Third-Party Logistics (3PL) companies collaborate with ecommerce businesses of all sizes, managing warehousing and inventory and ensuring swift and precise order fulfillment.
But why would an ecommerce business give up some of its revenue to an outside party like a 3PL firm? Well, it turns out logistics isn’t exactly easy.3PL companies can handle most supply chain functions far more efficiently and with less expense than most businesses can manage in-house.
With the rise of ecommerce and omnichannel order fulfillment, outsourcing logistics management to 3PLs keeps small and mid-sized businesses competitive with the same customer service and shipping options offered by their biggest rivals – often for a lower cost than keeping the same operations in-house.
Additionally, working with a 3PL can save ecommerce businesses time and money while allowing them to free up resources to focus on more growth-oriented tasks, including product development and marketing.
But what exactly is a 3PL inventory system? And how does a 3PL help ecommerce businesses thrive?
What is a 3PL?
A 3PL, or third-party logistics provider, is a firm that offers outsourced logistics services to businesses.
These comprehensive services often extend beyond logistics to cover all aspects of supply chain management.
The principal advantage of partnering with third-party logistics providers is the ability to scale space, labor, and transportation according to your company’s needs.
Whether you’re experiencing high seasonal demand or expanding your business, a 3PL can adapt to your circumstances, providing resources and flexibility when required.
They can also offer valuable expertise and access to global networks, aiding businesses looking to grow or break into new markets.
Working with a 3PL allows businesses to focus on their core competencies, leaving logistics and supply chain management to experts in the field.
Whether a company is large or small, the benefits of working with a 3PL can be substantial, leading to increased efficiency, reduced costs, and improved customer service.
What is 3PL inventory management?
3PL inventory management is the process in which a third-party logistics (3PL) company manages the inventory of an ecommerce business.
This involves overseeing supply chain processes, from receiving and storing products to managing order fulfillment processes.
Through 3PL inventory management, businesses delegate the responsibility of managing their inventory to specialists. This not only frees up their time to focus on core business activities but also capitalizes on the expertise of these third-party providers.
These providers are equipped with advanced warehouse management systems that streamline inventory tracking, allowing for precise and efficient management of stock levels.
A crucial part of this service is managing supply chain processes. This involves receiving goods from suppliers, storing them properly, processing orders, packaging products, and shipping them to customers.
Having a dedicated 3PL company managing these processes can significantly reduce the risk of errors and delays, enhancing the overall efficiency of the supply chain.
The order fulfillment process is another critical aspect managed by 3PL providers. They ensure customer orders are picked, packed, and shipped accurately and promptly.
This boosts customer satisfaction and retention, as customers receive their orders on time and as expected.
Finally, 3PL inventory management helps to minimize labor costs. Instead of a business needing to hire, train, and maintain a workforce to manage its inventory, the 3PL company leverages its existing staff and systems to perform these tasks.
This reduction in labor expenses can result in substantial cost savings for the business.
What is a 3PL inventory management system?
A 3PL inventory system (also called a 3PL warehouse management system, or WMS) is a software solution that both tracks and manages nearly all warehouse activities, including:
- Management of physical inventory
- Picking, packing, and processing returns
- Warehouse picking pattern optimization
- Labeling, shipping, and tracking orders, and
- Managing customer returns
A 3PL inventory system can easily track the inventory of each client or customer, including:
- Stock availability
- Pallet ID numbers
- Serial numbers
- Expiration dates
Most 3PLs allow ecommerce customers can access this data in real-time, enabling them to stay on top of their warehouse, inventory, and shipping operations as easily as if they’d managed logistics in-house,
A 3PL inventory system increases both the productivity and efficiency of warehouse operations by increasing the speed of work routines via streamlining picking, packing, shipping, and reverse logistics procedures.
This software can also effectively manage ecommerce operations and integrations with shopping cart platforms. 3PL inventory systems are designed to communicate with customers and vendors, in addition to integrating easily with a wide variety of software systems and platforms.
How do 3PL software platforms help ecommerce businesses?
3PL software helps ecommerce businesses manage important supply chain operations, allowing them to focus on growing their businesses. Logistics companies perform a variety of functions, including:
- Scheduling and receiving your inventory at the 3PL warehouse
- Sorting, managing, and accounting for all inventory
- Picking, packing, and shipping products to customers efficiently
- Managing returns and returning them to inventory
- Providing real-time visibility of inventory and shipping operations
- Integrating with shopping cart platforms
- Assembling products if necessary
- Managing subscription boxes
- Keeping costs low
Because 3PLs manage logistics for multiple businesses, they wield more leverage with freight companies than individual shippers do. This enables logistics companies to negotiate pricing based on a higher volume and order frequency.
Additionally, a 3PL inventory system can determine the most efficient warehouse setup and picking pattern, which reduces unnecessary labor and saves money.
Companies utilizing 3PLs to manage either all or part of their supply chain free up capital to invest in growing and developing their businesses.
Because 3PL inventory systems have the capability to track payments and orders from beginning to end, customers can track their shipments in real-time and make returns with ease.
3PL software also allows companies to offer their customers shipping options, including same-day, overnight, and two-day shipping.
3PL inventory systems not only perform a wide array of functions but also provide up-to-the-moment reporting on them as well.
From inventory reports to the fully-customized KPIs (Key Performance Indicators) that matter most to your clients, the 3PL inventory system gives you the data you need to keep your business running smoothly and efficiently.
The logistics company’s ecommerce customers can access their data in real-time, enabling them to stay on top of their warehouse, inventory, and shipping operations as easily as if they’d managed logistics in-house.
Pros and cons: using a 3PL vs in-house fulfillment
Before deciding on whether to manage your fulfillment in-house or to outsource to a 3PL, it’s crucial to weigh the pros and cons of each.
- Control: You have direct control over your fulfillment operations and can implement changes as you see fit.
- Brand consistency: Managing your own fulfillment allows for personal touches, such as custom packaging, which can enhance the customer experience.
- Cost savings: If your operations are small, it might be less expensive to handle logistics in-house.
- Limited resources: Your resources are finite, and managing inventory could divert attention and resources from other business areas.
- Scalability: As your business grows, you might struggle to scale your operations quickly enough to meet demand.
- Logistics expertise: Without a dedicated logistics team, you could encounter challenges related to warehousing, navigating transportation management systems, and tracking inventory.
Third-Party Logistics (3PL) companies
- Expertise: Third-party logistics companies have deep expertise in logistics and can provide high efficiency in managing inventory and warehouse processes.
- Scalability: 3PLs can quickly adapt to your changing needs, such as seasonal fluctuations or business growth.
- Better customer service: With a focus on logistics, 3PLs can often provide faster delivery times and manage returns more efficiently, improving customer service.
- Less control: While 3PLs offer expert management, you have less direct control over logistics operations.
- Brand consistency: Some 3PLs might not offer the same level of customization in packaging and presentation as you might achieve in-house.
- Cost: While 3PLs can save you money in the long term through economies of scale and efficiency, there is a cost involved in outsourcing these services.
What to look for when choosing a 3PL warehouse management system
Selecting the right 3PL provider is key because order fulfillment is one of the most crucial aspects of any ecommerce business. Here are seven features you should consider when choosing a 3PL inventory system.
A 3PL’s technology should provide analytics that helps customers spot trends, bottlenecks, and opportunities.
This includes insight into reducing shipment speed, optimizing warehouse layout and shipping costs.
Advanced technology can provide data to help your company make better decisions, including:
- Where to store inventory based on sales patterns and demand
- Shipping route optimization to speed delivery and reduce costs
- Purchasing and production timelines to keep pace with demand and minimize stockouts or overstock
- Optimizing warehouse stock levels to effectively use space and resources
Real-time data access
Real-time data is crucial for monitoring current inventory levels, tracking orders, and managing shipments.
A 3PL that offers real-time data access through its inventory system can help you make timely decisions and inform your customers about their order status.
As your business grows, your 3PL provider should be able to scale its services to match your needs. This includes handling increases in order volume, expanding warehouse space, or adding new services as required.
The 3PL inventory system should be flexible enough to adapt to these changes without requiring major overhauls or causing service disruptions.
The 3PL inventory system should easily integrate with your existing ecommerce platform, Enterprise Resource Planning (ERP) system, or other key software. Seamless integration can reduce manual data entry, minimize errors, and improve overall operational efficiency.
Excellent customer service is key when dealing with a 3PL. They should provide responsive and knowledgeable support to address any issues or concerns.
Also, they should proactively communicate any changes or updates that might affect your business.
Advanced billing functions
Without an effective 3PL inventory system, billing can become a complex endeavor for logistics companies providing services for multiple clients.
Warehouse management software provides accurate and advanced billing to streamline operations and increase functionality. Look for features like consolidated billing, detailed breakdown of costs, and flexible billing options.
Every ecommerce business is unique, and your 3PL inventory system should be able to accommodate your specific needs.
Whether it’s customizing reporting, adjusting warehouse workflows, or offering specialized packaging, your 3PL should be willing and able to tailor their services to your business.
Our top 5 3PL inventory management system picks
SkuVault Core is a cloud-based warehouse management system that specializes in boosting productivity and reducing out-of-stock instances. The system is particularly loved for its easy-to-use features and powerful integrations.
- Real-time inventory tracking and synchronization
- Quality control to ensure order accuracy
- Advanced reporting capabilities for insightful decision-making
- Seamless integration with popular ecommerce platforms
ShipBob is a global logistics platform that allows businesses to streamline their shipping and fulfillment processes. The platform promises fast, affordable shipping with an emphasis on transparency.
- End-to-end order fulfillment
- Real-time inventory management
- Advanced analytics for business growth
- Distributed inventory for faster deliveries
ShipMonk offers a technology-first approach to ecommerce fulfillment, providing omnichannel logistics support for businesses of all sizes. It’s known for its flexible and scalable solutions.
- Custom packing options for brand consistency
- Real-time inventory tracking
- API integrations with multiple ecommerce platforms
- Discounts on shipping rates
Fulfillment by Amazon (FBA)
Although not a traditional 3PL, Fulfillment by Amazon (FBA) is worth mentioning due to its widespread use. With FBA, you store your products in Amazon’s fulfillment centers, and they pick, pack, ship, and provide customer service for these products.
- Access to Prime customers leading to increased visibility
- Storage and fulfillment handled by Amazon
- Customer service and returns handled by Amazon
- Allows for multichannel fulfillment
FAQs about 3PL inventory management
How can third-party logistics companies help manage inventory?
Third-party logistics companies have the expertise and tools necessary to manage inventory efficiently.
They ensure that stock levels are maintained, coordinate with suppliers, and manage order fulfillment, often through sophisticated inventory management systems.
How do 3PLs streamline warehouse processes?
3PLs utilize advanced systems to track inventory and optimize warehouse operations.
This includes tasks such as managing storage space, optimizing picking and packing processes, and improving the accuracy and speed of order fulfillment.
What should I consider when choosing between in-house fulfillment and a 3PL?
Consider factors like the size and complexity of your operations, your growth expectations, the level of control you want to retain, the resources you can dedicate to logistics, and your ability to provide high-level customer service in-house.
Today’s ecommerce companies need full-service logistics companies to meet their customers’ shipping and customer service expectations.
Choosing the right 3PL inventory system can increase efficiency, decrease costs, boost customer satisfaction, and help ecommerce businesses thrive.
To get started with SkuVault Core’s advanced 3PL inventory system, take a free interactive tour today.