Article > What Is a 3PL Environment? And What Do Third-Party Logistics Companies Do?

What Is a 3PL Environment? And What Do Third-Party Logistics Companies Do?

Aisleway in a warehouse showing all of the racks and products from floor to ceiling.

The third-party logistics (3PL) environment refers to everything in a 3PL company, from its activities and manpower to its software. Business owners who work with third-party logistics providers should know what goes on in the 3PL environment because it helps them decide whether a 3PL company is right for them.

Read on to learn more about the 3PL environment and what third-party logistics operations providers do.

What Is a 3PL Environment?

A 3PL environment is everything that makes up a 3PL company’s business and activities. The 3PL environment encompasses logistics activities, warehouse and other logistics personnel as well as software. Third-party logistics operations providers can improve their 3PL environment by upgrading their tools, manpower and business processes.

What Do Third-Party Logistics Companies Do?

Third-party logistics companies offer various storage and order fulfillment services to their clients. Most of the time, they take over the client’s entire logistics operations from receiving to shipping. Some even handle customer returns on behalf of the client.

Who Should Consider Outsourcing Their Fulfillment Logistics to a 3PL?

Business owners who don’t have the manpower or budget to handle their own warehousing operations should consider outsourcing logistics functions to a 3PL.

By outsourcing order fulfillment to a 3PL, you won’t have to spend lots of time and money to fund warehouse operations or hire a logistics team to run an in-house fulfillment division. Instead, you can have a vendor send finished products to the 3PL company’s fulfillment centers, and the team there will handle everything.

Another reason to outsource your fulfillment logistics to a 3PL service provider is sustainability. Current sustainability trends in third-party logistics and the market at large mean you may need to minimize the environmental impact of your business to attract customers. Many 3PL companies now offer eco-friendly logistics processes to ensure businesses can stay true to their sustainability promises and reduce their carbon footprint.

What Are the Benefits of Working With a 3PL?

The main benefit of working with a 3PL is workload reduction since the company takes over your logistics processes. Logistics in the supply chain are complicated, so you want to find a comprehensive solution that meets your needs. Here are some other benefits of working with 3PL companies:

Leverage Industry Expertise

Order fulfillment is a complex task, and learning to do it in-house is challenging. Working with third-party logistics service providers gives you access to their expertise and experience. In some cases, 3PL partners can be logistics consultants that help you improve your supply chain and logistics processes.

Save Time and Money

Leasing a warehouse, hiring and training logistics personnel, buying storage equipment and other order fulfillment functions result in high overhead costs. Instead of handling all of those tasks yourself, a 3PL can take over all of them on your behalf – all you need to do is pay their subscription fees. You can then use the time and extra cost savings to develop other business core competencies.

Expand Your Reach

Third-party logistics providers are popular with businesses looking to scale because they can greatly expand your reach. They often operate multiple fulfillment centers across the country or even globally, helping your business sell to more people in other regions and countries.

3PL vs 4PL: What’s the Difference?

The main difference between 3PL and Fourth-Party Logistics Providers (4PL) is their scope of work. 3PLs only take over your order fulfillment, while 4PLs take control of your entire supply chain management process. 4PLs also have more power over your business processes since they’re more like partners than vendors.

In addition to 3PL and 4PL, there’s also 2PL, which essentially involves shipping carriers or freight forwarding services. You’re still responsible for handling all inventory, warehousing and logistics processes except for shipping.

There are many differences between 2PL, 3PL and 4PL. Each logistics outsourcing option offers differing levels of services, so do some research before picking the type of logistics provider to work with.

The 3PL Order Fulfillment Process

Most 3PLs in the logistics service industry follow a similar order fulfillment process to get products to your customer base. Here’s an overview of how 3PL order fulfillment works:

3PL Warehousing

3PL warehousing is one of the main services a third-party logistics provider offers. The company provides warehouse space in its fulfillment centers, and you can ask vendors or manufacturers to send items there.

Receiving

The 3PL order fulfillment process starts with receiving or accepting inventory items and storing them in the warehouse. Different third-party logistics providers have different receiving procedures, but it generally entails letting the 3PL provider know that your products are coming so they can prepare the storage space for them.

Picking

Picking happens when a customer places an order on your eCommerce storefront. 3PL companies usually offer integrations with online storefronts, so they’ll receive the order as soon as the customer pays for their shopping cart. The warehouse crew will create a picking list of what items the customer needs, collect them and prepare for shipping.

Packing

When everything on the picking list is picked, the warehouse crew will pack them securely. Some 3PL providers offer packing methods like cardboard boxes, bubble mailers, poly bags and more.

Shipping

Once everything is packed, the third-party logistics service provider will print shipping labels and send the items off to shipping carriers to send. Third-party logistics providers usually have a carrier partner they frequently work with. However, some have a selection of carriers or freight forwarders that you can choose from based on which one offers the best rates and makes timely deliveries.

Returns

Third-party logistics providers can also help you handle product returns. This usually happens when customers receive the wrong items or defective products. Having your 3PL partner handle returns means you don’t have to spend as much on customer service expenses, helping you raise customer satisfaction at a lower cost.

Most Valuable 3PL Services to Look For

Some 3PL companies may offer other services beyond order fulfillment. Here are some useful 3PL services to look for if you want to level up your logistics operations:

Inventory Management

Inventory management is a system companies use to ensure balanced stock levels at all times – not too much, not too little. 3PL companies can help regulate your stock by advising you on when to send in new products, keeping the inventory levels at their warehouse optimal.

Distributed Inventory

3PL companies with multiple distribution centers or warehouses often offer distributed inventory. This means your items will be spread out across the company’s distribution centers, and your 3PL partner will contact the closest fulfillment center to the customer to handle the delivery.

Returns Management

3PL companies can handle customer returns on your behalf whenever they get the wrong item or receive a defective product. The warehouse team can send a replacement product to the customer, then send the defective item back for refurbishment or disposal, depending on its state.

Kitting and Customization

Kitting and customization happen when a customer buys customized product bundles. For instance, let’s say someone buys a bundle containing a bottle of shampoo, a toothbrush and a tube of toothpaste – three items you also sell separately. The 3PL company is responsible for picking each item in the bundle and placing them in one package to ship to the customer.

Advanced Data Analytics

Many 3PL companies use inventory and warehouse management software to handle your logistics operations. In addition to automating various manual processes, their software can also provide you with reports on inventory levels and other relevant data. These reports give you the information necessary to make informed decisions about your order fulfillment and production strategies.

International Fulfillment

Many eCommerce businesses can expand their reach globally with the help of 3PL logistics services. Some third-party logistics companies operate fulfillment centers in different countries, which means you can promise timely deliveries and low shipping costs to international customers.

Key Takeaways

The 3PL environment covers everything a third-party logistics company has and does, including manpower, software and logistics activities. As a business owner, you can work with 3PL companies to improve your order fulfillment process, expand your reach and leverage their expertise.

If you want even more assistance managing your supply chain, you can work with 4PL companies that will take over your entire supply chain operations and develop improvements where needed.

What Is a 3PL Environment FAQs

What is the difference between 3PL & 4PL?

The difference between 3PL and 4PL is their scope. 3PL usually helps you handle order fulfillment and inventory management, while 4PL takes over your entire supply chain management process.

What is the biggest 3PL company?

The biggest 3PL company in the world is Kuehne + Nagel, which posted almost $40.8 billion in gross revenue in 2021.

Is 3PL the same as outsourcing?

3PL is the same as outsourcing because you’re hiring a third-party company to handle your order fulfillment.

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