What is eCommerce 3PL Fulfillment?
eCommerce 3PL fulfillment is the practice of outsourcing supply chain and logistics responsibilities to a third-party organization, known as a 3PL.
In exchange for a fee, a 3PL organization will cover all or some of the following logistical tasks for your business:
- Receiving product
- Storing inventory
- Kitting and assembly
- Processing orders
- Picking, packing, and shipping to customers
- Reverse logistics (returns)
Let’s get into the specifics of how it all works.
How Does the 3PL Fulfillment Process Work?
While every 3PL provider is different, most handle at least the following processes in the eCommerce logistics cycle:
Step 1 – Receiving
Receiving processes vary across service providers, but everything starts with you getting your products to the 3PL provider’s designated fulfillment centers.
Most 3PLs want businesses to package their products exactly how the customer will receive them, though it’s worth mentioning that some offer assembly services for an extra cost.
Once the 3PL receives your products, they scan them in and log your on-hand inventory. If you use an inventory management system (IMS) like SkuVault, you can monitor each step of the process and replenish inventory as needed.
The nature of your business and tolerance for storage costs will dictate how often you want to replenish stock. Also, if you’re using forecasting tools (like those built into SkuVault), you can replenish according to projected demand.
Step 2 – Distribution
One of the massive benefits of using a 3PL for eCommerce is distributed inventory. For example, Amazon FBA promises 2-day shipping for most of its FBA products. How can this be possible (or cost-effective) if you’re in Upstate New York and your customers are in Southern California?
Answer: A distributed inventory infrastructure. 3PLs like Amazon FBA (and others) have warehouses and fulfillment centers all over the country. It’s even becoming more common for 3PLs to use AI and machine learning to dictate how much of their inventory should be spread across geographical areas.
Step 3 – Cataloging and Warehousing
Once the 3PL receives the products and organizes them within their national or international infrastructure, they catalog and store them.
Businesses can monitor all of this either through a proprietary dashboard (such as those offered by Amazon, Shopify, and Walmart). However, if you have a multi-channel eCommerce strategy, you’ll want something that can aggregate all your channels in one place.
That’s where an IMS like SKuVault comes in. It’s also worth mentioning that SkuVault has built-in integrations for all major 3PL providers (and eCommerce platforms).
Step 4 – Order Processing
Once a customer places an order, that’s where the real fun begins. Warehouse teams pick, process, pack, and ship your products on your behalf. Of course, you can see all of this in real-time via the aforementioned dashboard or in your IMS.
This means you can monitor the progress of all your on-hand and in-transit products.
Many 3PLs will also help choose a shipping provider that fits within your budget and the expected shipping time frame.
Step 5 – Returns Processing (reverse logistics)
Processing returns is a headache — there’s no way around it.
That’s why returns processing (known as reverse logistics) is alone worth the price of investing in a 3PL.
If a customer wants to return a 3PL-fulfilled product, most services will cover that responsibility completely.
And since fulfillment centers for most 3PLs are all over the country, getting the product back into circulation and stocked for the next customer takes far less time than doing it in-house.
(Plus, you’re not taken away from mission-critical tasks to work on returns where you’re likely losing money.)
Some 3PLs will even handle customer service issues on your behalf and compensate customers for damaged or late products.
Will a 3PL Work for My Business?
While 3PLs can service most eCommerce businesses, some organizations won’t be a good fit. If any of the following sounds like your business, you should probably look into other in-house options before investing in a 3PL:
- You have proprietary formulas that require in-house equipment to produce and package
- You ship very large items that would be cost-prohibitive to store in a third-party warehouse
- You’re a brand-new eCommerce business without capital or demand forecasts to inform your fulfillment strategy
- You don’t have an established customer base that can deliver reliable revenue
- You have items prohibited by the terms and conditions of most 3PL providers
- Your products are so small that outsourcing storage and logistics wouldn’t add significant value
When Do I Need a 3PL?
You should now have a thorough understanding of 3PL eCommerce fulfillment and how it may help your business. So when should you invest in a 3PL?
We’ve compiled six questions to determine when it’s time to make the leap to 3PL fulfillment. Consider these in the context of your business:
- Are you spending at least 30-50% of your working hours handling orders and logistics-related tasks?
- Do you process 100-300 orders per month?
- Have you hired (or are you planning on hiring) warehouse employees?
- Are you reaching the capacity of your warehouse space?
- Do you sell a product that doesn’t require customization, complex kitting, or expert assembly?
- Do you find yourself unable to penetrate certain markets due to shipping costs and complications?
If you answered yes to the majority of these questions, you’ll likely benefit from utilizing 3PL. Of course, that begs the question: how do you find a high-quality 3PL?
How to Choose a Third-party Logistics Provider
A 3PL is a strategic business partner. Therefore, making the leap to a vendor should be a deliberate and well-researched endeavor.
Follow this sequence of steps:
- Gather as much inventory data as possible – this includes forecasts, quarterly revenue growth, projections, lead times from manufacturers, and whatever else you can extract from your IMS. If you’re using SkuVault or a similar IMS, export as many relevant reports as possible.
- Make a list of your unique needs – grab a piece of paper or open up a new document and start listing out the needs of your business. What would be your ideal situation? Transportation brokerage, storage outsourcing, or a completely hands-off approach to logistics?
- Make a shortlist of potential vendors – a simple Google search will reveal a host of 3PLs pining for your business. A great place to start might be a list like this of top-rated 3PLs.
- Assess each vendor’s capabilities against your needs – most vendors will prominently feature their offerings on their homepage. A quick two-minute analysis of each provider should quickly reveal whether or not they’re right for you.
Questions To Ask Your 3PL Provider
Once you’ve whittled your list down to 3-5 potential vendors, it’s time to go deeper and ask even more pertinent questions.
Whether you ask these of a person directly or in your own reflection, make sure you have satisfactory answers to the following:
- Are you currently servicing similar-sized businesses in my niche?
- Can you provide customer references?
- If my business scales, how will you support that?
- Do you have a proprietary dashboard or software for inventory monitoring?
- Do you support integrations with an IMS?
- What’s the typical lifespan of one of your clients?
- If I want to cancel my service, what does that process look like?
This is just a start. Feel free to add your own questions to this list based on your research and individual needs. And don’t jump in without evaluating all your vendors (as eager as you may be to get logistics off your plate).
Features of a Good eCommerce 3PL Fulfillment Provider
The best 3PL fulfillment providers have the following features. Don’t settle for anything less.
- Fast shipping (most customers expect two-day or sooner)
- Professional order management
- Simple onboarding process
- Geographically diverse fulfillment centers
- Intuitive software
- Robust partner network
- Shipping discounts
- Integrations and APIs
- Customer service offerings
- Reverse logistics
Before diving headlong into the world of third-party logistics, it’s imperative that you’ve got your own house in order, so to speak.
The best way to understand, manage, and streamline your inventory management is through an IMS like SkuVault.
As you introduce more moving parts into your supply chain, you introduce complexity. We’ve built SkuVault to be a one-stop-shop for all inventory reporting and supply chain monitoring.
We’d love to chat more about your unique goals and how we may be able to help you reach them. Reach out to our sales team for a live demo of the product today.