Group of four warehouse employees walking by storage racks. Warehouse employees walking through aisle and talking.
When filling orders in house becomes unfeasible as demand grows and your business scales, it's time to choose a 3PL or 4PL partner. Here's how to do it. — Getty Images/ alvarez

For e-commerce business owners, filling orders in house may become unfeasible or unrealistic as demand grows and the business scales. When it’s no longer viable to fulfill orders in house, it’s time to turn to a third-party logistics (3PL) or fourth-party logistics (4PL) partner to outsource and expand your fulfillment strategy. Here's what you should know about working with a logistics partner and how to choose the right one for your business's needs.

[Read: Selling on Multiple Platforms: How to Expand Your Online Sales]

What is a third-party logistics (3PL) partner?

Third-party logistics (3PL) partners handle outsourced inventory management, warehousing and order fulfillment for another company — usually (if not always) an e-commerce business. 3PL partners are experts with the right tools and infrastructure to maximize fulfillment logistics, which affords the merchant time to focus on other aspects of their business.

According to Seth Rothbard, franchise owner of InXpress based in Shelton, Connecticut, a 3PL is more than a shipping company. “It’s our job to connect entrepreneurs to the right shipping options and provide them with deep discounts, which helps them grow their business,” Rothbard said.

3PLs versus 4PLs

Both 3PLs and 4PLs take care of inventory management, warehousing and transportation or execution logistics. However, they have their differences:

3PLs

Third-party logistics partners only focus on the outsourced operations of order fulfillment and transportation. In essence, 3PLs act as the subcontractor to an enterprise or company that maintains managerial oversight, but outsources the inventory management and fulfillment logistics of the orders.

4PLs

A fourth-party logistics (4PL) partner handles the oversight of the logistics process in addition to everything a 3PL does. Most often, companies that choose to use a 4PL want the partner to offer strategic insight on and handle the entirety of the supply chain. 3PLs tend to be more transactional-focused, whereas 4PLs aim to offer complete coordination of vendors in the supply chain at the best value.

Choosing a logistics partner shouldn’t just be based on the cost, as there will always be a cheaper option somewhere out there. The trust factor is what one needs to be looking for in a reliable partner.

Seth Rothbard, franchise owner of InXpress

Benefits of using a 3PL

Businesses looking to use a 3PL can expect many benefits from the partnership, including:

  • Gain expertise. Businesses working with a 3PL can gain valuable insight to potential issues when shipping, make connections in the industry, learn how to better streamline processes and more. For e-commerce businesses with international business, working with a 3PL also removes the stress of attempting to learn and comply with international shipping regulations.
  • Save time and money. Some of the most valuable benefits of working with a 3PL revolve around the efficiency and effectiveness of their knowledge to save you money. Outsourcing inventory management tasks to a 3PL streamlines the work and allows you to focus on other aspects of your business. In addition, your 3PL partner can identify potential costly issues in the supply chain and proactively work to mitigate the risks.
  • Scale operations. Partnering with a 3PL remains a vital step in scaling a business. With the 3PL’s help, companies can expand their reach for order fulfillment, have easier seasonal transitions, save money on resources and labor, and use reclaimed time to focus on business and product development.

[Read: How to Partner With a Third-Party Delivery Service]

How to choose a 3PL partner

Choosing the right 3PL partner for your business involves several considerations, and it’s important to not focus on a single metric, such as cost alone.

“Choosing a logistics partner shouldn’t just be based on the cost, as there will always be a cheaper option somewhere out there,” Rothbard said. “The trust factor is what one needs to be looking for in a reliable partner.”

To that end, think through the following list when researching and talking to potential partners:

Security

Not only should your 3PL have all necessary safety training and compliances for its employees, it should also ensure protection of your data and resources. Partners who have certifications including FDA, DEA and PCI — as well as HAZMAT — will take safety and security seriously.

Good customer service

Part of a healthy business relationship is respect and good customer service. 3PLs with eager-to-help, creative problem-solving team members can save you money and provide an enjoyable working relationship.

Scalability

It’s important to plan for the future and choose a 3PL that can handle your expected growth. All other factors considered, the 3PL you choose should be able to propel your business forward and keep up with constant growth, not struggle to keep up.

Customization

Depending on your industry, you may need varying levels of customization for your business. Ensure your chosen 3PL partner knows exactly what you expect when it comes to customization, whether it’s multi-channel capacity or customer experience.

“It’s important to find out what [a 3PL’s] niche is in the shipping and logistics market,” Rothbard said. “A lot of companies will claim they do everything, but every provider has a niche of core services that they focus on and perform best in.”

Compatible technology

Along with scalability and customization, ensure the 3PL has enterprise-level technology to keep up with your business’s demands, needs and changes. It’s also important that the 3PL has a knowledgeable IT team to help troubleshoot any issues.

Positive reputation

The right 3PL partner not only meets all of your current and future business needs but also has a positive reputation in the industry. 3PL partners can connect you with a larger network of vendors like marketing agencies, packing vendors and more.

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

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Published July 22, 2021