Third Party Logistics Provider (3PL) 101

Third Party Logistics Provider (3PL) 101

Your site is up and running. You’ve got a great product. Orders are flowing in … but wait a second — now you have to ship it. Lots of it. Over and over again, every single day. This is where a third party logistics company (3PL) comes into play.

What are the main services that a 3PL typically offers? 

“Logistics” can mean many things, covering warehousing, freight, customs brokerage ... basically, anything you can think of that involves holding or moving your product. 

3PL’s usually have a fairly specific focus. Some do big quantities – truck-loads or pallet-loads only. Some do just e-commerce and “eaches” (individual product sales) only. There are also companies that focus on direct-mail or specific logistics functions. “Reverse Logistics” focuses on accepting and processing returns.

What are your needs? 

As you look at your business, consider what specific needs you have:

What are the main costs associated with a 3PL?

As you can imagine, each of these types of services have different cost models. Look for a 3PL that offers the best costs for your primary outbound shipments.

Here are a few of the key general cost centers to be aware of when working with a 3PL:

“Pick and Pack”

Cost related to getting your product out of storage, into a box, and shipped. Each “pick” has a cost and each “Pack” or outbound package has cost.

Receiving

Cost related to receiving your inventory. The easier you can make receiving, the lower your costs should be. Are you shipping 100% of the same SKU in one box or on one pallet?

Storage

Cost related to storing your inventory. Generally 3PLs store on shelves or on “fast pick” locations and on pallets. Some 3PLs focused on E-Commerce charge a lot for pallet storage.

Takeaways

Review all the costs with your logistics partner before you start! Ask them to see an example of an invoice and backup.

The Top 5 Mistakes Most Brands Make

Shipping Costs

 Parcel and shipping costs are by far the biggest of your total fulfillment expenses — Expect 60 — 75% of your costs to go to shipping. The dirty little secret? Shipping companies won’t give you the best deal unless your volume is huge. And there are tons of hidden costs — home delivery, fuel surcharges, you name it. And keep in mind that outbound freight will be most of your freight costs. 

Takeaway

Focus, focus, focus on outbound shipping costs. If you’re looking for more details on shipping errors to avoid and how to save more money on freight, don’t hesitate to contact us for a free consultation.

Tech Integration

You sign up with a 3PL and — whoops! — certain systems don’t sync. What does that mean? It means that data isn’t flowing automatically between your website, shopping cart and service applications. This means more time manually updating your systems, more time making mistakes updating those systems, and less time communicating with your customers and growing your business.

Takeaway

Make sure you get all the facts about integration before you commit to your fulfillment partner. If you’re looking for more information on complete integration, get in touch and we can give you all the details.

Inventory 

The problem with all those sales? They deplete your inventory. And without sound inventory management, your latest and greatest message to your customers will be “sorry, the product you love is out of stock.” Make sure that your 3PL is dedicated to helping you to manage inventory, plan ahead and even move older inventory fast, before it becomes expired.

Takeaway

Make sure you’re selecting a 3PL that offers regular inventory reporting and visibility.

Packaging

Your customer’s package arrives and... uh oh. It’s damaged, leaking, filled with tons of packing material that’s wasteful for the environment. Make sure you’re selecting a 3PL that can help you choose box sizes and types that minimize costs, eliminate waste and keep your product safe in the process.

Takeaway

Your 3PL shouldn’t just pick, pack and ship your boxes — they should also help you select them. 

Specialization

3PLs have specializations - make sure you’re selecting one that knows your world, and knows all the rules, regulations and special equipment needs that comes with your business. What’s more, if you’re a start-up company, you want a real partner who will work with you and consult with you to help your young business scale and grow,

Takeaway

Make sure your 3PL isn’t just an expert at logistics — make sure they’re an expert in your industry, too.

A little more about Ocelot Logistics

Ocelot Logistics was built from the ground up to service start-ups in the shelf-stable food and supplements industries, and help them avoid the mistakes that our founder experienced when he started his own tea business over 15 years ago. Click the link below to get in touch with Ocelot Logistics today, so they can help you herd your cats.

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