Understanding E-commerce Third-Party Logistics (3PL)

Third Party Logistics
Third Party Logistics. Boris Austin / Stone / Getty Images

As commerce moved online, there was talk about the demise of click-and-mortar businesses. It was said that everything would move online. But that missed an important ingredient of the e-commerce recipe: fulfillment. 3PL (e-commerce third-party logistics) solves this problem.

Sure you could order a pair of gloves online, instead of at a retail store. But the pair of gloves would have to physically reach you.

So issues of warehousing, inventory, packing, shipping, and tracking, would still have to be taken care of.

In a retail store, you can simply hand over the merchandise to the customer. But you have to spread your tentacles much wider with e-commerce. You, the e-commerce business, are responsible for ensuring delivery. And in case the goods are returned, you have to manage the whole new world of reverse logistics.

Sure there are many advantages of e-commerce. But logistics is one of the areas where complexity increases as one moves from physical retail to e-commerce. That makes a compelling case for hiring a third-party logistics provider.

Third Party Logistics

If you outsource your logistics requirements to a service provider, that service provider is called a third-party logistics provider. In industry parlance, these service providers are also referred to as 3PL.

One of the basic strengths of the e-commerce paradigm is that participants get to perform roles that they specialize in.

As a result, outsourcing to a third party logistics organization fits well with the e-commerce ecosystem.

The Services a 3PL Provides

A full-service 3PL should take care of all your logistics requirements. Their services would include:

  • Supply Chain Management: A well-oiled supply chain is at the heart of a successful e-commerce business. So if your inbound freight delivery requirements are taken care of, then the 3PL has done a good job.

  • Warehousing: Even though an e-commerce merchant may not have a physical store, physical goods need to be stored at some location. A 3PL will typically take care of your warehousing requirements. It will invest in the space and technology required to efficiently run a warehouse. One expects that warehousing by a 3PL will be more cost-efficient, as it is able to spread its overheads over multiple clients.

  • Consolidation Service: E-commerce merchants often send many small goods to the same location. This is a situation where the whole can be lesser than the sum of the parts, i.e., if we consolidate all the small goods into one shipment, the shipping charges could be substantially lowered. A service provider sending several small packages as one large package is referred to as a consolidation service, also known as freight consolidation or cargo consolidation. It is one of the many services provided by a third party logistics provider.

  • Order Fulfillment: If an e-commerce business has not fulfilled the order, it has done nothing. And order fulfillment is not just about making sure that the goods reach the buyer. The goods that reach the customer must be the right goods; they must reach on time, and in good condition. All of this may sound obvious, but e-commerce is plagued with erroneous order fulfillment. A good third-party logistics service provider would be able to take care of your order fulfillment requirements.

    Why Should E-commerce Businesses Choose Third Party Logistics

    Some of the common reasons to choose a third-party logistics provider are:

    • Flexibility and Scalability: Not all ecommeeCommerceesses are Amazon.com. Several of them need to start small. Setting up one's own logistics division may require too much fixed expense. A third party logistics provider could give you the flexibility of starting small, yet scaling up when needed.

    • Efficiency and Specialization: If you are good at selling to customers then that is what you should spend all your energies doing. Only when you specialize in your function will you be efficient at it.

    • Technology: Like all other domains of business, logistics is ever-evolving. Hardware, software, and equipment keep upgrading all the time. A good third third-party provider would keep up with the times, as logistics is their core business.