3PL stands for Third-Party-Logistics. A 3PL is a service that another company hires to outsource their fulfillment and logistical operations. 3PLs partner with their own set of subcontractors such as software companies, parcel carriers, and freight companies. Usually 3PLs operate a warehouse(s) and equipment which allows their customers to avoid high overhead and operational costs that come with owning these assets themselves. 3PLs bring industry expertise, economies of scale, and cost pooling to the table.
One of the most important things a 3PL brings to the table is their expertise. 3PLs have a concentrated focus in logistics. When you work with a 3PL you are really working with the people who run and operate the business. These individuals have a collective wealth of knowledge that is priceless when creating a fulfillment plan for your business. Often times 3PLs have experience working with marketplaces, other sellers, and various software companies; this makes them a great resource to you and your business.
Economies Of Scale:
One of the most common questions I get asked is, “How do you make money?” Many times 3PLs like Shipmate can offer shipping rates at or below what a seller might pay to fulfill the item themselves in house. The answer to this mystery is a simple economic principal known as economies of scale. Economies of scales is the idea that as a business grows variable costs decrease with each additional unit of production creating surplus. In simpler terms, a 3PL’s volume warrants better rates, cheaper supplies, and other discounts lower volume shippers lack access too. While a small individual seller might buy boxes 100 at a time, a 3PL may buy tens of thousands at a time! This is true across all supplies, equipment, and materials. This allows 3PLs to receive massive quantity discounts that can be passed along to the customer. 3PLs also have ongoing relationships with most carriers. They are often able to leverage this relationship to ensure you get the best rates possible.
Operating a warehouse comes with very high costs: real-estate, labor, equipment, software, utilities, etc. These costs are often prohibitively high for many businesses, especially startups and individual sellers. Working with a 3PL is a lot like renting a house with roommates, the large rent payment is split up among multiple tenants to make things more affordable. A 3PL bares all the expenses above and splits the cost of those expenses among all their clients, thus making fulfillment operations for each business more affordable without sacrificing quality.
Many 3PLs offer additional services that make them stand out from the competition. It is important to make sure that a 3PL you are considering offers the services you need for your business. Some of these services include:
- Kitting and Bundling
- Receiving & Managing Returns
- LTL/FTL and Pallet Building
- Sea Freight
- Inserts and Advertisements
- Custom Packaging
- And More
It is important to know the capabilities and limitations of any fulfillment provider you are considering. Shipmate Fulfillment provides all the additional services above as well as other special requests!
A 3PL is a service that another company hires to outsource their fulfillment and logistical operations. 3PLs partner with their own set of subcontractors such as software companies, parcel carriers, and freight companies. 3PLs provide expertise, economies of scale, and cost pooling allowing their customers to focus on their unique sphere of genius!