse by consulting a ‘picking list’.
The step after picking is packaging the products. This may take some time, as different products require different types of packaging. But a 3PL fulfillment partner will make sure to package your items well before delivery.
The next step is shipping. Shipment is an integral part of running an e-commerce business. So while hiring a 3PL company, make sure they use a trusted shipment company. Otherwise, if shipment causes damage to products, it will result in customers feeling unhappy, and the reliability of your brand will take a hit.
Last but not least, we have returns, an essential part of running a business. It is hard to handle returns properly, especially if you are a small business. But a 3PL company will handle your returns with care, and you will not have to worry about a thing.
When Should You Hire a 3PL Fulfillment Company?
3PL, even though incredibly beneficial for your business, can mean you will not be able to provide a more customizable experience to your customer. But that does not mean it will not increase customer satisfaction, as the shipment and delivery process will be much smoother and faster. Your costs of running a successful business will also get reduced by a lot, and you will be able to focus on product improvement and customer satisfaction more.
Comparing Internal Fulfillment Costs Against a 3PL Approach
There are some things that in-house fulfillment can offer that a 3PL approach cannot. The former gives you more control over your inventory, and also the operations in the warehouse. You can also share a more customized experience through internal fulfillment with your customers. But it can also cost a lot of money.
In contrast, one of the main reasons to consider a 3PL fulfillment solution is a massive reduction in fulfillment costs. With 3PL, your fulfillment and shipping costs get cut to less than half of the typical internal fulfillment costs. You also gain access to a 3PL firm’s expertise for a low price. That is why many businesses are choosing 3PL over internal fulfillment these days.
Conclusion
3PL, even though incredibly beneficial for your business, can mean you will not be able to provide a more customizable experience to your customer. But that does not mean it will not increase customer satisfaction, as the shipment and delivery process will be much smoother and faster. Your costs of running a successful business will also get reduced by a lot, and you will be able to focus on product improvement and customer satisfaction more.
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FAQs
A 3PL fulfillment company is basically a company that provides small and medium e-commerce business owners with logistical and fulfillment support. If you hire a 3PL fulfillment company for your business, they will take care of the entirety of your logistics and fulfillment process.
A 3PL warehouse is used to store inventory. From here, they can package and ship your products as needed, when customers order them.
Businesses start using 3PL when they see their logistics and fulfillment costs are becoming overwhelming, and the workers are also facing too much pressure. Hiring a 3PL fulfillment company takes a lot of that burden from their hands.
In a 3PL fulfillment system, the seller provides the 3PL company with an inventory of their products, from which the 3PL company packages and ships items as the customers order them. But in dropshipping, sellers ask the product manufacturers to ship the items to the customer directly.
3PL is most beneficial for small and medium businesses. Industries such as apparel and accessories, home and kitchen, health and wellness, electronics, etc. are the most likely to use 3PL fulfillment services.