It’s something thousands of people ask Google every month, and, if you’re not in the freight/logistics industry, it’s not really common knowledge. So we’re here to clear up the answer to this frequently asked question:
What is a 3PL?
In addition to explaining exactly what a 3PL company is, we’ll also take you on a quick tour of what a 3PL does—and how they can help you with your business logistics. Let’s dive in!
What Is a 3PL?
3PL is actually an acronym that stands for 3rd–Party Logistics. When someone hires a 3PL company, they’re turning over their logistics—including things like warehousing and fulfillment—to a third party. That third party, the 3PL, is a company who specializes in this area. Their expertise and experience can help improve customer satisfaction, create efficiencies, and lower costs.
What Exactly Does a 3PL Company Do?
A 3PL can handle a wide range of logistics functions. Many companies use 3PLs to outsource distribution and order fulfillment. For example, you might hire a 3PL to:
- Receive and store goods in their warehouse(s).
- Institute an inventory management system to ensure there’s enough stock on hand to fulfill orders, as well as track your items through their lifecycles.
- Pick and pack orders as they come in.
- Package and arrange shipping for these orders.
- Coordinate reverse logistics, including returns and recycling.
Let’s investigate these areas a little further.
What’s the Advantage of Hiring a 3PL to Receive and Store Goods in Their Warehouse?
Simply put: Some companies may not have enough physical space to store their goods—and they may not want to invest in a warehouse of their own.
Take an eCommerce company, for example, that’s run out of a small office or even someone’s house. They simply might not have the square footage to store significant inventory. Rather than investing in their own, dedicated warehouse space—including the furnishings and equipment needed to make picking and packing efficient—they may choose to outsource to a 3PL.
Additionally, a 3PL can offer a company room to scale fast. If a business begins to grow rapidly, a 3PL can usually add capacity quickly. However, if you’re handling all the warehousing and fulfillment internally, you might have to upgrade your warehouse space or significantly alter your operations to keep up.
Finally, along these lines, by choosing an experienced 3PL, you’ll get to take advantage of their expertise in creating an efficient warehouse setup that streamlines picking and packing operations.
Next, let’s tackle another area that 3PLs might specialize in.
How Does a 3PL Assist with Inventory Management?
Keeping track of your inventory—what’s on hand, what’s coming from the supplier, what’s on its way to a customer—can get complex, fast. That’s especially true if you’re running a business that sells number of different products. All of these can be tracked in an inventory management or warehouse management system.
These platforms generally require a significant investment up front. However, if you partner with a 3PL, they may include use of their inventory/warehouse management system within your agreement with them. So rather than making a large investment in your own software, you’ll be able to pay for use of your 3PL’s existing platform. This can create huge benefits for your business, including:
- Better visibility into buying trends.
- Improved oversight to prevent out-of-stock or overstock situations.
- Significant efficiencies when you can integrate these systems with, for example, your eCommerce platforms.
That last one particularly comes into play in this next area of 3PL expertise.
Can a 3PL Handle My Picking and Packing?
Many can. And, since this scenario assumes they’ve already got your goods stored in their warehouse, your 3PL can probably pick and pack at a high level of efficiency. Additionally, if your sales platform integrates with your 3PL’s systems, everything can happen automatically: a customer places an order, it feeds into your 3PL’s warehousing management system, generating a pick list and a shipping label, and then your 3PL picks and packs the order.
They can also handle all the shipping, including coordinating with carriers to get your goods where they need to go.
Can 3PLs Also Manage Returns?
Considering the high rate of online returns—which are estimated to fall between 15 and 40%i—eCommerce businesses can benefit significantly from outsourcing this function to a 3PL. Depending on your setup, a 3PL may be able to manage the entire process, from arranging for return shipping, generating returning labels, and receiving the actual goods at the warehouse.
Additionally, if you’re using their platform to track returns, it can offer you insight into what’s being returned and why. This might, in turn, inspire some changes to reduce returns in the future, such as updating size charts, rewriting product descriptions, or adding additional visual aids to help customers choose the right product.
I’ve Also Heard About 4PLs. How Are They Different from 3PLs?
The short(er) answer: A 4PL can manage a company’s entire supply chain, including moving raw materials from suppliers to the manufacturing facility, transporting finished products to resellers, accepting returns and moving them back to the warehouse, etc.
If you want the long(er) answer, check out our article, What’s the Difference Between 3PL, a 4PL and a 5PL?
Have More Questions About Logistics Terms?
Check out our Approved Glossary of Freight Terms. There, you’ll find a whole list of logistics, freight, and transportation terms made easy.
And, if you’re looking for a 3PL to manage the logistics around your operation, we’d love to talk to you. Simply request a complimentary consultation. One of our experts will be in touch to schedule a call.
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