The number of online shoppers worldwide has grown from 1.32 billion in 2014 to 2.14 billion in 2021, making up 27.6 percent, or more than one-quarter, of the world’s population. If you run a fast-growing e-commerce company, you may quickly start to get overwhelmed with managing supply chain logistics, including storing and shipping products.
A third-party logistics (3PL) company can help by taking on some of the burden that business owners face, freeing you up to focus on customer acquisition, such as generating organic website traffic and managing paid search, and growing your business by developing even better products for your audience.
What is 3PL?
3PL stands for third-party logistics. Nick O’Brien, co-founder of 3PL firm Boxtrot, explained, “There are three core components to what most 3PL companies offer: warehousing, inventory management and fulfillment.”
Traditionally, larger e-commerce companies relied on 3PL firms. Today, even small to midsize business owners can benefit from the knowledge, expertise and cost savings of using a 3PL firm rather than handling all the elements of supply chain logistics by themselves.
3PL vs. 4PL: logistics plus consulting
You may hear the term “4PL,” where the fourth element involves consulting. “A 4PL is a full-service provider, offering not just shipping and warehousing services, but also providing business advice and helping business owners structure their supply chain and logistics for maximum efficiency,” O’Brien said.
He adds that many of the best 3PL providers could be considered 4PL companies. “The term does accurately capture where the industry is going,” he said, while acknowledging that most e-commerce business owners still search for 3PL when looking for someone to manage shipping and supply chain logistics.
Advantages of 3PL companies for small to midsize business owners
From consultative services to warehouse space, 3PL firms provide many advantages to small to midsize e-commerce companies. “As barriers to entry for e-commerce providers get lower, we start to see the rise of mom-and-pop e-commerce,” O’Brien says. “People want to support founder-led, owner-led and local companies.”
You want to be aligned with a logistics provider who is actually excited about what your company is doing.
Nick O’Brien, co-founder of 3PL firm Boxtrot
3PL firms help these smaller companies scale by providing warehousing and quick, reliable shipping, along with inventory management. Let’s explore some of the advantages of 3PL services for small to midsize e-commerce companies.
- Cost savings. Not having to lease office space or hire warehouse managers or people to package and ship orders can save companies money. “It’s that shared-cost business model,” O’Brien said. “If they don’t have to lease warehouse space, business owners will save money.”
Additionally, 3PL companies negotiate to get the best shipping rates possible. “You can save up to 50 percent on shipping alone,” O’Brien said. - Time savings. Even more important, however, than the cost savings is the time savings business owners will realize by not managing fulfillment by themselves or through local contractors. “3PL companies introduced efficiencies in terms of how many packages can be shipped in any given amount of time,” O’Brien said, pointing out that there’s no substitute for the amount of time business owners spend packaging, labeling and shipping goods. “That’s time they could be taking to run and scale their business,” he said.
- Increased efficiency. “More packages per day equals fewer back orders and happier customers,” O’Brien pointed out. This can lead to repeat sales and the creation of “brand-evangelists,” who promote your website through word-of-mouth marketing because they were happy with their experience.
- Inventory management tools and knowledge to scale your company. O’Brien pointed out that 3PL fulfillment centers also provide insight into inventory management that you may not get on your own. “Gaining access to tools that track how your inventory is moving can help you make better decisions about running your business,” he said.
What to look for in a 3PL provider
3PL companies range from big, legacy providers to smaller startups who may provide more personalized service. Determine what services you need from a 3PL company, and then find one that really clicks with your business philosophy and personality.
“You want to be aligned with a logistics provider who is actually excited about what your company is doing, who fundamentally cares about your brand and its growth,” O’Brien said.
He cautioned small business owners to look for a provider who is transparent about their cost structures and fees. “Seamless logistics is more important than ever, so you want to work with someone who can help you get as many packages to your customers as quickly and cheaply as possible,” O’Brien concluded.
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