We will begin by answering the question of what does 3PL mean in shipping. Once we understand that, we will look into all of the various means of shipping that a 3PL offers to its clients.
The acronym 3PL or 3pl stands for third party logistics providers. So, what is logistics, and what are third party logistics providers? Logistics covers many different things, including the movement of the military. But in this case, we’re talking about commerce: the term Logistics used in commerce is the activity of transporting goods from their origin to manufacturers or sellers, retail or wholesale, and then to customers. This activity is sometimes referred to as supply chain operations.
What is involved in this transporting activity? It covers logistics operations and various forms of transportation across the entire supply chain to a warehouse where the customer’s order will be filled and the product then transported to the buyer – facilitating that final step, from the warehouse to the buyer, is what a 3PL does. There are several types of third party logistics companies, based on the needs of the seller, and we will cover those types.
The term third party logistics encompasses eCommerce operations and management. As eCommerce has grown, considering the enormous variety of eCommerce sellers today, the need for customized fulfillment services is very great. The seller will outsource some, or many, of their order fulfillment processes and tasks to another company – aka a third party logistics company, or in other words, an order fulfillment company. Fulfillment companies began to surface in the US in the 1970s and 1980s when more and more businesses recognized a need to outsource their fulfillment process to an external provider. Today they play a vital role in supply chain management.
The 3PL or fulfillment services provider in some cases handles a shipping aspect of the supply chain, the inbound movement of the products from the seller to the fulfillment warehouse. When the products arrive they will be handled by a receiving team. After being received the warehousing, picking and packing, and numerous other value-added processes as needed will be accomplished, and shipping to the end customer will take place. We will look at those various processes with a focus on shipping, as shipping is one of the distinct advantages of utilizing third party logistics providers.
The Types of 3PL Companies
Now that we know what the acronym stands for, let’s see what kind of 3PLs there are and what services each provides. We will begin with the differences between a third party logistics 3pl and a fourth-party logistics 4pl. After that, we will cover the differences between 3pl freight company, a 3pl logistics company, a 3pl fulfillment company, and a 3pl warehouse company.
But before we go there let’s ask a question about the supply chain. Is FedEx considered a 3PL? The answer is yes. UPS, FedEx, DHL, and XPO are all considered third party logistics providers.
Differences Between 3PL and 4PL
Fulfillment services aka 3PLs process transactions for small, medium, and large businesses, receiving, warehousing, picking and packing, and shipping orders for all types of eCommerce sellers, whether it be business-to-business sales, business-to-consumer sales and other types of fulfillment. The 3PL works closely with the seller, utilizing a shared technology, serving the seller and the consumer.
A fourth-party logistics company (4PL) will outsource to a network of 3PLs or fulfillment centers for all of the services that the client needs. For example, a 3PL can own or contract out transportation resources, whereas the 4PL outsources all and focuses on optimizing the entire supply chain. Sometimes a 3PL fulfillment service will partner with an additional company to expand their service offering. In this case, a 3PL will become a 4PL for that client.
In essence, a 4PL service will harness several 3PLs to optimize and streamline the fulfillment. The 3PL fulfillment center on the other hand will work with the seller directly as a business partner of the seller, processing day-to-day transactions. A 3PL that is full-service will offer many beneficial services to their clients.
Some of the advantages of a 3PL are that utilizing a fulfillment service will free up time for the seller and in many cases decrease shipping costs and accelerate the inventory turnover rate. The 3PL can be responsive to fluctuations in order volume and allow businesses to scale. Some 3PL fulfillment services are geared toward small and medium-sized businesses while others are more comprehensive.
The disadvantages to a company that has been handling fulfillment in-house are that there will be less control over inventory and less oversight. For this reason, the eCommerce business must locate the right 3PL fulfillment service that is capable of a true partnership.
The advantage of a 4PL is that it provides the seller with a single point of contact for the entire supply chain, and the major disadvantages for a small to medium-sized eCommerce company would be complexity, cost, and the significant onboarding process. The 4PL is responsible for a supply chain’s management from start to end, from planning to delivery.
Different Types of 3PLs
The first type, and most common type, is the fulfillment services company. The 3PL Fulfillment Company integrates with the seller’s website and software and handles orders, tracking numbers, warehousing, picking and packing, shipping, customer service, and several other services. Fulfillment refers to the entire process of warehousing and filling orders for eCommerce sellers. A full-service fulfillment service will handle the entire process of getting the product to the customer, including business process services, which allows the seller to focus on manufacturing, sales, and marketing. We will look into the fulfillment company services in more detail later.
Another type is a 3PL Logistics Company. A 3PL logistics company is the choice of companies that do in-house fulfillment in their own warehouse. They may be small to medium sized businesses that need some specialized services.
A 3PL Freight Company will not be a freight forwarder but will offer a broader scope of services including transportation. The 3PL Freight company may provide warehousing, carrying of products, and picking and packing.
The fourth type is the 3PL Warehouse Company. This company will stock, maintain, and monitor the warehouse, which could be an in-house warehouse or another. Companies that have a great deal of inventory may use this type or companies that do in-house fulfillment but need to expand. The 3PL warehouse company may be utilized by businesses that need to store perishable products, temperature-controlled goods, or some other form of code compliance.
What is 3PL in simple terms? In 1980 the Motor Carrier Act was passed by Congress. That Act changed trucking regulations, making it easier for carriers to reduce their rates. The 3PL came into being due to the lower expenses and flexibility allowed by this Act.
Simply put – a 3PL would be any company that provides outsourced shipping, fulfillment services, warehousing, or logistics. The 3PL Fulfillment Company provides all of the mentioned and more, while others, as we mentioned, provide services in one or two areas. Some of the advantages of outsourcing these services are savings on labor, storage space, and transportation.
To answer our title question regarding shipping services we will focus on the 3PL Fulfillment Company, as it is the fulfillment company that excels in shipping services.
What Is an Example of 3PL?
We will use a mid-size full-service fulfillment company as our example 3PL as this is the most utilized type. The fulfillment company is bi-coastal, with warehouses located near ports on both coasts. It creates a shipping advantage for clients who can locate products closer to their end customer, therefore reducing the costs and time involved.
Our example 3PL headquarters office is located near the West Coast ports, and the company has several warehouses at the headquarters location. The company has a secondary office and locations in Pennsylvania and Delaware. The company has around 600 employees.
When an eCommerce seller outsources its fulfillment to this company, the first process is to integrate the IT systems for full communication on both ends. The client needs to know where its products are located and be able to see the orders being filled and shipped. The fulfillment company needs to know when orders come in so they can pull the products, pick and pack them, and ship them to the customer. The seller and fulfillment company work as partners in the fulfillment process.
After the agreement has been made, and onboarding accomplished, the eCommerce seller’s products must be shipped to the appropriate 3PL warehouse. This shipping can be arranged by the 3PL with products being brought in bulk to the best warehouse location or locations to serve the client. The next process is receiving.
The Fulfillment Services Receiving Process
When the client’s products are received, accuracy is vital. All bulk shipments will be broken down with cartons counted, cartons opened and products counted and scanned into the system identified with a SKU and labeled as well if required. Once all of the products are counted and scanned in they will be given an appropriate location in the warehouse based on whether the products are for a business selling to a business (B2B), a business selling to an individual consumer (B2C), or another type of sale, of which there are several.
When a product is received, it is entered into the warehouse management system and also into the inventory management system. These technology systems are a vital part of the fulfillment process, and our example fulfillment company has an in-house IT team of developers developing and managing these systems.
The Warehouse Management Systems (WAMS) at this company is proprietary. It indicates locations for each of the sellers’ products based on the pick-and-pack process that the item will need. Inventory Management follows every item as it moves through the fulfillment process and reaches the point of shipment to the customer.
What Is 3PL & How Does it Work?
We will answer the how does it work question by reviewing how our example fulfillment services company works. The products have been received and put away is done. Every SKU is in the inventory management system. Now the seller, through the integrated system, will inform the fulfillment company of orders coming in. Products are moved from their put-away position into an area where employees can pick the orders. Once picked the correct packaging needs to be in place for these products. The clients may have special packaging or the client may utilize the recyclable packaging of the fulfillment company.
The correct SKUs are packed according to the client specifications. Pretty soon the product will have traveled the entire supply chain, as the product will be in the hands of the customer. But not yet. Shipping comes next and the fulfillment company shipping team will get it into the customer’s hands through a very thorough knowledge of supply chain operations, especially logistics operations.
What 3PL Shipping Really Means
Let’s get into the title question. How does our example third party logistics company handle shipping hundreds of thousands of packages, cartons, and pallets via all carriers to all locations serving hundreds of clients and keeping many thousands of customers satisfied?
Our example company engages in rate shopping on behalf of the clients. The company is utilizing proprietary software created by the in-house development team. We’ll tell you more about this software but first, we will cover shipping in general.
In general, the focus of the third party logistics fulfillment company is to find freight shipping services that meet the needs of the clients. This task is extensive since a full-service company fulfills orders for many different types of commerce. The goal always is to locate the desired speed of delivery or service level, at the lowest cost. In doing this, the 3PL, acting as a fulfillment service, will become an operations arm of the client.
If the third party logistics company has warehouses at locations on both coasts, that is an advantage concerning the client’s shipping services and cost. Our example is bi-coastal.
One thing that is vital in shipping, as in other areas, is data. Transactions have to be audited to make sure the shipping charges are correct, and clients pay only for packages that meet the guaranteed delivery time.
Third party logistics companies will have the best rates as they are the major customer utilizing the carriers. Passport is used for international shipping and the major carriers – USPS, FedEx, DHL, and UPS will be utilized as well as other smaller carriers coming on the scene in response to an increase in eCommerce. Shipping partners of the example fulfillment center are ProShip, which is a manifest system, and VeriShip, which is an auditing service.
Some of the benefits to eCommerce sellers of utilizing a third party logistics company, per our example company, are as follows:
- Knowledge of supply chain management and the entire supply chain.
- Expertise in international shipping and knowledge of shipping rules.
- Experience in LTL/TL freight service and freight forwarders.
- Proficiency in hazardous goods shipping.
- Ability to ship from bi-coastal warehouses.
Finding the Best Shipping Rates with RateLogic
We mentioned a proprietary software that compares carriers. Our example fulfillment services utilize software called RateLogic. The software simplifies shipping rate comparison shopping. Consumers are demanding faster shipping times and this tool locates the lowest cost shipping rates at the fastest acceptable shipping times.
The RateLogic comparison tool analyzes the dimensional weight and the attributes of the packages. This includes the size and weight. The tool looks at the package location and where it is being shipped, and it then applies a set of rules to select the best shipping carrier. The rules are customizable, and with the developer in-house, this directly serves the sellers who are looking for the best shipping options.
Shipping costs are calculated by first looking at where the package originates, where it will reach its destination and the shipping zones the package will cross on its way. Shipping zones are the Zip Codes.
The next thing to look at is the package’s dimensional weight. The dimensional weight measurement is a measurement of the package volume, and different carriers have different divisors to determine the volume, so they are all unique. RateLogic can calculate all of the carriers using their formula. Then the package’s actual weight is also calculated and the resulting cost, when combined with the dimensional weight is determined. The outcome of all of these measurements depends upon what the carrier has set up.
Finally, we have shipping speed. Consumers expect their packages to arrive quickly, in under five days, and in many cases within two days. If the packages aren’t in the buyer’s hands quickly, the clients of the third party logistics company or fulfillment company have a dissatisfied customer. The RateLogic software is customized for each client’s shipping preferences concerning speed of delivery.
In this way, by looking at all of these aspects of delivery, by analyzing the dimensional weight, the actual weight, the shipping zones, and the desired speed, the best price for the client’s shipping is obtained. This is unique to the full-service fulfillment company, also referred to as the third party logistics provider.
There is one more advantage, and that advantage is the use of regional carriers. We are all aware of the major carriers, UPS, FedEx, USPS, and DHL, but those are not the only carriers available to a fulfillment company and its clients. RateLogic also analyzes regional carriers, and through the use of regional carriers, who cover a shorter distance in less time, delivery can be sped up for the clients. So that means rather than analyzing four or five carriers, RateLogic analyzes 25 carriers.
The 3PL fulfillment service will handle international shipping and all of the regulations, labeling, forms, and requirements as well as the requirements for shipping hazardous goods. Transporting goods by sea is usually via container, with two types of shipping – LCL and FCL. LCL is less than a container load and FCL is a full load. When the third party logistics company is transporting larger amounts of goods, normally in business-to-business transactions, this transportation is measured similarly in LTL, less than a truck load, and FTL, full truck load.
Finally, a freight forwarder is a company that arranges to have cargo moved from the company that manufactured the cargo to the airport by truck, for example, and flown to a destination. When the cargo arrives the freight forwarder will have the cargo transported to the customer who purchased it by another truck. These are logistics operations, a part of the supply chain that the third party logistics company does as an element of its supply chain management.
What Can a Seller Outsource to a Fulfillment Service?
We have already spoken about transportation of the goods from the seller or manufacturer to the fulfillment center. We have mentioned warehousing, warehouse management, and inventory management. We’ve talked about employees picking the products and packing them, preparing them for shipping. And finally, we talked about shipping, which is the subject of this article – what does 3PL mean in shipping?
There is a long list of additional services that a third party logistics company, or full-service fulfillment company, provides. Our example is full-service, so we will go briefly into what full-service means to an eCommerce seller – what services can a seller outsource to a 3PL that offers fulfillment services?
First, we have value-added services (VAS). For example, assembly – does the product need some assembly before being shipped? Yes, that can be done. Specialized packaging for clients whose customers want an unboxing experience, yes, gift wrapping, yes, and quite a lot more. For example, value-added services include quality control inspections and repair if repair is needed.
Fulfillment services have many different clients, all kinds of products, and different client needs. Labels are required for some products, with clothing items the product may need to go on a hangar or have a tag added or price and UPC/barcode stickers. Some products may need shrink-wrapping, bagging, and sealing. All of these various services are called VAS. Our example fulfillment company provides VAS.
In addition to VAS, we have BPO. Business process outsourcing (BPO) is provided by a full-service third party logistics company that specializes in fulfillment. eCommerce businesses can focus on their product and their marketing and sales and turn over business processes to the fulfillment provider. Turning business processes over to a fulfillment services company requires very close collaboration as the fulfillment team members will manage key administrative activities for the eCommerce seller.
Those services can include accounting, financial reporting, operational reporting, and much more. We will list a few. The fulfillment services company can build customer profiles, do order entry, handle inbound customer service, handle all methods of payment processing, provide sales representative support, do EDI fulfillment management, eCommerce development, and more.
A full-service fulfillment service, acting as an operations arm of the eCommerce seller, can handle the entire back-office operation and many sellers do turn to full-service companies for these services. Our example fulfillment service company has an in-house customer service staff and accounting staff that handles full BPO services for business-to-business commerce and business-to-consumer commerce.
Supply Chain Operations Includes Returns
In reviewing the entire supply chain, we must mention returns management. Returns management is also referred to as reverse logistics, which basically means the flow is reversed from consumer to seller.
For those that utilize a third party logistics company that provides full-service fulfillment, returns management is one of the service offerings. The fulfillment services company aims to minimize the costs associated with returns and get the inventory back onto the shelf as shippable goods for all items that can be refurbished.
Customers will expect immediate credit, so the returns team needs to be very responsive. The first process will be for the carrier to get the product shipped back to the warehouse. The fulfillment service will likely have provided a return label for this purpose if needed.
The fulfillment client will create all of the guidelines to be taken with each returned product. If the product is in good condition and only needs re-packaging, that is done and the product is quickly returned to inventory. Sometimes the product needs testing, replacing components, replacement of a broken seal, or other forms of repair. If repair is possible and the client prefers it, repair is done.
Handling returns sometimes involves recycling, which our example fulfillment company does, as a ‘green’ fulfillment service. There are times when the client sells returns in an alternate sales channel or donates the return, which the fulfillment service returns team will facilitate. The last choice will be disposal to a landfill and every step is taken to avoid this choice.
It takes the right software to communicate with clients and their customers and the full-service fulfillment company’s returns team will be integrated with the client’s software so returns data is immediately available. The returns team will follow the client’s return criteria, get the return registered in the system, get the data back to the client, get the refund or replacement to the customer, and make sure all saleable returns are moved into finished goods.
The team is also an expert at handling large-volume retail product returns in B2B commerce, likely big box retailers to ‘mom and pop’ shops. Either barcode scanners will be used or counts by hand if called for. The returns team will itemize what was returned by the customer and send the data to the client.
The Role of Fulfillment in Supply Chain Management
The supply chain actually begins with natural resources being extracted and shipped to manufacturers who produce a product. So there is logistics – shipping – involved in the beginning phase. After the product is produced it is offered for sale and either the fulfillment takes place in-house or order fulfillment is outsourced to a third party fulfillment services company. In this case, the products are shipped in bulk to the fulfillment warehouses. This would be considered logistics operations.
Once the fulfillment service warehouse employee picks and packs the product it is once again shipped to the end customer. And as we have seen, there can be one more step in the supply chain and that is the shipping of returns to the warehouse – reverse logistics. The fulfillment company plays its part in a far greater supply chain.
We hope readers have a clear picture of what a 3PL means when it comes to shipping. It’s not an easy question as the third party logistics company can be a business like FedEx or UPS or it can be a business such as our example fulfillment services company.
Use AMS Fulfillment For Your Fulfillment Needs
Our example of a full-service provider describes a mid-sized fulfillment company headquartered in Valencia, California, AMS Fulfillment. AMS has a lot of things going for it with fulfillment experience being one of the factors making it such a quality service. AMS has more than 20 years in the business and the AMS management team has many years of combined fulfillment experience. The employees of AMS have years of experience as well, as the company truly values its employees and offers free higher education and training as well as excellent benefits.
AMS is also rare among fulfillment companies in that it is a B Corporation. B Corporations are for-profit companies that have made certain legal commitments. Those commitments are to consider stakeholders and weigh their benefits when making decisions. The stakeholders are:
- AMS employees
- Communities in which the company does business.
- Impact on the environment.
- Success of the clients.
AMS has an excellent record as a B Corporation and an excellent reputation as a full-service fulfillment company. If you are looking for a company with integrity and an admirable track record, we hope you will consider AMS Fulfillment.
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