Third-Party Logistics (3PL) E-commerce Fulfillment and Solutions Guide

Order fulfillment is one of the most essential parts of running an online business. As an ecommerce owner or manager, setting up an efficient and cost-effective fulfillment strategy is vital to scale your business and satisfy your customers. However, some ecommerce businesses must rely on additional shipping support from outside their internal resources to improve operations and ROI. One of the most prevalent solutions for enterprise businesses is to utilize third-party logistics (3PL). Let’s discuss how third-party logistics works and some of our top ecommerce fulfillment solutions.

What is 3PL order fulfillment?

3PL order fulfillment, or third-party logistics fulfillment, is the process of outsourcing ecommerce logistics to a specialized external provider. This service encompasses the entire order fulfillment process, including receiving orders, managing inventory, picking and packing items, shipping orders, and handling returns. By delegating these tasks to a 3PL provider, ecommerce businesses can focus more on growth and customer engagement without the burden of internal logistics management. This streamlined approach not only optimizes operations but also enhances overall efficiency and profitability.

Why 3PL is Important?

3PL is important for many growing businesses because it helps alleviate time-consuming internal operations so companies can spend more time growing their business. The most appealing advantage of 3PL is that it not only frees up time but it’s also the most cost-effective solution to coordinate, store, and ship inventory to customers.

What are the Four Types of 3PL?

There are four main types of third-party logistics to consider for your business:

• Standard 3PL Provider: A 3PL solution that you can use to pick and pack products and may offer additional warehouse and logistics services. 
• 3PL Service Developer: In addition to the services offered by a standard 3PL provider, a 3PL service developer includes IT infrastructure and management so you can track and trace products within the system. You can also take advantage of custom package selection for your  goods, and cross-docking facilitates efficient logistics management. 
• 3PL Customer Adapter: This type of 3PL provides the infrastructure, management, and technology to handle all aspects of warehouse and logistics. 
• 3PL Customer Developer: This is the most comprehensive 3PL option and merges directly with your logistics management system. The 3PL will handle and monitor all warehouse and logistics activities. 

How Do 3PL Companies Work? The Stages of Ecommerce 3PL Fulfillment

Every 3PL partnership is different, but third-party logistics primarily includes storage, shipping, packing, and fulfillment. A 3PL partner can consist of several different entities, including warehousing companies, distribution centers, or fulfillment services. 3PL partners can help lower shipping costs, improve shipping times, optimize logistics, manage returns, and provide better customer service. 3PL partners are essential for many growing businesses looking to scale. Handling inventory management, storage, and shipping can drain a lot of your company’s internal resources. An outside partner can free up significant bandwidth to save your time and money.  The Stages of Ecommerce 3PL Fulfillment:

1. Storage
2. Orders
3. Packing and Shipping

Storage

You must first coordinate sending your inventory to a 3PL provider so they can have your products at their disposal. Typically, a company will fill out a Warehouse Receiving Order (WRO) to document the quantity and product names they plan to send. Once a business records its inventory and transmits it to 3PL partners, they will store the items on shelves, pallets, or bins at their fulfillment centers. They will categorize and label inventory accordingly to have it ready for when customers place orders.

Orders

When a customer places an order online, the 3PL will begin the fulfillment process. The most efficient 3PL ordering processes integrate the online store with the fulfillment center. As soon as a customer places an order on the company’s website, the 3PL party is notified and sent the necessary information to complete the order. A warehouse packing team member will collect the order from storage and send it to the packing and shipping division.

Packing and Shipping

The warehouse team will begin to package the item. You can specify how to package your products based on costs and weight and customize the packaging material to highlight the brand. The 3PL will place a shipping label on the product and have your daily inventory ready for carrier pickup. 3PL partners will send an order and shipping confirmation, and they will also handle any possible returns. (p.s. – You can help reduce ecommerce return rates with our helpful guide.)

What is an Example of a 3PL Logistics Operation or Company?

In addition to Nogin’s comprehensive CaaS ecommerce solution, we also offer a standalone 3PL fulfillment solution. Once you sign up, we’ll handle fulfillment from start to finish for your ecommerce business. Coordinate sending us your inventory, and we will store your products in our fulfillment centers. Once you go live and set up an account, our customer success and fulfillment teams will work with you to start receiving orders and shipping products.  Growing brands frequently face ecommerce fulfillment challenges. Many solutions are complicated, expensive, and don’t provide a practical path toward fulfillment that is scalable in the long run. Brands often find it impossible to compete with Amazon since they have a massive infrastructure of distribution centers and tactics to offer free shipping, fulfillment and returns significantly cheaper than independent retailers.  We offer a more intelligent approach toward fulfillment. We have our own fulfillment centers, and our proprietary technology puts innovation at the forefront to help brands spend less on orders and every other aspect of running their business, from discounts to marketing. 

How Does a 3PL Reduce Costs?

Without a sufficient 3PL fulfillment solution, you’ll find it difficult to scale your business. 3PL companies help ecommerce companies reduce costs in a number of ways, including:

• Warehousing: Instead of investing in a permanent warehouse, you can leverage a 3PL’s warehouse facilities and network to fulfill orders. The top 3PL companies have their own network of facilities and distribution centers to manage the entire supply chain process faster and minimize transportation costs.
• Labor: Finding, hiring, and training employees to handle fulfillment is not a practical or affordable option for the vast majority of ecommerce companies. An established 3PL has the expertise and network to find qualified employees to fulfill orders while handling scheduling, training, and upfront overhead costs. 
• Technology: 3PLs invest in software and technology to constantly improve fulfillment for their customers, including order management systems (OMS), warehouse management systems (WMS), transportation management systems (TMS), and Electronic Data Interchange (EDI) software to lower costs, reduce manual oversight, and securely handle fulfillment.
• Transportation: Many 3PLs have extensive carrier and transportation networks to transport goods faster and at lower costs. Your customers will expect fast shipping times for online orders and may abandon their carts due to long fulfillment estimates. Stay competitive with big retailers, and leverage a 3PL to handle faster shipping at affordable rates.

6 Best Benefits of Ecommerce Fulfillment

There are many reasons why you should choose a 3PL partner. Whether handling fulfillment, storage, or supply chain management, a 3PL can be the MVP for your ecommerce business. Here are some reasons why you and your business could benefit from third-party logistics:

1. Time
2. Money
3. Convenience
4. Customization
5. Flexibility
6. Quality Assurance

1. Time

You probably didn’t get into retailing to spend hours packing orders. Working with a 3PL gives you the time you need to focus on your big-picture business strategies. There are countless tiny details involved in order fulfillment. Contracts with transportation drivers, tracking lost orders, figuring out how a storm on the East Coast may affect deliveries to the region—these are the kinds of small but important details you no longer have to worry about with a 3PL in place.

2. Money

When an outsourced provider handles your order fulfillment process, it can cut down on expenses. For instance, a 3PL with a warehouse means you don’t have to spend money on your own storage facility for excess inventory. You also don’t have to hire and pay extra staff members to handle fulfillment on your end. Plus, if you work with a 3PL with multiple other clients, it can often translate to lower shipping rates for everyone because the 3PL is shipping at high volume.

3. Convenience

Using 3PL is a terrific ecommerce business solution because it can handle every aspect of order fulfillment. Your vendors can ship merchandise directly to the 3PL warehouse, where it can be synced to your in-store inventory to keep everything organized for you. When orders come in, the 3PL handles all of the packing, labeling, and shipping. If an order is returned, the 3PL takes care of restocking. An experienced company that professionally and reliably administers all these logistics can be a game-changer for your business.

4. Customization

A 3PL can cover every aspect of order fulfillment for you. But 3PLs can also offer customized solutions tailored to your specific needs. Are you focused on adding next-day or same-day shipping to your e-commerce site? Find a 3PL with those capabilities and the warehouse network to support that. Do you want to provide gift-wrapping services or need temperature-controlled packaging? There are 3PLs out there that can handle every kind of fulfillment issue. The best firms will listen to your needs and develop a comprehensive plan to optimize your order fulfillment.

5. Flexibility

A 3PL boosts your company’s responsiveness to ecommerce demands. Suppose you’re planning a huge holiday sale. Your 3PL company can adjust accordingly and ensure it has enough transportation solutions and fulfillment staffers to meet that higher order volume. Conversely, you don’t have to let go of your workers if there is a lull in orders; a 3PL can quickly ramp down, depending on your needs. This scalability is especially valuable if you are at a crucial stage of growing your ecommerce business. There are few things worse than not being able to meet increased customer demand—it can tarnish your brand’s reputation. Plus, taking advantage of a 3PL’s warehouse means you may carry a higher volume of inventory, so you can save money by buying merchandise in bulk and serving more customers with more orders, which can benefit your bottom line.

6. Quality Assurance

By doing your homework and partnering with a trusted 3PL company, you are leaving order fulfillment in the professionals’ hands. These intricate, heavily detailed logistics are their bread and butter, and you can be assured that your fulfillment process is in the best possible position to benefit your ecommerce business. A well-oiled fulfillment process reflects well on your business and enhances customer satisfaction and your brand’s reputation.

Third-Party Fulfillment vs Other Fulfillment Methods: How to Choose a Fulfillment Strategy

When it comes to fulfillment, you generally have two alternative options to third-party fulfillment: 

• In-House Fulfillment
• Dropshipping

Let’s discuss an overview of the two other approaches and some common advantages and disadvantages for each option. 

In-House Fulfillment

In-house fulfillment is when a business handles the entire fulfillment process using its own facilities, labor, warehouses, equipment, and network. In-house fulfillment is an excellent option for small ecommerce brands (less than 100 items sold each month).  The biggest advantage of in-house fulfillment is that you can control the entire fulfillment process. It has the lowest startup costs, is easy to implement without hiring a large staff, and you can easily add a creative touch and customize packaging.  However, it’s virtually impossible to scale your business with in-house fulfillment, and you’ll have to find room to store all your inventory. It’s also time-consuming, and you won’t be able to leverage a 3PL’s extensive shipping network to receive discounts. 

Dropshipping

Dropshipping is when your supplier picks, packs, and ships orders directly to your customer. Clients connect with suppliers through their ecommerce platform, and when an order is placed, the supplier will handle the entire fulfillment process.  Dropshipping has lower startup costs since you do not have to purchase inventory upfront before making sales. You can list various products on their storefronts without having to gamble and invest in bulk orders. It’s easy to update inventory based on the latest ecommerce trends, and dropshipping eliminates overhead costs to store products.  Dropshipping comes with some disadvantages. You have no control over how products are packed and shipped. If customers are unsatisfied with their order, you’ll suffer the repercussions of negative reviews for your brand. Since orders are shipped individually, profit margins are lower, and you won’t benefit from bulk pricing.  Dropshipping is also notorious for long shipping times, and you’ll have to rely on your supplier for stock and customer service. If you go the dropshipping route, you must carefully vet your supplier and order sample items to confirm exactly what your customers will get in the mail. 

Is a 3PL Worth It?

If you’re wondering if a 3PL fulfillment solution is worth it, here are some market statistics that may help you make up your mind: 

• 86% of shippers using 3PLs said it has helped improve customer service.
• 75% of shippers said the use of 3PL services has contributed to overall logistics cost reductions.
• Brands using 3PL experience a 48% increase in ecommerce orders and a 71% increase in new customer acquisition.
• 73% of 3PL users said 3PLs provide new and innovative ways to improve logistics effectiveness. 

How Much is Third-Party Fulfillment?

It’s tough to give an average cost for third-party fulfillment. There are many different fees that 3PLs can potentially charge customers, including:

• Setup fees
• Storage fees
• Pick and pack fees
• Intake fees
• Shipping fees 
• Return fees
• Account management fees
• Kitting fees

There is considerable variability in the cost of shipping ecommerce products. For instance, there is a substantial price difference in shipping a tube of toothpaste compared to a dining room table. You could receive a discount on storage for bulk inventory but may have higher shipping rates for products that require a more protective package for an order. Ultimately, the best way to get a complete and transparent quote for your business is to talk to a fulfillment representative. 

The Best Order Management Software and 3PL Ecommerce Solution for Growing Brands

If you are ready to optimize your fulfillment and returns, consider transforming your processes with Nogin. Our cutting-edge, user-friendly software enables seamless coordination with all your vendors from a single dashboard. Gain insights into which suppliers boost your bottom line and discover tactics to reduce shipping costs for each product in your storefront. Furthermore, our team takes care of the entire fulfillment process from start to finish. Stay informed with detailed reports that provide a comprehensive overview of your entire shipping operation. To further bolster your direct-to-consumer marketing efforts, consider leveraging our advanced 3PL e-commerce fulfillment solution, which includes:

• Order Management: World-class order management can handle any situation from ecommerce, wholesale, dropship, EDI, customized and personalized products, and more.
• Returns: We include a customer self-serve returns portal that enforces your policies automatically, processes refunds, and makes the entire return process seamless for everyone.
• Inventory Management: Our warehouse team uses rigorous, industry-standard practices for managing products and inventory so you can be confident in accurate and reliable inventory that prevents overselling.
• Warehouse Network: Leverage our fulfillment network of warehouses – we’re bi-coastal!
• Billing: Billing is simple, easy-to-understand, and straightforward. You should never be surprised when you get your invoice.
• Catalog Sync: We pull your catalog automatically to keep it in sync with our warehouse operations and can push inventory back to you as well.
• All-In-One Dashboard: Since we started in the enterprise fulfillment space, we’ve built features and capabilities into our platform. From our dashboard, you’ll be able to track orders, shipments, and returns, all from one easy-to-use platform.
• Customer Support: You also get a dedicated Customer Success Manager when you have questions or run into an issue. We’re there to help you grow.
• Constant Innovation: We’re always looking at ways to make our customers’ lives easier so they can focus on what they do best – grow their business. We’ll take care of the tech and fulfillment operations.

Request a quote, and let us show you just how easy shipping can be!

Do You Need More Than Just Help With Fulfillment? 

If you are ready to make the move to an enterprise ecommerce platform, it’s never been easier to migrate than with Nogin. We fill the gap between entry-level and enterprise platforms and offer a radically different approach to ecommerce that future-proofs your business. Best of all, there are no upfront replatforming costs, and instead of waiting up to a year to complete the migration, we can get you live in under eight weeks!  Nogin offers a comprehensive ecommerce solution with sophisticated research and development built in, extending the capabilities of Shopify Plus using market-leading functionality that outperforms against legacy enterprise platforms. Here are some of the main benefits you can expect using our enterprise ecommerce technology:

• Our headless ecommerce solution features AI-powered customer segmentation, algorithmic merchandising, and smart promotion optimization to enhance your customers’ online shopping experience with personalization tactics that convert.
• We can handle multiple frontends and multiple backends. 
• Access 40 enterprise-level tools and features that improve conversions and lower marketing spending, shipping, and returns. 
• Replatform to a superior enterprise platform without replatforming fees and go live in just six weeks. 
• Access a comprehensive technology stack and pre-integrated frontend theme called Luminate, which includes the best Shopify apps along with partner integrations and exclusive features developed specifically for Intelligent Commerce. Our dedicated site optimizers are constantly working to improve each application, leveraging tactics gained from managing over 150 brands and $1 billion in total gross merchandise value (GMV) over the past decade. 
• True global enterprise ecommerce to reach and convert international customers. 

Plug into our enterprise ecommerce platform solution with NO upfront costs! Nogin is a different approach to enterprise ecommerce, and the results speak for themselves:

• Conversion rates improve an average of 40% on our platform.
• Marketing spend efficiency increases 30% with our CDP.
• Increased personalization drives a 15% increase in revenue.

If you want to recession-proof your business and instantly become more profitable, it starts with a smarter approach. Learn more about the research and data behind CaaS and download the Coresight Research Reports below, or contact us today:

• Part One: Evolving State of Ecommerce
• Part Two: Solving Profitability Issues in Ecommerce
• Part Three: Optimizing Ecommerce Infrastructure

To Continue Learning the Best Approaches to Scale Your Ecommerce Business, Check Out Some of Our Informative Guides Below:

• Luxury Ecommerce Fashion Tips
• The Ultimate Ecommerce Marketing and Conversion Funnel Guide
• Ecommerce Product Listing Strategies
• Ecommerce Retail Pricing Strategies
• How to Colab With Brands
• Most Common Ecommerce Myths
• Coronavirus and the Future of Ecommerce

3PL FAQ

What are the benefits of 3PL fulfillment?

3PL (third-party logistics) fulfillment offers significant advantages, including cost reductions in warehousing and shipping, improved delivery times, and enhanced order accuracy. These services help businesses scale efficiently, manage peak demands, and convert fixed costs into variable ones. By outsourcing logistics, companies can focus more on growth and customer engagement while leveraging the expertise of 3PL providers to streamline operations and enhance overall customer satisfaction.

How many types of 3PLs are there?

There are four primary types of third-party logistics (3PL) providers, each tailored to different business needs:

1. Standard 3PL Providers: Focus on basic logistics like storage and transportation.
2. 3PL Service Developers: Offer additional services such as IT infrastructure, shipment tracking, and compliance management.
3. 3PL Customer Adapter: Manage all logistics functions for a client, adapting fully to their operations.
4. 3PL Customer Developer: Fully integrate with the client’s systems to manage comprehensive logistics operations.

What industries use 3PL shipping the most?

Third-party logistics (3PL) shipping is extensively utilized across several key industries:

1. E-commerce and Retail: For managing high-volume order fulfillment and seasonal demand fluctuations.
2. Manufacturing: To ensure timely delivery of parts and materials critical for uninterrupted production.
3. Pharmaceuticals: For compliance with strict shipping and storage regulations to maintain product integrity.
4. Automotive: To handle the logistics of transporting large and valuable components securely.
5. Food and Beverage: To manage perishable goods under strict temperature controls.

These industries rely on 3PLs for their ability to enhance operational efficiency, manage complex distributions, and scale logistics according to business needs.

Is a 3PL a wholesaler?

No, a third-party logistics provider (3PL) is not a wholesaler. Wholesalers buy and sell goods in bulk, owning the products they handle, while 3PLs provide logistical services such as warehousing and shipping without taking ownership of the goods. The key difference lies in their roles: wholesalers make profits from selling products, whereas 3PLs earn by offering services to manage and distribute these products for their clients.

What is an example of a 3PL?

FedEx Supply Chain is an example of a third-party logistics (3PL) provider, offering services like transportation, warehousing, inventory management, and shipment tracking to help businesses optimize their supply chains and enhance efficiency.