What Is Third-Party Logistics (3PL)?

Third-party logistics (3PL) involves outsourcing ecommerce logistics functions or tasks to an expert fulfillment company. 3PL companies like ShipBob specialize in storing inventory, picking and packing orders, and shipping them out, so you don’t need your own warehouse. 

3PL companies let you outsource tasks like inventory management, warehousing, and fulfillment. You’ll save time on logistics so that you can focus on growing your business. When choosing a 3PL, look for a partner that’s reliable, transparent, and designed to grow as your business does.

What does a 3PL do? 

Every 3PL is unique, but most will offer the same basic services. Order fulfillment is many 3PLs’ bread-and-butter. These partners provide:

• Inventory storage

• Inventory management

• Order processing

• Picking

• Packing

• Shipping

A 3PL may also offer services beyond fulfillment, such as kitting and returns. Most 3PLs receive, store, and even provide tools to merchants to make managing inventory easier. Once an order is ready, 3PLs hand off packages for shipping.

When should you work with a 3PL?

There’s no one right time to outsource fulfillment for your ecommerce store or brand. But there are some common signs to look out for. 

Consider which of the following apply to you and your business.

• I don't want to fulfill orders myself.

• I'm running out of space to store my inventory.

• I spend too much time packing and shipping orders and need more time for strategic projects, like marketing and product development.

• I don’t want to invest in a distribution infrastructure (e.g., warehouses, forklifts, equipment, certifications, labor, etc.).

If any of these statements apply to you, it may be time to consider partnering with a 3PL. 

5 ways 3PLs help you scale

Trusting another company to hold your inventory and pick, pack, and ship your orders is a big step. But finding the right partner can pay dividends and help your business to scale better and faster. 

3PLs help ecommerce businesses:

1. Work more efficiently

2. Save money

3. Sell in new markets

4. Get better analytics

5. Save time   

1. Increases productivity

A lot of business owners don’t have any experience in logistics—especially not when they first start out. 

In contrast, 3PLs are professionals with industry knowledge and who are familiar with warehousing, fulfillment, and shipping best practices. 3PLs have the expertise, equipment, and technology to run operations more efficiently. 

When you outsource to a 3PL, you get to leverage their tools and techniques to get orders picked, packed, and shipped faster. This efficiency boosts customer satisfaction, and enables your brand to support growing order volumes. 

2. Provides cost-savings

Leasing a warehouse, hiring fulfillment workers, and buying equipment and software are all part of growing your ecommerce business. But not every small business has that money to spare.

By investing in a 3PL partner, you get access to their warehousing space, expert fulfillment team, and top-of-the-line equipment and technology for a fraction of the cost. Depending on the 3PL, it may even cost less to fulfill each order because of bulk shipping discounts and where orders are fulfilled.

Outsourcing also spares you the hidden costs of self-fulfillment (such as insurance, packing materials, and opportunity costs), which only grow as you scale.

3. Makes it easier to expand into new channels and markets

Selling on multiple platforms and in multiple countries opens up a world of opportunity for businesses. It introduces you to new customers, increases brand awareness, and boosts your sales. But expanding can make your logistics more complicated.

You can skip the complexity by using a 3PL that offers direct-to-consumer (DTC) and business-to-business (B2B) fulfillment services and direct integrations to ecommerce platforms like Squarespace. 3PLs also connect with online marketplaces and other channels that complement your website. All of these features make it easier for you to sell in more places and serve customers around the world.

4. Provides analytics that pinpoint growth opportunities

It’s much easier to scale when you have insight into what’s working well in your business’ operations and what areas need improvement. A good 3PL will have software with built-in analytics that provides visibility into real-time and historical data, such as:

• Stock levels

• Inventory turnover rates

• Customer locations 

• Demand trends

• Transit times

• Average order value (AOV)

• Average fulfillment cost per unit

• Exact billing breakdowns 

ShipBob, for example, has an analytics dashboard where you can see metrics on inventory management, fulfillment, and shipping performance. Its Ideal Inventory Distribution tool uses past order data to recommend the most cost-effective placement of inventory throughout its different fulfillment centers. 

With reporting capabilities like these, your business can improve inventory management, make more informed supply chain decisions, and have more accurate demand forecasting. 

5. Give you time (and space) to focus on other things

Outsourcing to a 3PL doesn’t just free up physical space, it also frees up time to focus on growth. 

When your work hours are filled with trips to the post office, label printing, inventory sorting, and order picking, strategic priorities often fall through the cracks. A 3PL picks up those tasks so you can focus on things like product development and marketing. 

How to choose a 3PL

Not all 3PLs are created equal. When outsourcing fulfillment, look for a solution that goes beyond the traditional pick, pack, and ship model and meets your business’ unique needs. 

Here are a few key criteria to consider to find the right 3PL for your business:

• Reliable operations

• Ability to grow with you

• National and international fulfillment options

• Management software

• Customer support

• Transparent pricing

Reliable operations

You need a 3PL that provides security, consistency, accuracy, and speed to give your customers the best service possible. Your fulfillment partner should aim for 100% accuracy at all times. Most ecommerce companies achieve accuracy rates from 96-98%, and the right 3PL can help you match—or even exceed—the competition. 

Reliable 3PLs use a combination of hardware or equipment, automation, software, processes, and safeguards that reduce the possibility of an order going out wrong. Get to know their service level agreements (SLAs), which set expectations for order shipping times and inventory processing times. 

Built to grow with you

Many brands will work with a small or local 3PL, only to outgrow them. You can always switch 3PLs, but starting with a partner that can handle more complex needs can save you a lot of cost and effort in the long run.

So when evaluating 3PLs, consider whether a partner can support a growing order volume. If you want to expand into specific sales channels, markets, or locations, make sure your partner can help you get there. 

A fulfillment network

A 3PL that has fulfillment centers throughout the country and in other countries can be vital to customer satisfaction. This way, you can ship each order out from the warehouse that is closest to your customer. Being able to ship from closer to where your customers live keeps shipping rates affordable and speeds fast. And you can reach new customers.

Consider 3PL partners that have multiple fulfillment centers. If your top choice doesn’t have centers across the country, see if they offer 100% two-day shipping coverage in the U.S. Depending on your growth plans, you should choose a 3PL that not only ships internationally, but also offers fulfillment locations in different countries. 

Shipping internationally can be expensive and transit times are significantly slower. Plus, dealing with taxes and import duties every time you ship a single order to an end customer can be a headache. Choosing 3PL that offers both domestic and international fulfillment can solve these challenges. 

Tech-enabled

Fulfillment technology is becoming more advanced to keep up with customer expectations and supply chain disruptions. A modern 3PL should leverage technology and automation within its operations to increase efficiency, lower costs, and deliver a better customer experience. 

Make sure a potential partner has: 

• Inventory tracking software with visibility into real-time stock levels, inventory status, and historical data.

• Order management software that lets you filter orders by status, search for specific orders, see a fulfillment timeline (when the order has been picked, packed, shipped, etc.), manage subscription orders, and edit orders.

• A warehouse management system (WMS) that’s used across all of their fulfillment centers to optimize processes and offer insights into fulfillment performance and SLAs.

• The ability to track performance across inventory, orders, and warehouse operations, and make the data easily accessible to you. 

Tech-enabled 3PLs should also fit seamlessly in your tech stack. The right partner will offer integrations with your website or ecommerce platform (like Squarespace). The best integrations will let you import orders and send data back and forth with your sales channel(s). Your partner should also integrate with any other ecommerce tools you use. 

The best partner will also use automation to improve operating efficiency, such as:   

• Automatic reorder notification points to remind yourself to replenish stock  

• Shipment tracking that’s automatically shared with your store and customers

• Routing orders based on distance to the customer and available inventory 

• Machines to choose the right box size for each product’s dimensions and weight

• A box selection algorithm to calculates the ideal package size for a given order combination

• Sorting machines that scan and automatically sort packages into shipping carrier lanes

Transparent pricing

Fulfillment costs should never surprise you. The best 3PLs use pricing structures that are simple, intuitive, and above all, transparent. Look for a partner that lays out all expenses on regular invoices so you’re not surprised by any hidden fees. 

While it may be tempting to go with the cheapest option, consider the real value you’d be getting with each potential partner. One 3PL may be a little more expensive, but other value-adds (such as free standard packaging materials) may make it worth the extra cost or offset the other line items.   

Customer support

In logistics, issues are inevitable—so make sure your 3PL has robust customer service. If you have a problem, a good 3PL will get you the answers you need in a timely manner. Whether you’re onboarding or troubleshooting, you should be able to get real-time assistance through chat, phone, and email tickets, and have your feedback heard.

Beyond issue resolution, your 3PL should be a partner, not just a service provider. Your provider should give you a transparent, holistic view of fulfillment performance, connect you to other potential partners in the ecommerce space that can help your business, understand your needs, and proactively discuss growth opportunities. 

Constantly improving and advancing

Ecommerce is a fast-evolving industry, and the best 3PLs stay on the forefront of new ideas, trends, and customer expectations. If a fulfillment provider hasn’t changed or expanded their technology, operations, services, and locations in the past few years, they might be just fine staying exactly as they are. 

Instead, find a 3PL that is thinking ahead, has customer expectations in mind, and has resources to help you scale.

Scale your Squarespace store with ShipBob

ShipBob integrates directly with your Squarespace store, so that orders placed on your website are automatically processed, picked, packed, and shipped from one of its fulfillment centers. 

The company has over 40 facilities across the U.S., Australia, U.K., E.U., and Canada, so you have the option to sell globally. ShipBob also partners with dozens of major retailers, so you can get your products onto store shelves and dropshipped directly to customers. 

You can manage your inventory through ShipBob’s dashboard, which provides real-time insight into stock and orders. Then you can use those metrics to optimize for speed and cost, while trusting your 3PL partner to deliver your orders. 

Ready to grow your business with 3PL?