What is 3PL (Third-Party Logistics)? 7 Core Functions of a 3PL

Order fulfilment is an essential part of running a business. Without it, your customers wouldn’t receive what they buy (and you wouldn’t get paid).

Between spreading the word about your brand and connecting with your audience, managing order logistics can become challenging, especially if you’re scaling rapidly and finding it difficult to keep up with demand. That’s where third-party logistics (3PL) can help.

3PL allows businesses to outsource logistics processes (like order fulfilment and inventory management) to another business. This provides companies with the tools to manage orders, inventory, and warehousing when they lack the resources in-house.

This guide will look into how third-party logistics works, the different services on offer, and how you can find a 3PL service that’s the right fit for your business.

You’ll often hear 3PL and 4PL (fourth-party logistics) mentioned in the same conversation. While they’re similar, the approaches differ in scope.

Third-party logistics involves working with another business that will coordinate a wide range of tasks within your supply chain, such as inventory tracking and order management. However, you’ll still maintain control over your overall logistics strategy.

4PL takes things one step further. This approach still involves outsourcing your logistics to another business. However, as well as handling order fulfilment, the fourth party will also oversee your logistics strategy. Fourth-party logistics services include:

• Coordinating all of your 3PL services to work toward a singular strategy.
• Managing and planning your transportation, inventory, and customer service.
• Helping with budgeting and business planning.
• Measuring the performance of 3PL solutions to optimise your supply chain.

In essence, 3PL focuses on hands-on logistics execution, while 4PL takes an operational approach to design the overall supply chain strategy. This is why you’ll often see 4PL used by enterprises with large-scale requirements and multiple 3PL services working alongside them.

A freight forwarder will handle the transportation of your goods domestically or internationally. They’re focused solely on freight shipping and have an expert understanding of the different regulations and tariffs that come along with it.

3PLs, on the other hand, offer a broader range of services. They will:

• Make sure the business has enough stock to meet order demands.
• Organise resources so the business is ready to meet incoming orders.
• Ensure the right order is going to the right customer.
• Communicate with shippers to ensure the order reaches the customer on time.
• Track the order to make sure it reaches its destination.

In short, a freight forwarder is there to get goods from A to B, while the 3PL takes responsibility for the whole logistics process to make sure everything runs as intended.

3PL services and freight forwarders often work together. The 3PL will work alongside the business to take care of the logistical elements and then coordinate with the freight forwarder to get the goods where they need to go.

A 3PL’s core competency is making sure the right order reaches the right customer on time. But this isn’t the limit of the services they offer. Depending on the type of 3PL, they can provide a range of services. Here are seven of the most useful 3PL services.

Every great logistics network starts with great warehousing. A 3PL can help you categorise and organise your products so they’re readily available when you need them. This ensures that when a customer makes an order, everything's in place to ship the correct product faster.

3PLs also bring their own network of third-party logistics fulfilment centres to the table, eliminating the need for businesses to invest in expensive on-site infrastructure. This distributed inventory also lets you store your products across multiple locations, reducing delivery times.

Effective inventory management demands more than just warehousing. 3PL solutions will also use technology to help track stock levels, providing you with the correct data to ensure you’re always able to meet demand while avoiding overstocking.

For instance, your third-party logistics provider can connect their inventory management software to your e-commerce company so that your inventory levels update in real time. This gives you complete visibility over what’s ready to ship and which products you need to reorder, helping you keep inventory costs down while efficiently satisfying customer demand.

The 3PL order fulfilment process will vary depending on your provider, but almost all will offer some form of picking, packing, and shipping.

When a customer places an order on one of your e-commerce sales channels, the provider will locate products in the 3PL warehouse, pack them in boxes, and then ship them to your customers, often in collaboration with a freight-forwarding solution.

Any great 3PL will automate this process with technology to check stock levels and update inventory in real time. They can also handle omni-channel fulfilment, so they can take care of the shipping of goods while handling service provision and subscriptions.

A 3PL will help you ship faster (and for less) by taking care of every logistical element of moving goods. They can also offer one or two-day shipping, which is rarely feasible for businesses with limited resources.

Some providers might take care of this with their own global 3PL logistics network along with an advanced technological route planning solution. Other providers might partner with a freight forwarder to help with fast shipping.

Depending on your requirements, 3PL providers can also offer white-glove delivery service, where sensitive goods are handled with additional care. They can also handle omni-channel fulfilment, meaning they can take care of the shipping of goods while handling service provision and subscriptions.

A 3PL can also provide reverse logistics and handle returns. Say a customer sends a product back that they aren’t happy with. The 3PL will receive the goods and inspect them to decide whether they can be restocked and resold based on the retailer’s policies.

Some 3PL solutions can also provide returns management software, which allows customers to generate automated return labels through a helpful portal. As well as ensuring customer satisfaction, this software as a service (SaaS) also provides a wealth of data that you can use to understand why specific items are being sent back.

Businesses are aware of the need for blogs and social media adverts. However, many miss the opportunity to turn their product into its own marketing tool.

3PL providers can customise all of your business packaging so it better connects with your customers. They could, for instance, add a custom flyer to the shipping box that details an upcoming product launch or create a thank you note to show you appreciate your audience.

Rather than using standard boxes, a 3PL may also offer to create branded packaging, wrapping paper, or shipping labels, sometimes at no additional cost. All of this helps you personalise the customer experience without investing the resources and time to handle it in-house.

Your 3PL won’t take control of your business strategy, and you’ll need a 4PL for that. But a 3PL will offer guidance and insights backed by data.

As we’ve mentioned, a 3PL uses technology to handle logistics. This allows them to collect data on the entire supply chain, from inventory levels and shipping metrics to return requests. They can then pass this information on to your organisation to help you make smarter decisions.

For instance, your 3PL could collect data on common shipping delays and then suggest warehousing and fulfilment improvements to improve your customer service. All of this takes the guesswork out of optimising your supply chain while reducing spending on analytics.

Let’s bring home why 3PL can be a game-changer for businesses. Here are six benefits of 3PLs that you should consider.

1. It can expand your reach: As a 3PL often has several fulfilment centres located in different locations, they can help your business expand and serve customers in new geographic regions. This makes it faster and easier to scale.

2. You’ll reduce overheads: Building the infrastructure to manage orders in-house can be expensive, especially as a business scales. A 3PL eliminates the need to invest your own resources in logistics, contributing to cost savings over the long term.

3. You’ll save time: Customers expect rapid delivery by default. Spending your resources on facilitating outstanding logistics can make it hard to keep pace with your other core competencies. A 3PL frees up time so you can focus on helping your business grow.

4. You’ll gain access to expertise: A third-party logistics company has expertise in all aspects of logistics. They can help you with everything from international fulfilment to inventory planning and provide the data to back it up. This can help you make smarter decisions.

5. Easy scalability: Change is the only constant for e-commerce businesses. A 3PL company has the infrastructure to help you scale rapidly and expand into new markets as you identify new opportunities.

6. It creates a better customer experience: The right 3PL will have the scale and expertise to handle order fulfilment efficiently. This means your buyers will get their products with reduced shipping times, improving satisfaction and customer loyalty.

All of this contributes to optimised end-to-end logistics that increase the volume of your shipments and improve the customer experience, helping you improve your profit margins.

Depending on your criteria, there are a variety of ways to categorise 3PL solutions. However, the easiest way to split things up is by function and specialisation. Based on that, here are several key types.

Transportation-based 3PLs focus on getting goods from A to B. This includes freight shipping as well as parcel carriers like FedEx. Some 3PL partners also specialise in freight cost and legislation for international shipping.

Warehouse-based 3PLs act as order fulfilment partners. They’ll take in your inventory within their fulfilment centres, integrate their software into your platform of choice, and then pick, pack, and ship whenever a customer places an order.

These take a broader approach and focus on supply chain management. They determine how best to handle your logistics strategy and help to plan out elements like inventory and shipping costs.

The line between these solutions is often blurry. Many providers combine different elements of each of these categories. For instance, some services might offer hands-on transportation and 3PL warehousing logistics while also using data to help you build your own logistics strategies.

What’s important is to do your own research and find a 3PL provider that’s the right fit for your organisation.

How do you go about selecting a 3PL solution that’s the right choice for your business? Here are some questions you should ask to land on the best fit.

A good place to start is with your own requirements. What are you looking for in a 3PL? For example, if your biggest problem is not being able to keep up with demand, you’ll want an order fulfilment service provider that can make sure your orders are packed and shipped quickly. If you’re looking to expand, you’ll need a provider that understands local and international regulations.

Start by understanding what you need. This will narrow down the pool of potential solutions to choose from.

Check whether the 3PL has experience working with businesses like yours. Do they specialise in your industry? Have they operated with companies at your business growth stage?

Try to find a 3PL solution that understands your pain points and how to address them. You should also check reviews to understand their customer service and communication.

Expanding on the previous point, does your 3PL solution have a proven track record and reviews to back up its expertise? This seems obvious, but check that your provider is experienced in your niche and has the testimonials and customer success stories to back it up.

Different 3PL offerings come at different price points. While a 3PL will almost always save you money in the long run, assess the upfront and overhead costs to determine if a provider is the right fit for your budget.

Another obvious factor to consider: Are your 3PL solution’s warehouses in a location that could be beneficial to your business? Whether you’re hoping to expand into a new region or consolidate your market authority in your local area, you’ll need a solution with warehouse locations that align with your overall strategy.

3PL solutions offer advanced technologies like order management solutions and warehouse management systems. You’ll want to look for a provider that provides the technologies that are the right fit for your needs.

For instance, Salesforce Commerce Cloud can centralise your order data, provide automated inventory alerts, and connect you with third-party logistics providers to support every aspect of your supply chain logistics.

Scaling a business can be challenging when you lack the resources to serve your customers. 3PL will help you scale your shipping and expand your reach while saving you time and money.

Ready to get started with third-party logistics? Try Salesforce Commerce Cloud, our all-in-one logistics, marketing, and sales platform for e-commerce success. Commerce Cloud centralises all of your data under one roof. This gives your team a complete view of your inventory, orders, and customer transactions, all on one screen.

On top of this, our solution can automate order fulfilment. For instance, you can build scalable, custom supply chain workflows to fulfil complex order routing. You can also connect with dozens of 3PL providers via our AppExchange to handle every aspect of your logistics network and then track their impact directly from within our platform.

All of this lets you speed up your logistics for less while providing your customers with outstanding service. Try a 30-day free trial to see how Commerce Cloud can streamline your logistics today.