Table of Contents
When it comes to building a successful ecommerce business, there are many options available to help outsource order fulfillment. Two of the most popular are FBA (Fulfilled by Amazon) and 3PL (third-party logistics). With both of these options, the basic concept is similar: you send inventory to a third party, who then is responsible for storing it and shipping it. While the basics are similar, there are marked differences between the FBA and 3PL services, and it is important to understand the pros and cons in order to choose what the best option is for your ecommerce business.
What is Third-Party Logistics (3PL)
A third-party logistics provider (3PL) is an outsourced provider that handles many aspects of a company’s supply chain: inventory management and storage, fulfillment services, shipping and return logistics, plus many more. Because a 3PL provides the same services to many companies at once, it can be an efficient option to manage big changes in sales, or rapid growth due to introducing a new product.
Seeking a 3PL that is right for your brand is imperative to a successful relationship. Ensure that your 3PL has the resources that are compatible with your needs. It paramount to make sure your fulfillment partner is able to meet all of your requirements to avoid customer-satisfaction issues. A few questions you should ask before partnering with a 3PL:
- Does my order volume exceed the cost of a 3PLs monthly fees?
- Will outsourcing the labor of picking, packing, shipping, and return logistics be a benefit?
- Do they work with similar brands and products? Do they know my market?
- Do they already ship to the sales channels I want to be in?
- Do they have software and technology tools that are compatible with my needs?
Pros of Working with a 3PL
Warehousing and Fulfillment Centers
An established 3PL will have adequate warehouse space for your inventory storage in their fulfillment centers. Plus integrated into their spaces they will have technology tools to help you manage your inventory on a daily basis. While you will have to pay for storage space within their sites, you might have the opportunity to distribute your inventory to multiple warehouses in the country, which will cut down on shipping fees.
Personal Attention to Your Products
Most 3PLs have dedicated account managers to help you manage sales growth and quickly resolve any issues, should they arise.
By working with a 3PL, you’ll have a large group of experts working to move your product. This includes everything from distribution infrastructure, picking and packing, shipping and handling. Your products will be in the hands of professionals.
Many 3PLs are adept at offering numerous value added services, such as packing inserts, specialty packaging, in-person inventory counts, and many more. Additionally most 3PLs can handle both B2B and B2C fulfillment, supporting many different sales channels, from Shopify and Amazon, to brick-and-mortar stores.
Reduced Shipping and Storage Rates
A benefit of outsourcing to a 3PL is their ability to choose between different shipping carriers and negotiate the best price. Often a 3PL will get lower rates than you could find on your own, based on the volume they are shipping (more than just your product) and relationships that they have with the carriers. Many people find it surprising, but storage costs are also often cheaper than managing your own because you are basically leasing space in an existing warehouse as opposed to having to handle and manage your own.Learn More About the Benefits of Working with a 3PL
Cons of Working with a 3PL
Erratic or Small Order Volume
A 3PL is not the best option if you are just starting out and don’t really have a gauge for what your order volume will be. If you aren’t getting very many orders each month, it might not benefit you to have inventory in storage with a 3PL until you can ensure you will be shipping out a steady amount each month.
To get started with a 3PL there are upfront costs. In most cases, you will have to pay the following fees, either per month or per SKU, depending on your 3PL:
- Setup—Depending on the 3PL, this one-time fee will include software integration, warehouse tours, and training.
- Receiving—Most 3PLs charge per shipment received to their warehouse. It may be an hourly rate for unloading, performing cycle counts, and entering products into inventory management system. It could also be a flat fee per delivery, or a flat rate per SKU.
- Storage—Most 3PLs charge a storage fee per square feet or necessary space in their fulfillment center. Some charge on a per pallet basis.
- Fulfillment—This covers picking, packaging, labels, package inserts, package customization (if desired), and order processing. Costs vary depending on how many of the above steps are necessary for your products.
- Shipping—In most cases, you will receive a significant discount over shipping carrier listed rates because 3PLs receive bulk shipping rates based on their scale and order volume, as well as discounts negotiated with specific carriers.
Fulfilled by Amazon (FBA)
FBA allows any ecommerce business registered as a seller on Amazon to hold inventory in its distribution centers until customers place an order. Amazon then picks, packs, and delivers the item—and provides return logistics and customer support as well.
Because Amazon is currently the top platform for ecommerce business, it’s a priority for sellers to have products there, but it does come at a cost. Using FBA also means giving up some control of your sales process. FBA does allow you to handle product preparation yourself, and you can always choose to start with a small amount of inventory to start—only increasing your fulfillment volume if your sales start rising accordingly.
Pros of Amazon FBA
1. Prime Access to Online Shoppers
One of the biggest pros of using Fulfilled By Amazon is direct access to the over 100 million Prime subscribers. The Amazon FBA platform includes many benefits that are designed to help boost your sales revenue: Prime shipping which has become a huge differentiator when customers choose which products to purchase, and extra exposure related to Prime Day and other Amazon boosts.
2. Customer Support
Part of the FBA package includes handling all customer support, complaints, and return logistics.
3. Simple Fees and Integration
Amazon offers a transparent fee structure so you can easily calculate costs to estimate what your profits will be. Plus Amazon offers multi-channel fulfillment which means you can fulfill orders from other sales channels using your inventory stored in Amazon distribution centers.
Cons of Amazon FBA
Some sellers are reluctant to use FBA due to concerns over the service. For example, when Amazon ships your product, it might not be the same product that you shipped to Amazon. If you aren’t selling private label products, Amazon will simply pick that product from any warehouse nearest to the buyer and ship that to them. This reduces costs and improves shipping speed, but it greatly reduces your ability to control quality.
Minimal Order Customization
Amazon ships FBA products in Amazon branded boxes with no inserts or custom packaging, reducing the impression of your brand. From the customers’ perspective, they are buying directly from Amazon.
Amazon’s storage fees are generally higher compared with 3PLs and usually rise during holidays. Plus they offer less fluidity in your inventory cycles, so it might be harder to negotiate your inventory based on spikes and dips.
Amazon is Direct Competition
There is also the fact that while you utilize FBA, Amazon might actually be a competitor. Amazon is not just a fulfillment provider, but also sells, ships and markets its own products which might pose some level of conflict of interest with your ecommerce business.
Limited Direct Access
There is also a lack of a direct communication with Amazon. There are a few forums you can visit to help get answers and guidance, but Amazon only has a single hotline account, no dedicated account managers to help you make the best decisions for your brand. It can often be challenging to get in touch with an actual person if issues arise because so much of their infrastructure is cloud based technology.