Guide to Third-Party Warehousing & Fulfillment (AKA 3PLs)

Posted by Bob Janik on Jun 28, 2018 1:34:32 PM

No matter how strong your product is or how skillfully your marketing is implemented, your customers’ opinions of your brand rest in one place: logistics.

Getting their order in one piece, well-presented, and on time is crucial to the continued success of your business, but what’s the best way to make that happen?

Third Party Warehousing 101

While you have several options, most growth-oriented modern businesses opt to contract the services of a third party logistics provider, or 3PL. Not only does a full-featured 3PL handle the headaches of warehousing and storage of your product, they also get it packed, shipped, and tracked on behalf of your company.

What’s more, some can even handle returns, often called “reverse logistics,” for your company at the same time. They are an incredibly powerful ally in a very competitive market, so if you’re considering one, it’s important to do your research before signing a contract.

After all, they’ll be handling your storage, packing, shipping, and overall fulfillment cycle, and the more volume your company moves, the more you’ll need to rely on their expertise.

3PL vs. In-House vs. Drop Shipping

While each method of fulfillment comes with its own pros and cons, ultimately it comes down to the control you have over the process. While it’s a simplified way to look at the differences, but here are the essentials of each option:

In-House Fulfillment:

This method offers full control and oversight offset by full responsibility and maximum versatility.

Your company sources its own warehousing space, creates relationships and accounts with shippers, hires and manages its own staff, and can change virtually anything except warehouse location (due to contracts) at any given time.

Many companies with experience in their corner outgrow this method or find that it takes considerable resources away from operations elsewhere in the company.

Newer companies often optimistically start with this method, but quickly find themselves overwhelmed by volume or the nuances of operating a warehouse successfully.

3PL Fulfillment:

This method offers partial control and minimal responsibility with customization options ranging from pricing structure to contract length.

They typically bring an existing warehouse space to the table, as well as their own privately hired and managed staff. They extend their existing relationships with shippers to their clients, allowing fast adoption and fast results from the partnership.

Drop-shipping Fulfillment:

This method offers virtually no control or customization beyond superficial means – a brand name or logo on an in-box invoice, for example.

Unless your company is only carrying a handful of items with no plans to expand your offerings, this method will quickly feel restrictive and will become an obstacle to the development of your branding.

Your company will have little to no oversight when it comes to warehouse staffing and management, where products are stored, and how products are handled, packed, and shipped.

Why 3PL?

Looking at the risks and benefits of these collective fulfillment solutions, it’s easy to see why 3PL is so popular. In addition to the excellent balance of control and automation, you don’t have to package or store anything yourself – you’re able to leverage the cost-savings of the 3PL’s previously negotiated contracts for warehouse space, transportation, insurance, and more. In addition, a 3PL will:

Help you avoid long-term leases:

Signing up for 5 or more years in a static location is a nerve-wracking proposition for a company just starting out, or one eyeing expansion – of either the sku or geographical variety.

If your business tends to fluctuate seasonally, securing your own warehouse space would otherwise mean either overstuffing your warehouse in cycles or wasting budget renting empty space in the off-season; 3PLs typically offer considerably more flexibility to expand, and often to shrink as well.

Help you avoid the hassles of staffing:

Many businesses underestimate the challenge of finding, interviewing, training, and managing labor for their warehouse, to say nothing of the expense of liability protection.

Warehouses can be dangerous for staff with inadequate training, or inattentive management – a 3PL usually keeps several clients, a practice which allows it to collectively shoulder that burden and still profit.

Help you focus on your best skills:

To put it plainly, your business makes, manufactures, or markets products, and none of those products are logistics services. 

The more time you spend learning “the hard way” which shelves work best for your stock, how it should be rotated, and the best shipping methods to use, you’re not only out that “experimental capital,” you’re also out of the time, energy, and staffing it took to get you to that position.

Help you avoid sticker shock:

Logistics providers like UPS or FedEx have an interest in seeing their customers do well, but they simply aren’t as invested as a 3PL – they have a wide enough customer base that they don’t need to be overly concerned with your success.

A 3PL, on the other hand, does have a vested interest in finding the most efficient and cost-effective ways to satisfy your logistics needs. They won’t wade into expensive territory without discussing it with you and weighing all available options – you won’t get a high invoice “sprung” on you the way pure service providers like UPS and FedEx would.

When Should I Start With a 3PL?

For newer businesses, there’s a high likelihood that self-fulfillment is in place – the longstanding trope of starting a “business out of the garage” continues despite economic fluctuations, even if that “garage” is actually a small local warehouse.

The question then becomes when to jump to a 3PL and leave your first self-run warehouse behind. Here are a few “red flags” to watch for:

Your sales are uneven or cyclical, and your warehouse often seems to be too big or too small. If you’re trying to keep up with your own sales cycles, it’s almost a guarantee you’re paying more than you need to: either in last-minute staffing additions to deal with the crush, or in keeping empty space on hand in preparation for those uneven sales booms.

You’re running out of space. While you might be tempted to simply move to a larger warehouse, bear in mind that order volume isn’t purely about skus. When your orders go up, so does your need for reverse logistics, as well as your opportunities for cost-savings solutions you simply didn’t have financial access to before. Trudging forward on momentum rather than research is wasting valuable profit.

You aren’t sure how to grow your logistics. If your ad-hoc logistics plan has worked up until now but is showing signs of strain, it’s time to bring in a 3PL. Just the same as an individual doing their own taxes is a world apart from a corporation’s accounting needs, there’s nothing wrong with being so successful you need to outsource! Remember, handling the infrastructure of your business with professional allies just means a stronger foundation for even more growth later.

Calling in the Packaging Cavalry

While you’re mulling over your potential growth with a 3PL, don’t overlook what other services can do to strengthen your brand and product perception.

Third-party packaging solutions can be connected to your new logistics provider for a potent one-two punch on your competition. This is a particularly smart move if your previous self-fulfillment efforts involved folding, cutting, or arranging your products in custom packaging – moving to a 3PL doesn’t have to mean sacrificing that personal touch.

Whether you ask your 3PL for recommendations or source a packaging fulfillment company on your own, outsourcing nuances like this gives you excellent creative control over product presentation without demanding an outsized amount of your valuable research and development time.

Pro tip: Find a packaging provider that has experience in your industry; they’ll be more likely to understand your specific packaging needs, from materials, to closures, to required durability, and even regulatory standards.

Get Started Today

Finding a 3PL isn’t just a line on your to-do list: it’s an important door to open if you’re serious about growing and improving your business.

Think of it this way: the taller a building grows, the more support it needs at the base level to stay structurally sound. Handing off your logistics, processing, and packaging needs to a professional service provider gives you that support so that you can stay focused on what really matters: adding more floors to your skyscraper of success.

Topics: Product Packaging, Custom Supplies, Shipping, Industrial Packaging