What is a 3PL Fulfillment Company?
Amazon has made us all more aware of the importance of getting products to people who want and need them. With its gigantic warehouses and promise of two-day and even faster delivery, it has changed the supply chain much like Walmart changed retail shopping when it started expanding nationwide in the late 1960s. Amazon’s example pressures other suppliers and ecommerce companies to deliver goods faster and more efficiently. One solution for smaller companies is outsourcing this process to a 3pl fulfillment company.
Many businesses though, especially start-ups that experience rapid growth, quickly learn that the supply chain is complex and requires time, effort and a lot of knowledge. Because their logistics expertise is limited, they often get bogged down in the process and spend resources–time, money, people– that could be better invested in their core business.
It’s become common for those businesses to contract with third-party logistics providers (3PLs) to handle their fulfillment needs. I just read about such a company in Inc.com. A young man who expanded online sales and marketing for his parents’ vacuum cleaner business wrote about how he found himself spending all his time managing a warehouse staff and getting orders shipped. Frustrated because he’d been pulled away from sales and marketing, obviously his strengths, he decided to outsource fulfillment.
He did his research and found a third-party logistics provider — actually two – to partner with so he could get back to sales and marketing. Like a lot of retailers, he found that 3PL providers offer a lot of advantages.
For those who aren’t familiar with third-party logistics providers, here are some basics about what they do.
What benefits does a third-party logistics (3PL) fulfillment company bring?
Third-party logistics providers handle business operations that involve receiving, storing and shipping products for companies. When a company contracts with a provider, the provider fulfills the company’s orders–it typically receives the product, stores it, picks it from shelves, packs it for shipping, coordinates transportation. Through an inventory management system, the fulfillment company tracks every aspect of the process and provides information about inventory, sales, returns, and other valuable data.
Outsourcing to a 3PL can improve the process
A 3PL provider’s expertise can often improve the shipping process in some way, which in turn improves the customer experience. Take, for example, a company that sells wine glasses and experiences issues with breakage during shipping. Its customers are not only disappointed but have a negative impression of the company and its professionalism. Studies have shown that customers who experience shipping problems are less likely to buy from a company again. By working with a partner, the company might learn of a better way to package its shipments and decrease the percentage of damaged items. A 3PL might also help a new company create SKUs for all of its products to better track inventory. 3PL partners provide a number of data-driven insights for ecommerce businesses.
Information can be shared through inventory management software
3PLs often employ sophisticated software to automate fulfillment. Inventory management software tracks products from their arrival at the warehouse to their progress along the shipping path. Customers can be given access to the software so they can monitor their inventory and their shipments. The system provides companies with a wealth of data that can be used to guide production and sales strategy. The systems allow alerts to be put in place so that a company can reorder a product before it runs out; it can show which products are overstocked so that a company can make strategic decisions about discounts or sales on those items.
Third-party providers can scale their efforts up and down depending on needs and demands more nimbly than most small companies can. For example, at Bluegrass, our fulfillment team includes a number of part-time, trained staff who allow us to staff up during high demand times. As a fulfillment company, we can even add shifts when work volume requires more hours. By using a fulfillment provider, a company usually has more flexibility in terms of the warehouse space they use. Instead of leasing a set about a space for the long-term, they can make adjustments in the amount of space they use as seasonal fluctuations increase and decrease the amount of storage space they require.
Geography can be used to your advantage
When companies decide to outsource their fulfillment they might first evaluate where their shipments are going and then choose a partner or partners that make sense from a geographic standpoint. A good strategy for those that sell across the country is to have several regional partners; a number of companies opt to work with one on the Eastern seaboard and another on the West Coast.
Discounts: Having Multiple clients mean volume discounts
A 3PL fulfillment company will work with multiple clients, which gives them more buying power. The provider will buy thousands of cardboard boxes and packaging. Instead of shipping 50 packages a day as a small company might, a 3PL will ship hundreds or even thousands. The larger volume means there is more room to negotiate better shipping rates with the major shipping companies like UPS, Fed Ex and others.
If you’d like more information about how our fulfillment services can benefit your business, give us a call. We’re happy to talk to you about how we successfully handle fulfillment needs for our varied clients.
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