If you are new to the idea of outsourcing and partnering with a third-party logistics provider (3PL), it may seem like a daunting and expensive process, but it doesn’t have to be, and it certainly shouldn’t be. It also might feel strange relinquishing control of the fulfillment process to an outside company. But by working with a 3PL provider to outsource fulfillment, you can leave all the operational details and logistics services to them, freeing you up to focus more on other aspects of your supply chain and your core business goals. Most 3PL services include the broad categories of supply chain management, inventory management, and transportation management.
The topics below illustrate core competencies and fulfillment services that a typical 3PL might handle for a seller.
Receiving is the coordination of getting products to the 3PL, and the first step of the order fulfillment and shipping process.
A 3PL’s fulfillment center will receive your company’s inventory and then store your products before they go out to a customer. The 3PL will need to coordinate the inbound shipments—often with the use of a freight forwarder, an entity whose primary function is to manage bulk shipments from the manufacturer to the distribution center (also known as warehousing). The 3PL and freight forwarder need to be in constant communication well in advance of a receiving date to ensure there is adequate transportation for the products and that they can make it to their destination in accordance with demand.
The size of each individual 3PL will dictate how much capacity they have for a seller’s products. It is important for the seller to work with a 3PL that has the warehouse space to not only receive and store your company’s current product output, but be able to expand and scale its capacity as your business grows.
Each individual product will have its own SKU (stock keeping unit) number, as well as a dedicated location in the warehouse. During the receiving process, the 3PL will confirm the quantity of SKUs received and verify that it matches the Purchase Order (PO).
A 3PL should also be able to meet each individual sellers storage needs, such as temperature requirements, security, and keep products within a relatively close distance to your customer base (farther distance means higher shipping rates and slower delivery times).
Additionally, some 3PLs are able to provide what is referred to as distributed inventory. This means the 3PL has more than one facility that they can store and process orders from. In these cases, the sellers can split their inventory and ship their products to each facility or the 3PL can receive the inventory at one facility and manage the distribution to the other facilities themselves. By distributing their inventory, a company can be closer to their end customer, which will help minimize transit times and save on shippings costs.
The next step is picking, and it happens as a direct result of customer placing an order. This is really where the 3PL fulfillment process begins. Once an order is placed, it is sent to the warehouse where that particular product is being stored.
Some 3PLs require orders to be uploaded manually into their system. This can be time consuming, inefficient, and costly. A 3PL should have an automated system that allows it to receive orders directly from the seller’s shopping platform or retailer, and passed to the 3PL’s warehouse management system (WMS).
When the order is received in the WMS, the products that are part of the order are physically “picked” from the storage area in preparation for it to be packed and shipped out. Each 3PL will have an agreement in place, called a service level agreement (SLA), which states the requirements of how quickly the 3PL needs to process an order once it’s received. Most sellers require a 3PL to ship out their orders the day it is received.
The types of orders vary in size, complexity, and pick type so the 3PL you decide to choose needs to support all types of orders. For example, an ecommerce or business-to-consumer order is vastly different than a business-to-retailer (or business) order.
Once an order is picked, the products in the order are organized and prepared for packaging, a step that is called packing. A 3PL will work with the seller during the initial setup process to identify the best way to package the product to ensure the seller’s products are secure, presentable, and packed in the most cost effective way possible.
In addition, some 3PLs will also be able to help with custom elements of the packing process, including custom inserts, special stickers or branded packaging for sellers.
Shipping can be the most complicated and expensive aspect of the fulfillment process. This is due to the large number of carriers, numerous shipping options per carrier, shipping cutoff times, and variance by shipping locations. You can learn more about shipping large orders by reading the introduction to freight shipping.
An experienced 3PL can layout a clear shipping strategy and provide significant savings on the shipping costs. Given that most 3PLs have a number of clients that they are fulfilling orders for, they can leverage their buying power to offer seller better pricing than if they were shipping on their own. In addition, sellers can leverage 3PLs with multiple fulfillment centers for further cost savings and streamline the time it takes to get to the customer.
A 3PL will handle all of the printing of shipping labels, as well as ensuring that tracking information will be sent out to sellers and their customers so they can follow along as they wait for an order to arrive.
The returns management process is also called reverse logistics. Whether the item is damaged, ordered by mistake, or a customer changes their mind, returns are an integral part of the shopping process and an important part of the customer experience.
Not all 3PLs offer return services because it can get complex very quickly. Also known as RMA (return merchandise authorization) an experienced 3PL will have very clear processes set up to help make this part of shipping and logistics easier.
“With our old logistics partner, we were lacking some key features—reverse logistics, returns and how returns are handled, and also some features of sending packages as well. Here, DCL’s professionalism and experience are compelling. DCL does basic and trivial things, key features that our old logistics partner just didn’t do.”
When a customer issues a return, the 3PL will receive the returned item, track and physically verify the reason for return, place the return back into inventory, or dispose of the product based on the seller’s preferences. Also, depending on the agreed-upon criteria between the seller and 3PL, the 3PL may automatically release a new item to the customer once the return is received.
A 3PL will be able to provide the seller with detailed reports on returned items and the management of the returned items.
In addition to the logistics operations listed above, Most 3pl services will can also provide logistics management, supply chain management, inventory management, and transportation management and freight forwarding. However if they are unable to meet the basic core competencies listed above then you should be wary of working with them. By being able to execute on these you can expect significant cost savings by working with 3PL service providers
If you are seeking logistics support we’d love to hear from you. You can read DCL’s list of services to learn more, or check out the many companies we work with to ensure great logistics support. Please contact us to learn how we can help support your growing business.