3PLs – Why are online sellers using Third-Party Logistics services?

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Successful online retailers are often the most agile, always looking for innovative ways to get products into their customers’ hands as quickly as possible. With increasing pressure to match consumer delivery expectations, and with retail ecommerce sales estimated to soon exceed 4.1 trillion U.S. dollars worldwide, partnering with a third party to offer faster and more varied fulfilment options is often seen as a great strategic move.

Chris Gates explores the key reasons why complementing your existing fulfilment process with Third-Party Logistics (3PL) can streamline what’s clearly becoming an ever more competitive facet of ecommerce…

What is a 3PL?

A Third-Party Logistics provider holds stock on behalf of businesses and fulfills orders. While the stock is physically held by the 3PL, ownership remains with the business. When receiving an order, the business provides the 3PL with instructions on what to ship and where to ship it. A good Order Management System (OMS) can streamline the process by sharing order details with the 3PL and receive updates when the orders are dispatched.

Get Closer to your Customers

As businesses grow and their customer-base changes, it’s a good idea to review OMS data to identify areas of high order volume. This is especially pertinent for businesses that have recently started selling in foreign markets. However, for businesses that began with limited resources, the initial warehouse location may not always be ideal. When geographically distant from the majority of buyers, relocating closer or acquiring additional space in a better location may become a consideration.

3PLs are a great alternative to the daunting and expensive prospect of buying additional warehouse space. 3PLs are already typically well-positioned to service large population centres, and international 3PLs have well-established relations with local couriers. Having a fulfilment partner in a more advantageous location can significantly cut delivery times while avoiding the risks and expenses involved with establishing a physical presence.

Benefit from Emerging Technologies

Because of the nature of their businesses, 3PLs are hyper-focused on warehouse operations and order fulfilment. Their mission is to get stock in, around, and out of a warehouse as quickly as possible whilst avoiding costly mistakes. This has led to successful 3PLs investing in the latest technologies and trends that may be out of reach for other businesses.

An example of this is robotics and automation, which are being used to improve warehouse efficiency, while artificial intelligence and data analytics are enabling better forecasting of demand and optimisation of routes. Advances in IoT allow for real-time tracking of stock as it moves through the warehouse, and are making bottlenecks in supply chains easier to visualise.

Trying to implement all of these technologies into your business at once would be disruptive and cost-prohibitive. Partnering with a 3PL allows retailers to benefit from cutting edge advancements without disrupting their existing operations, helping to meet the demands of a future where over 20% of all retail purchases are made online.

Focus On What You Do Best

No businesses started out with a world-class fulfilment operation from day one. The focus is often on selling quality products at competitive prices, with fulfilment processes adapting as order volumes grow. However, it is common for businesses to feel apprehensive about scaling up, concerned that an increase in sales might falter at the critical stage of fulfilling those orders. While a sudden surge in sales would be a positive development, it raises the question of whether existing warehouse operations could handle the increased volumes. There is also the consideration of untapped sales opportunities that could be realised if more warehouse space were available to hold greater stock.

A good 3PL handling the warehouse-side of the operation can take some pressure off. This allows businesses to focus on other core business areas such as driving sales, experimenting with new lines, R&D, and expansion onto new platforms and into new markets. 3PLs not only provide a service but also offer businesses the confidence to pursue higher order volumes that may have previously seemed like an overwhelming logistical challenge.

Conclusion

As businesses plan for the future, partnering with a 3PL is definitely something that more sellers are considering. Not only for the reasons highlighted above, but because it’s becoming increasingly difficult to stay ahead of the competition without forming lasting, successful partnerships with other businesses.

By leaving the complex logistics to the experts with superior technology — who for this reason are usually better positioned to service your customers — businesses can focus their efforts on other critical areas. Few ecommerce businesses abandon their own fulfilment capabilities entirely, but having the option to offload some of that volume to a third-party provider can open up opportunities to scale in ways that you otherwise couldn’t do alone.