If you run an online store, you’ll need to consider which elements you want to manage independently, and which ones you want to outsource to a third-party solution (3PL).
For many stores in a huge variety of categories, Shopify provides a backbone for their ecommerce needs, with a 23% market share in the United States. Shopify makes it simple to display your products, track inventory, and enable customers to make purchases on their platform.
But what happens next?
If your shop is small, you might keep all of your inventory at home or a local warehouse or storage space, and handle your own order fulfillment. But for most brands, as you grow, that’s not going to be feasible or cost-effective in the long run.
That’s why it’s important to consider using a 3PL for order fulfillment, shipping, and returns. A 3PL can use its scale to help you increase your order fulfillment and shipping speed, with detailed tracking every step of the way to ensure customer happiness.
In this article, let’s take a deeper look at what a 3PL is and how to choose the right one for your store.
What is a 3PL?
3PL stands for a third-party logistics solution.
3PLs can handle all of the services needed to outsource your brand’s order fulfillment and logistics, including:
- Inventory management
- Shipping and receiving
- Freight shipping (either full load or partial load)
- Picking and packing
- Kitting services (combining multiple products into a single order)
When you use a 3PL, you’ll send all your inventory to your partner and they’ll take care of all the orders as you receive them. Rather than manually tracking down the correct item for each order and sending it out based on an individual shipping rate, you’ll have the economy of scale that a much larger partner can provide with their negotiated rates. In addition, you can often ship much faster by storing your products across multiple warehouses in different geographic regions.
3PLs specialize in packing and shipping, and have optimized every step of the process to maximize efficiencies. They make it easy to monitor the fulfillment process with the ability to track orders in real time every step of the way.
Some 3PLs have different specializations that might make them a good fit for specific brands. For instance, some 3PLs specialize in cold storage, ideal for frozen food vendors, while others specialize in bulky or high-value items. Some 3PLs offer international shipping as well as domestic shipping, and can manage the complicated processes of handling customs and trade compliance requirements on your behalf.
When evaluating 3PLs, make sure that they supply the right services to fit your specific needs.
Why use a 3PL?
If you’re a small shop you may be able to manage your inventory efficiently from a shopfront or your home directly. If you’re a large company, you may have built your own warehouses and logistics networks, enabling you to retain complete control of the entire shipping process and manage your own costs. But for everyone in the middle, a 3PL can be a good fit for most use cases.
Here are a few benefits of using a 3PL:
- Streamlined processes
- 3PLs have many years of experience in navigating domestic and global supply chain logistics from end-to-end. While your brand may be able to navigate your supply chain independently, a 3PL will have an extensive network of contacts that will help them to get the best deals and use their influence as a larger industry player to expedite processes. For complex procedures like compliance requirements around international shipping, they’ll have ready-to-go protocols that will ensure that you remain in compliance and don’t miss a step. As a result, you’ll be able to ship your products faster and keep your customers happier.
- Cost savings
- Using a 3PL can eliminate the need to invest in warehouse space, employees, equipment, technology, transportation, and other assets that would otherwise be needed to manage your own logistics. With a 3PL, you’ll just pay a fractional share of all of these expenses based on your own use, rather than needing to overinvest in assets that you’ll only need some of the time.
- Scale operations up and down
- Some product niches are seasonal, and you’re likely to sell much more at certain times of the year than others. Rather than needing to pay for warehouse space that you’re not using and needing to ramp employees up and down, you can scale your 3PL services based on inventory levels, so you only pay for what you need at any given time.
- Specialized expertise
- Some 3PLs have strategic expertise in key criteria, such as security and data protection or environmental sustainability. You can use their networks to help you meet and monitor specific key objectives or compliance requirements in your supply chain.
- Optimized reverse logistics
- When it comes to returns, it’s important to provide cheap or free return shipping and help your customer get their refund or exchange as quickly as possible. With a 3PL, you can get access to the best return shipping rates, and manage inventory across multiple warehouses to get your inventory back and inspected as quickly as possible so that it can go back into circulation.
How to choose the right 3PL
When it comes to selecting a 3PL for your business, consider these criteria:
- How long has the 3PL been in business? What industries and brands does it handle fulfillment for? Look for customer case studies, testimonials, and reviews to understand how well the 3PL has delivered on its promise, and for what amount of time. It’s also important to understand what certifications they have in place to verify that they take security and safety seriously.
- Look for expertise in areas that are important for your own business strategy, such as international shipping or environmental sustainability. What key differentiators does the 3PL have that show that it’s uniquely suited to manage your logistics according to your key business objectives?
- Does the 3PL have cloud-based technology that makes it easy for your stakeholders to log in and monitor inventory levels and other key metrics at any point of time? Their technology should easily integrate with your own tech stack to ensure that you have full visibility into your inventory management and supply chain in real-time.
- You’re switching to a 3PL when you’re too big to manage your inventory independently—but will the same 3PL be able to fulfill your needs once you’ve reached your 10x growth plan? Make sure that you understand how well your partner will be able to support you over time as you grow, and how your costs will change accordingly.
Integrating a 3PL and an automated returns solution
A 3PL is one important piece of your fulfillment puzzle, but it’s also important to improve and optimize your returns process by integrating an automated returns solution like Loop.
Your automated returns solution should easily integrate with your 3PL, so that customers can manage their returns and exchanges through an automated, self-service platform. With Loop, you’ll be able to optimize your returns workflow to incentivize exchanges: Loop customers typically retain about 40% of total revenue in the form of product exchanges.
By using a 3PL to manage the logistics process, you’ll be able to expedite return logistics and ensure that the customer has their refund or exchange item more quickly, and that your product is placed back in inventory so that it can be resold.
Putting both solutions in place at once helps you retain better control and efficiency in your reverse logistics process while providing a best-in-class customer experience that will help to retain long-term relationships with your customers.
Want to give Loop a try? Contact our team for a demo.