These aspects of doing business often eat up more time and focus than they ought to. High order volume and growing profit interests any business owner or entrepreneur, but how do you address fulfillment for high demand products quickly and efficiently? Today’s customers expect fast and professional service around the clock.
This is where 3PL comes in. What does 3PL stand for, and what can it do for your business? Let’s define 3PL’s meaning and break down each component of it.
3PL stands for third-party logistics. It's a singular term that encompasses eCommerce logistics management and operations. Third-party logistics (3PL) refers to outsourcing your order fulfillment process and management to another company. There are different types of 3PL service providers, each of which serves distinct functions based on your business’s needs.
The phrase third-party logistics first surfaced in the United States during the 1970s and 80s. During this time, more businesses sought to delegate their fulfillment processes to external providers. As eCommerce has grown, including the sheer variety of businesses that exist today, the need for customized fulfillment providers to assist the has grown with it.
What Does 3PL Mean?
A 3PL provider handles your warehousing, picking and packing, transportation, and last mile delivery so you can focus on priorities. Utilizing a 3PL service both frees up your time and decreases the likelihood of in-house fulfillment errors. It’s a form of leverage that allows you to allocate more energy for big-picture concerns, like product development or branding.
Knowing what 3PL stands for also includes identifying the right provider for your products. Below we break down the different 3PL company types that exist in today’s eCommerce landscape.
What Is a 3PL Company?
Now that we’ve addressed what the 3PL abbreviation stands for, let’s examine the different services 3PLs offer. Depending on the unique requirements of your business, you may find a natural fit with one 3PL provider over another. Becoming familiar with the differences between providers makes it easier to select the right company.
3PL Logistics Company
A 3PL logistics company typically offers one or two specialized services for small- to medium-sized businesses. For example, an all-inclusive provider handles the entire process from order confirmation to delivery tracker updates, whereas a logistics company may only handle daily transactions. Not all eCommerce shipping companies offer 3PL fulfillment services.
These types of 3PLs make a great fit for companies that want to manage their own warehouse or use a favorite carrier, but need help in other stages of fulfillment. A 3PL logistics company is also a great option for small companies experiencing rapid growth.
3PL Fulfillment Companies
3PL fulfillment companies differ from logistics providers as well. While many 3PLs focus solely on product packing, warehousing, and/or distribution, some are large enough to handle additional tasks. Proper warehouse organization is key to maximum efficiency.
Fulfillment refers to everything from receiving goods to promptly shipping (think goods that need delivery quickly and efficiently, like shipping alcohol) and delivering products to customers. Secure and timely deliveries will streamline inventory days and maintain customer satisfaction. The fulfillment and inventory management process integrate with the seller’s website and software, meaning a 3PL fulfillment company handles orders, tracking numbers, keeping up with the fill rate, maximizing the sell through rate, and packaging.
3PL Freight Companies
When it comes to shipping logistics, it’s important to distinguish between freight forwarders and 3PL freight companies. Freight forwarders are middlemen who charge a fee for the seller to work with preferred carriers. A 3PL freight company offers a broader scope of services at a responsive scale, including transportation.
Instead of only forwarding goods to an existing carrier, 3PL freight providers handle the warehousing, picking, packing, invoicing, and carrying of your products. It’s a simple way to minimize your carrier touchpoints and cut down on time and the overall carrying cost in the process.
3PL Warehouse Companies
A 3PL warehouse company is dedicated to stocking, maintaining, and monitoring their clients’ products, either in the business’s own warehouse or another. Working with this type of 3PL is useful if you have a massive inventory, recently expanded your warehouse, or need to free up your team for other tasks. Be sure to learn more about what is inventory to determine how to best allocate goods you have in stock.
Leveraging a 3PL warehouse company has incredible benefits. By letting them use their own inventory management techniques, you won’t experience product surpluses or shortages frequently, and shelf organization will increase. The 3PL you hire can also manage code-compliant storage of products, especially perishable and temperature-controlled goods.
Correct storage requirements for perishable goods is vital for optimizing profits by avoiding dead stock. The dead stock meaning refers to various types of inventory that can no longer be sold to consumers.
Whether the materials expire or contain a formula that degrades under certain conditions, sustaining proper storage mandates is crucial. Though it will increase initial overhead expenses, the avoidance of unsellable merchandise inventory will reduce the risk of inventory shrinkage.
Benefits of 3PL
There are multiple reasons why businesses choose to partner with 3PL companies instead of handling shipping and handling on their own. The meaning of 3PL is to ease business owners and allow them to focus on other aspects of the business. Here are the benefits of 3PL.
- Saving costs. In many cases, it can be cheaper to work with third-party logistics providers. They usually negotiate better shipping rates and benefit from economies of scale.
- Focus on scaling and other business processes. New businesses shouldn’t pay too much attention to processes such as shipping and logistics. Instead, they need to focus on scaling through product research, marketing, and sales. Thus, 3PL’s meaning in the business is to allow entrepreneurs to focus on these core components instead of organizing logistics.
- Expertise and know-how. 3PL meaning is literally third-party logistics. That means these companies are dealing solely with transportation and logistics. Their expertise on the matter is unparalleled. That’s why business owners partner with 3PL companies and try to learn as much as possible from their policies and ways of handling logistics.
- Technological benefits. Third-party logistics providers use a wide range of technological solutions. They can be integrated with different eCommerce platforms and other systems like warehouse management software. This can help streamline processes like reporting and accounting. It can also help customers track their orders.
- Great for startups and small businesses. If you are new to selling high-demand products or you don’t have the capital to establish warehousing and distribution, 3PL is a great solution.
3PL Vs. 4PL
3PL services are valuable for outsourcing specific processes, but what if there was a way to outsource everything related to fulfillment and order management? That’s what fourth-party logistics (4PL) is for. 4PL companies can harness numerous 3PLs to further integrate and optimize eCommerce delivery needs.
Where 3PL companies are designed to process day-to-day transactions for medium and small businesses, 4PL companies streamline the entire fulfillment ecosystem. Here is a detailed breakdown of 3PL vs. 4PL:
Advantages of 3PLs
- Decrease costs and free up time. Once you speed up lead time, the inventory turnover rate accelerates, too.
- Offer responsiveness for higher or lower order volume (i.e. product seasonality). Fluctuations can often occur for your pipeline inventory and finished goods inventory. Learn about the average inventory formula to calculate which figures and ratios to project.
- Allow businesses to scale affordably. Be sure to use inventory costing methods and a demand planning software to account for inventory-related costs.
Disadvantages of 3PLs
- Typically, these companies apply only to small- or medium-sized businesses. As a company grows, they’ll eventually have to upgrade their logistics company to one that’s more comprehensive.
- Offer less control over company inventory. Tracking inventory analytics is vital for keeping up with trends, boosts in sales, and out of stock goods. The less control over company inventory, the more challenging it is to monitor each inventory KPI.
- Less oversight for customer experience. Stellar customer service starts at the warehouse. To avoid delays and backorders whilst eliminating major expenses, consider dropshipping methods.
Advantages of 4PLs
- Provide a singular point of contact for the entire supply chain. From conducting an inventory audit to shipping orders, fewer contacts will streamline supply chain operations.
- Enterprise-scale logistical support. Due to the complexities of working with a 4PL, high-level logistical support will benefit employee duties, inventory forecasting, and ensuring accurate delivery schedules.
- Significant decrease in long-term operational costs. Despite the initial cost, allowing one entity to handle various tasks will help your budget long-term, especially when comparing 3PL vs. 4PL. A 4PL company is an investment that in time, can pay for itself.
Disadvantages of 4PLs
- Can be too costly for small- to medium-sized businesses. However, a 3PL will serve just as well until the company’s demands require more advanced logistical techniques.
- May require an intensive client onboarding process. Unfortunately, 4PLs aren’t as straightforward as other types of logistical companies. With this in mind, you’ll want to take this timeline into consideration before your next reorder point or major product launch.
- Minimal control over fulfillment and operations. To avoid operation issues, consider obtaintaing safety stock and backup shipment solutions.
Frequently Asked Questions About 3PL Meaning
Discovering all that a 3PL company can do for you may have you asking questions. If so, we researched the most commonly asked questions about 3PL, its meaning, and 3PL businesses. Check out our answers below:
What Does 3PL Mean?
3PL refers to any company or service that offers outsourced logistics, shipping, or fulfillment services. Some 3PL companies offer all three services, whereas others specialize in one area. Small businesses generating high order volume often hire 3PL companies to handle their fulfillment. This includes warehouse outbound process flow, batch picking, and kitting.
When Was 3PL Invented?
Major changes within the transportation industry led to 3PL companies. The Motor Carrier Act of 1980 was responsible for unraveling federal trucking regulations, which made it easier for carriers to reduce their rates. The trucking industry, consumers, and manufacturers benefited from the lower expenses and flexibility.
Why Do Companies Use 3PL?
3PL allows companies to scale back on labor cost, storage space, and transportation costs. Due to this convenience, companies are also able to smooth transition from standard to seasonal inventory. As a brand grows and ventures into new markets, 3PL can help with the transition into new territories, too.
Wrapping It Up, Shipping It Out
Wrapping It Up, Shipping It Out
As is evident in the comparisons above, there’s no such thing as universal applicability for 3PLs or 4PLs. Your business may need logistics help in only one area, or you may want to retain full oversight with your packaging, for example. Evaluating different types of 3PLs is a great place to start.
On the other hand, maybe you’re passionate about the product(s) you make but not the operational side of things. In this case, speaking with a 4PL could provide unprecedented time freedom and long-term financial growth for your business. It can also be the perfect transitional step from working with multiple 3PLs to working with one 4PL.
Understanding the world of 3PL providers and being able to identify the right type of 3PL for your business puts you at a massive advantage. Now you can answer “What does 3PL stand for?” for any coworker who asks, and you’re on your way to finding much-needed logistical support.