What Is 3PL Fulfillment? Third-Party Logistics Guide
The acronym 3PL refers to Third-Party Logistics. The term logistics originated in the military, referring to the movement of equipment and supplies to troops in the field. In military terms, logistics is moving resources, including people and materials, inventory, and equipment, from a location to a destination.
In the fulfillment arena logistics is planning and executing the transportation and storage of goods from the point of origin to the point of consumption. It’s often referred to as the supply chain. Many companies take part in logistics services, getting the product from the manufacturer to the consumer. Logistics involves the entire supply chain. Below we answer questions about what is 3PL fulfillment and how it can be used to help your business.
What Is the Difference Between 3PL & Fulfillment?
In common usage, 3PL is understood to include both logistics and fulfillment. Logistics is a big part of fulfillment, and there are many more services under the term fulfillment. We will cover those, what they are, what they provide, and so on.
A 3PL fulfillment service company plays a very significant role in the supply chain, helping eCommerce merchants manage the transportation, warehousing, packaging, and delivery of their products. Common 3PL services include warehouse and inventory management, order fulfillment, shipping coordination, retail distribution, exchanges, returns, value-added services, customer support, and more.
Types of Fulfillment
Let’s look at some more acronyms – B2B, B2C, and D2C. Under the category of fulfillment services, we have Business to Business (B2B), Business to Consumer (B2C), and Direct to Consumer (D2C). B2B eCommerce utilizes online platforms to sell products or services to other businesses. B2C eCommerce targets personal consumers. D2C is similar to B2C but involves one less distribution channel.
Sometimes seasoned fulfillment centers use B2C and D2C interchangeably. B2C stands for Business-to-Consumer and refers to goods or services sold by a business to end customers. D2C stands for Direct to Consumer. In simple terms, it means that orders are fulfilled and shipped directly to the end customer.
Some experts prefer to think of DTC as a subset of B2C, because for both, the product is intended for individuals, for their own private use, rather than a company. Typically, though, the dividing line that separates D2C from B2C is that D2C does not involve a middle distribution channel. That is, sales are direct to end customers rather than retailers or wholesalers.
Types of Sales
An eCommerce fulfillment company, fulfilling eCommerce retail orders, will likely provide for all three types of sales. For example, several full-service fulfillment companies fulfill Amazon orders. An established Amazon eCommerce retail fulfillment company will manage the inventories while shipping through Amazon. They send bulk orders for Fulfillment by Amazon (FBA); they do Drop shipping via Merchant Fulfilled Network (MFN)/Fulfillment by Merchant (FBM) and they ship orders under Seller Fulfilled Prime (SFP).
A third-party logistics company will fulfill many different types of eCommerce orders, including drop shipping, subscriptions, and flash sales from an online store. A 3PL will have automated drop ship relationships with sellers, including large retailers that have a .com presence. The products may be stored at several warehouses of different 3PLs. This creates challenges that the satisfied end customer will never know.
Also, direct-to-consumer (D2C) fulfillment extends to subscription orders; kitting and/or shipping of subscription boxes, or continuity orders, that help maintain customer loyalty. Many companies outsource their subscription box fulfillment. Flash Sales/DRTV orders bring about high volumes and order surges which the fulfillment company must be capable of handling. The challenge with flash sale fulfillment is the time constraint.
B2B and B2C companies sell their products and services to different audiences, which requires different fulfillment approaches. While B2B and B2C follow essentially the same equation – a customer is buying something from a company and a 3PL provides the fulfillment, there are key differences.
The path to purchase looks very different for B2B and B2C, and fulfillment is different as well. Some companies do all three – business-to-business B2B, business-to-consumer B2C, and direct-to-consumer D2C sales. A full-service fulfillment services company will be set up to handle all of those needs.
B2B Fulfillment
Business to Business (B2B) Fulfillment is operationally very different from B2C or D2C. The B2B Team needs to handle the shipping to all types of retailers, and these processes are all different. The B2B fulfillment teams must have training and understanding on how to ship to all retailers, including routed orders to large chain retailers and superstores, department stores, and large eCommerce entities, including Amazon, beauty retailers, and small boutiques.
In B2B fulfillment, the end customers will have different requirements so attention must be paid to a very broad range of routing guides. The fulfillment team must stay in total compliance with each end customer’s requirements. The B2B Team is responsible for product or carton labeling, max pallet dimensions, ASN confirmations, EDI communications, all data that is required on attached paperwork, truck scheduling or delivery windows, and deadlines.
Because the clients needing services to vary so greatly, the fulfillment services will vary greatly. There are case pick programs, loose pick programs, full pallet cross-dock programs, pre-paid order cross-dock programs, pre-book and at-once orders, retail database distributions…or a combination of the above!
The warehouse management systems (WMS) at the fulfillment center must be flexible enough to support the unique needs of every B2B, B2C, and D2C client including those that market and ship their products direct-to-consumer in combination with their B2B business.
But of course, there is more. With B2C and D2C some clients have an online store or multiple online eCommerce stores with thousands of SKUs, flash sale type promotions, thousands of orders across a limited mix of SKUs, and drop ship relationships with a variety of mega eCommerce retailers. The operating systems of the fulfillment center must be tooled with the latest in direct response functionality and flexibility to integrate as a seamless back-end operation.
Breakdown of Third-Part Logistics Fulfillment
A 3PL fulfillment services company can serve clients with all of their needs, with the end goal of customer satisfaction. A full-service 3PL Fulfillment provider must be capable of managing whichever system the client needs, navigating through the intricacies of B2B, B2C, and D2C fulfillment.
D2C, B2C, and B2B require different approaches to customer service.
Today’s consumers appreciate an independent, self-service approach. In the B2C space, individuals want to be able to quickly and efficiently resolve an issue or ask a question. Fulfillment centers enhance customer satisfaction by the way they respond to customer service calls, making it easy to connect with a live agent. without having to go through a long phone menu or search through web pages.
In B2B, some self-service options are certainly appreciated but customer service is quite different. B2B transactions are usually complex, expensive, and long-lasting. B2B companies will often need a dedicated support team to address issues from their clients. This arrangement helps mitigate the frustration and stress that results from multiple teams using the same account. It can also promote continuity by managing all requests in one CRM dashboard, for instance.
Is Amazon a 3PL?
Regarding logistics service providers and supply chain management, there are both 3PL and 4PL companies. 3PL is a third-party logistics company and 4PL is a fourth-party logistics company. There is discussion and difference of opinion on whether Amazon is a 3PL or 4PL.
A 3PL typically owns or runs its own warehouses and focuses on transactional and day-day operations. A 4PL will outsource to a network of 3PLs or fulfillment centers for those services. A 3PL can own or contract out transportation resources, whereas the 4PL outsources all and focuses on optimizing the entire supply chain.
Some say that Amazon’s service is a 3PL as it allows other businesses to utilize their massive infrastructure to provide eCommerce fulfillment for their customers. Amazon itself describes its logistics as more of a “last mile” shipping & delivery service, which gets packages delivered to its customers.
Amazon’s business model follows both a B2C and B2B distribution strategy. On the one hand, its eCommerce platform is consumer-facing, providing millions of products to billions of users around the world. But there is still a question on whether Amazon is a third-party logistics (3PL) provider. A 3PL provider offers a range of logistics services for businesses interested in outsourcing portions of their supply chain operations, like warehousing, inventory management, fulfillment, and more.
According to Amazon, two of their businesses – Fulfillment by Amazon and Amazon Multi-Channel Fulfillment – can be classified as 3PL providers. Fulfillment by Amazon (or FBA) handles fulfillment for orders placed on Amazon.com. Multi-Channel Fulfillment (or MCF) offers order fulfillment for any off-Amazon sales channel making it a 3PL solution, and this is the case whether a business sells on Amazon.com or not.
Others say that Amazon is closer to the model of a 4PL. Amazon does everything a 4PL provider would do: It stores products in its warehouses, provides a website for eCommerce, picks and ships orders to consumers, and provides software assistance for the transaction.
Both 3PL and 4PL companies play significant roles in the entire supply chain. But the answer to which one, exactly, Amazon is, one might have to answer both.
What Does a 3PL Do?
The goal of the full-service 3PL is to provide all that has been mentioned, B2B, B2C, and D2C in such a manner that it meets or surpasses the requirements of a client and does so promptly and cost-effective manner.
Partner is the operative word – the 3PL is in the position of working as a partner to its clients. The question of which is the best 3PL for a company can be fine-tuned with this question – how well will the 3PL partner meet the client’s requirements?
Third-party logistics providers play a vital and very substantial role in the success of commerce, eCommerce, and supply chain management. A 3PL partner will most likely have warehouses and locations near ports, or in cities and states that are optimal for shipping and receiving. The 3PL will receive or arrange for the transportation of manufactured products to one of their locations, choosing the best location for their client’s needs. The fulfillment company will inspect the product, warehouse the product, receive the orders, and fulfill the orders.
Fulfillment may involve several services. They will pick and pack off the shelf, sometimes assemble the product, package the product including custom packaging, and complete the order by shipping it to the end customer. Full-service fulfillment companies can provide customer service and a full-service back office for the company including record keeping and accounting. Some 3PLs also handle returns including repair, repackaging, or disposal that fits the manufacturer’s requirements.
When companies are looking into 3PLs and determining which one to work with, it can be a very expensive task that requires industry knowledge. There is a detailed process that must be undertaken as there does need to be a very good fit, as much as possible. All of the 3PL services and client needs must be clearly defined before the onboarding goes live. Choosing a fulfillment company is a process that should take some time and effort.
What Should Your 3PL Fulfillment Company Provide?
We have already spoken about services to B2B, B2C, and D2C – these services will be end-to-end management of goods, carefully documented and explained in contracts, agreements, and service level agreements (SLAs). These documents will detail the scope, duration, cost, and other vital aspects of any services that the 3PL provider offers.
These include eCommerce B2C and D2C with all of the warehouse services and technology needed for each one, having the ability to handle a web catalog with thousands of SKUs. They will also handle Wholesale/B2B/Business to Business clients, delivering to every retail store from superstores to boutiques and main street.
What a fulfillment company provides is extensive. Simply put fulfillment companies provide Order Management, and they have processing systems that support Order Management. Fulfillment companies provide Warehouse Management and they need to have best-of-breed warehouse systems. And fulfillment companies provide Inventory Management and technology and processing systems. Inventory Management must have a very tight focus on Inventory Control and accuracy.
What Is an Example of a 3PL?
We are using, as an example, a medium-sized full-service fulfillment company, headquartered in California near the ports of Los Angeles and Long Beach. This company is bi-coastal, with branches on the East Coast and West Coast. The company has six warehouses in Valencia, plus warehouses and offices in New Castle and Newark, Delaware, and New Holland, Pennsylvania. The company employs approximately 500 people.
AMS Fulfillment is our example of a 3PL. AMS has been in operation for more than 20 years and has an excellent record of service and growth. The company provides all of the services mentioned in this writing and serves as an exceptionally good example of what a 3PL does.
Order fulfillment and distribution services are the core service offerings of the company. They have robust systems technology, modern and scalable operating facilities, an excellent and well-treated labor force, experienced management personnel, plus a strong focus on inventory control procedures. These are factors needed to support the picking, packing, and shipping of orders to business and/or consumer destinations as well as getting inventory items shipped accurately, routed properly, and delivered on time.
Receiving in the Fulfillment Center
When a fulfillment provider is in the receiving step, they will transport or arrange transportation of the inventory to the warehouse – one of their fulfillment centers… East or West Coast. The warehouse will receive the items, put them into its warehouse management system (WMS) that links to the client’s platform, and store the inventory in the location that best serves the client.
This is an important step for successful order fulfillment because, without an accurate record of the inventory on hand or an organized method for storing that inventory, the rest of the process can easily fall apart.
WMS software needs to be able to handle all order types as well as find the most cost-efficient way to sort SKUs. This sorting will be based on physical characteristics, SKU velocity, and order profiles. It must be able to service multiple channels and allocate proper levels of inventory based on the demand and forecasting of each channel.
A 3PL Warehouse Management System provides the ability to move around product quantities to channels that may have higher demand or are running low. This is the flexibility required for a successful supply chain operation. AMS is one of the leaders in providing this with its software sophistication and years of experience working within a multi-channel distribution and fulfillment environment.
One additional effort that AMS makes is to offer WMS training in support of AMS’ warehouse services software enhancements. The classes are for employees, and they cover system navigation (InOrder, Warehouse Services) on processes related to Shipping/Picking & Packing, Receiving/Inventory, and Returns/Cycle Counting.
Next Is Inventory Management & Replenishment
Once an order is placed, the processing phase can begin. To run the client’s business efficiently, the fulfillment center will need to make sure the systems are integrated (this includes a client’s inventory management, storefront, and warehouse management software). Once integrated, an order slip is created when a customer places an order, ensuring orders are filled quickly. Automated checks are conducted on address, inventory, and other important factors, so issues can be identified early on.
Then comes the more manual part of the process which will be dependent on the client’s needs. Other services may be performed as well.
An incredibly diverse array of products is received in the warehouses and these products are stored in preassigned pick locations or upper rack bulk locations. The bulk locations are sometimes called up-stock. When an order comes in, it is picked, sometimes assembled, and then shipped. That process is very complex.
To make it work the inventory levels of each product in the lower pick locations have to be monitored and ‘replenished’ from the ‘up stock’ or bulk upper locations. This has to happen at the right time to maintain efficient order and line-item fill rates. Overstocking lower pick locations isn’t an efficient use of ‘prime real estate’ and can slow order processing down.
Other factors affect inventory management and space allocation that can affect when or how often replenishment has to happen. It also matters if a SKU is being discontinued and if a product is seasonal.
Receiving has to know when old inventory is being liquidated or donated. Are new SKUs on track to arrive is another question. The replenishment program is built on these things, also remaining aware and planning for a year-end physical or inventory reset.
Having a team skilled at Inventory Processing and Inventory Replenishment is vital. They have to keep on top of what needs to flow where.
Loss prevention falls into this category as well. Clients need to know exactly how much stock they have on hand at any given time. With the best inventory management, their stock won’t be misplaced or diverted without notice.
Fulfillment Services Include Kitting & VAS
Fulfillment services will include reworking products. Products in the warehouse are not necessarily ready to ship out in the same way in which they were shipped in. Significant changes to the products are made by the warehouse teams.
The re-working will include a long list starting with kitting, gift wrapping and shrink wrapping or bagging and sealing. International shipping will require labels, products might need price and barcode stickers or hang tags, and garments might need hangers.
In addition to that, there are quality control/quality assurance inspections, repair work, product subassembly, and final assembly. For kitting and assembly, your 3PL should be able to implement effective assembly lines with state-of-the-art equipment. This includes operating software that can be integrated with a client’s systems.
If a product requires refurbishment, testing, repacking, replacing components, and/or checking for a broken seal, there will need to team following documented guidelines. What about returns? At AMS there are specific returns management and reverse logistics services teams assigned to deal with returns as the client stipulates.
Returns Management & Reverse Logistics
The fulfillment company needs a team specific to handling returns. Each client of a fulfillment center will have their own process or platform concerning handling returns. When the product is returned, it gets inspected, and client specifications are followed concerning repairing, re-bagging, restoring, and putting it back on the shelf, sending it to alternate sales channels, or set aside for donation, or recycling.
AMS Fulfillment has a dedicated return/reverse logistics team as well as automated systems and client-specific processes that help to minimize the costs associated with returns handling to get the clients’ products back on the shelf if they can be resold.
A Third-Party Logistics Provider as a Shipping Partner
Lowering the shipping cost while providing the best delivery time is the goal of every fulfillment service company. Shipping begins with the packaging. The product will be picked and packed and attention at this point is brought to biodegradable materials.
At AMS the packaging used is biodegradable by companywide sustainability practices. The AMS team will pick and pack the products and do the labeling. There are circumstances wherein the team will use special packaging that the client requires to serve their customers so of course that is done. Next is the carrier.
All of the carriers, i.e. FedEx, UPS, USPS, DHL, and others will pick up orders from 3PL to the appropriate warehouses. The carrier and shipping speed for each order depend on the client’s needs. AMS has long-standing beneficial relationships with the carriers. Negotiations and rate shopping will be done with the vendors, considering the package dimensions, weight, and days in transit to find the best option and the best shipping costs.
A fulfillment center must have great relationships with carriers. The location of warehouses is also important to shipping costs. The closer to a client’s customers the better.
Shipping is all about price and service. AMS Fulfillment takes on the role of the operations arm of their client company, and so finding the freight shipping services best suited for a client’s needs at the lowest possible shipping costs is what an operations arm (partner) would do. Those services would include auditing transactions to make sure clients pay only for packages that arrive within the guaranteed delivery time, and that they are not any invalid fees.
Additional Fulfillment Services
AMS Fulfillment provides back-office support and customer service as a part of being a full-service 3PL. They have a highly trained client services team to respond to clients, and a customer services team to respond to their customers.
Some clients wish to outsource business processing to a fulfillment company that provides back-office support. This is another example where the fulfillment center will work as a business partner, collaborating closely with the client with the goal of customer satisfaction.
A full-service fulfillment company will need to provide an experienced team to manage administrative activities. These services include building customer profiles and prioritizing accounts, order entry, accounting services, financial reporting, operational reporting, factor management, inbound customer service, operating systems, operations support, electronic data interchange (EDI) management, and order routing.
Included in the back-office support also will be eCommerce development, payment processing, sales rep support, commission payments, and inventory allocation management.
Fulfillment Technology
Excellent fulfillment technology is vital in operations, including data integrations with clients, a client portal, and reporting. AMS provides these services, including reporting, as if they were an operations partner. For fulfillment technology to be top-notch, the company will need an experienced in-house IT Team.
The fulfillment industry is complex, and in-house skilled programmers are needed to develop and manage the complex warehouse and operational systems as well as a client portal that communicates with the systems of the clients. There should be a balance between the 3PL’s fulfillment expertise and their cutting-edge technology. There must be efficient and highly functional operating technology for order fulfillment services and inventory control. Technology must be able to handle everything from pre-sale to post-order, and it must do so efficiently and cost-effectively.
Customer Satisfaction
One of the first benefits of working with the right 3PL is the increased visibility into issues that will be provided by the technology and experience of the fulfillment partner. The fulfillment company’s data is beneficial in spotting problems, doing planning, shrinking how much warehouse space is needed, controlling inventory levels, and gaining insights into how overhead can be reduced and how money can be saved in shipping costs.
Customer satisfaction, for the eCommerce customer, comes when the product that they have ordered arrives on time and in perfect condition. Customers also need to be informed when a product is shipped and be given notice of where it is in the supply chain. They also need personal and accurate customer service if any issues should arise. A satisfied customer translates into brand loyalty and future sales.
The AMS Fulfillment Example
AMS Fulfillment is a 3PL Partner that fits the bill on all of the requirements we’ve mentioned above in this writing in addition, AMS is a Certified B Corporation – one of a special few among 3rd party logistics providers.
B Corp Certification is a designation created by an organization called B Lab. B Lab created a set of high standards that businesses make a legal commitment to adhere to. These are standards of verified performance, accountability, and transparency on several factors related to the company’s hiring, promotion, education, benefits, and respect for employees; the company’s beneficial impact on the community; the company’s concern for the environment and the company’s transparency and service to clients and investors.
The process of B Corporation certification is detailed and has significant requirements, taking some time and effort. AMS undertook it and achieved B Corporation certification in 2017.
Currently, several teams are upholding the B Corporation commitment. A safety team sets very high standards for warehouse safety, and a ‘green’ team has responsibility for many factors including locating and purchasing biodegradable packaging as mentioned earlier. Employees are offered educational opportunities, excellent benefits, and training as well as utilizing DE&I in hiring and promotion.
AMS has wonderful relationships in the community in hiring individuals that face difficulties and helping those in need. Also as previously mentioned, this fulfillment center serves clients with the same dedication to their success as would the operations arm of their own business.
A mission to ‘do good’ is the final response to our title question – what is 3PL Fulfillment? AMS Fulfillment is focused on more than profit. B Corporations are for-profit companies dedicated to using business as a force for good.
Unlike traditional companies, B Corporations are legally required to consider the impact of their decisions on all stakeholders: clients, workers, communities, and the environment. AMS Fulfillment contributes to the betterment of the world as a B Corporation.
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