A 3PL warehouse is a company that provides storage and logistics solutions for all types of stock businesses that sell online. This includes receiving stock from suppliers, inventory management, picking and packing, shipping orders to customers, and returns. By outsourcing part or all stock management, fulfillment and shipping to a third party warehouse, businesses can save money and operate more efficiently and profitably.
Not all 3PL companies are the same, and not all offer the same level of service. Read on to learn about how third party logistics works, the range of services available, and whether using a third party warehouse could work for your business.
What does a 3PL do?
A 3pl warehouse (also known as a fulfillment company) takes care of the supply chain and logistics side of an external business. At a minimum a 3PL warehouse may simply receive and store stock, but usually they include tasks across the entire supply chain – from storage, to order fulfillment and shipping.
Some of the common tasks performed by a 3PL warehouse include:
- Stock receivals
- Storage and warehousing of stock
- Inventory management and orders
- Picking and packing of orders
- Shipping orders to customers
- Customer returns
How it works
When a business manages their own storage and logistics, stock is received and stored in a warehouse leased or owned by the business. Orders are received, and staff pick and pack each order and ship it to customers. In the case of a 3PL, exactly the same process takes place, but instead of the business doing those tasks, a third party logistics team does them.
An important component of third party logistics is managing orders via inventory management software. 3PL warehouses will usually use proprietary software that integrates with the existing ecommerce business to receive and process orders.
Customer purchases on the ecommerce site are automatically lodged in the management system and received by the warehouse. The warehouse then processes and ships the order. There is no delay in the order being made and it being recorded in the system, and everything is automated, requiring no management from the ecommerce business.
Let’s look at each part of the process, from stock arriving at the warehouse to shipping an order.
1. Goods receival
If an ecommerce business isn’t also the manufacturer of the goods they sell, they will be purchasing their stock from a supplier. Instead of being shipped to a warehouse managed by the business, that stock is shipped directly to a 3PL warehouse. Stock may arrive in a shipping container or on trucks. Most 3PL businesses have a large docking area for shipping containers to arrive and be unloaded.
2. Warehouse storage
A 3PL warehouse securely stores all incoming stock. Usually a variety of different sizes and types of stock can be accommodated, including storage on traditional pallet racking, single level pallets, or oversized stock. Warehouse staff also take care of any storage preparation prior to storing. For example wrapping and strapping, and palletising of stock.
In some 3PL setups, staff from the business are able to come onsite to unload and inspect their stock. They can also sometimes use the warehouse equipment to do their own unloading and storage if they want.
3. Orders & inventory management
The next part is processing and shipping orders. All orders are integrated through an online management system, and are lodged simultaneously with the 3PL. Orders and stock inventories are updated instantly on both sides.
4. Picking & packing orders
When an order is received, staff at the warehouse pick and pack the order ready to send to the customer. How the item is packed for shipping (including any branded packaging) can be specified by the business.
5. Shipping to customers
After packing, the warehouse ships the order to the customer. Depending on the 3PL, the order will either be shipped to the customer using transport provided by the warehouse or an external transport operator will be used.
At each stage, from the order being received, to picking and packing, and shipping, the online system records the progress of the order. Business owners and staff are able to see the progress of each order as it is updated through the system.
Value added warehouse services
3PL warehouses commonly provide their clients with a range of other add-on services. These are usually available for a small fee.
Staging Area Depending on the warehouse, often clients will have access to a staging area. This allows them to interact with and manage their own stock, and is an attractive offering for many businesses.
Admin Space Some 3PL companies also provide office space for businesses to carry out admin tasks. This will include a hot desk with computer and printing facilities, providing convenience for those who need to be onsite and access their stock regularly.
Bonded warehousing Sometimes when businesses are importing goods from overseas they require the use of a bonded warehouse. This is where stock (often alcohol) can be stored safely prior to paying excise duty and GST. Bonded warehousing helps businesses with their cash flow. Not all 3PL warehouses are bonded warehouses as it requires strict regulations and compliance with ATO and customs laws.
What are the advantages of using a 3PL warehouse?
If you sell products online and you buy those products from a supplier, outsourcing part of your business to a third party logistics company can provide significant advantages – from cost savings to making it easier to be responsive and grow your business. Let’s take a look at some of the main advantages.
Reduce costs
Outsourcing the warehousing of your stock provides a significant reduction in running costs because there’s no need to lease or buy your own warehouse. And the savings don’t end with not having a lease. Without the need for a warehouse there’s also no need for expensive pallet racking and shelving, forklifts, trucks, safety equipment and the hiring and training of staff.
- No warehouse lease
- No warehouse staff
- No warehouse equipment
- No staff training
Scale up and down
One big advantage of using a third party to manage logistics, is the scalability and increased efficiency it offers. Unlike leasing a warehouse, where the monthly rent remains the same, regardless of whether all the space is being used, with a 3PL warehouse, you only pay for the space you need.
Businesses are more able to respond to customer and market forces, and scale up and down with stock levels, without having to lease a bigger warehouse in times of expansion or waste money on a large space when stock levels contract.
Grow your business with lower risk
Because using the services of a 3PL warehouse team reduces overheads, it opens opportunities for growth. For example with more capital available, businesses are able to make investments in product innovation, diversification, marketing or take advantage of other opportunities to grow the busness.
Expand or test a new market
3PL warehousing and logistics can be a life saver for businesses that want to expand into a new market. If a business is looking for a new base, but want to test its viability, outsourcing the logistics in the new area will avoid a heavy investment to set up a new base. In Australia, for example a Western Australian based business may use a 3PL to set up a base on the east coast (or vice versa). Companies in New Zealand who are looking to expand to Australia also enlist the help of a storage and logistics company in Melbourne or Sydney.
Access to logistics experts
Logistics and warehousing can be a stress for some businesses, particularly finding the right skilled staff and managing everyday operations. It’s just another set of skills businesses need to be across.
Outsourcing the logistics and warehousing to experts offers peace of mind. With one less thing to think about, a business can instead focus on their strengths.
Conclusion.
While 3PL warehousing has been around since the 1970s, it has expanded rapidly over the last few years and is expected to continue its steady growth globally. With the increase in ecommerce, it is not surprising.
using a 3PL warehouse provides significant advantages. It saves money, which can be invested in other parts of the business, and it outsources the significant responsibilities associated with running a warehouse to experts.
While there are big advantages, outsourcing still has costs associated with it and the benefits need to be weighed up against any disadvantages – the main one being lack of control over the logistics, picking, packing and shipping. These concerns, however, should be dispelled by finding a 3PL partner who understands and listens to your needs and is flexible.
3PL warehousing companies can be quite different in the types of clients they serve and how they run, so it is important to do your research and find a company that is the right fit. No business is the same and all warehousing and logistics arrangements need to be tailored.
3PL Services to support your business
Do you need 3PL support for your business? Go3PL provides a comprehensive range of third party services to help you grow your business.
From container receival and unload, storage for overflow stock, picking and packing, and deliveries, we tailor a solution that is affordable and takes the pressure off your daily business operations, so you can concentrate on growth.
