How Does Third-Party Logistics Work in E-commerce? 7 Things You Need to Know

| Updated on February 1, 2024
Third Party Logistics

E-commerce companies rely heavily on logistics, which can be intricate and complex. 

Fortunately, third-party logistics (3PL) providers can take on much of the operations work for your e-business brand. 

They include fundamental aspects like order fulfillment, inventory system, returns processing, freight management, and reporting.

Understanding how third-party logistics work in e-commerce helps in seeing the value these providers offer, from improving customer experience to creating cost efficiencies in the supply chain. 

Let’s delve into each of these aspects to ensure you know everything about 3PL providers.  

Third-Party Logistics Steps

E-commerce Order Fulfillment

Your e-commerce brand’s success comes from not only the products being sold, but how quickly, effectively, and accurately the customer’s purchases are completed.

Any doubts during order fulfillment can lead to never getting loyal customers who return to buy more. 

Given the competition in e-business, customer experience should always be prioritized. Buyers expect a speedy and safe delivery of their products. 

They expect everything in the right sizes, shapes, and colors. They do not want hiccups in the entire process.

third party logistics company helps in exceeding customer’s order expectations by accurately and promptly making an informed decision. 

They have the experience, capacity, and technology to employ advanced purchase processing workflows and reduce turnaround times to improve delivery speed and accuracy.

This, in turn, will improve brand loyalty and customer retention. 

Benefits of 3PL

Inventory Management

The more SKUs you sell, the more revenue can be made. However, when selling multiple SKUs, there is a chance of running out of space for all the inventory needed for order fulfillment. 

When your garage is packed, and your spare rooms are filled with boxes, it could be the right time to consider partnering with a third-party logistics provider with more than enough space in a warehouse for all the inventory.

Moreover, 3PL providers are skilled at other aspects of inventory management beyond warehouse space. 

They also understand the intricacies of avoiding stockouts while minimizing holding costs. They have the technology required to understand selling trends and predict exactly how many SKUs are required immediately. 

Then, promptly process all expected orders without sending any dreaded “out of stock” email refunds or wasting money on overstocking. 

THINGS TO CONSIDER
Some 3PLs have state-of-the-art technology that integrates directly with your e-commerce marketplace to provide all the necessary details required to streamline the fulfillment process for automated shipping.

Returns Management

Returns are inevitable in e-business because of its convenient reach to a larger customer base. Your customer experience depends on quick and convenient return policies. If this is a process you’ve struggled with, consider a 3PL. 

Seamless returns are part of 3PL providers’ fundamental protocols. They understand the importance of this logistical process and ensure quick and hassle-free returns. 

From return labels and parcel tracking to automated return communications to customers, 3PL can significantly impact this aspect of your e-business.

Freight Management

Many e-commerce brands struggle with freight management. When done wrong, it’s a common supply chain issue that can break down the customer experience due to poor freight routes, high shipping costs, and long transit times.

The good news is that these problems can easily be solved through a partnership with a 3PL provider. 

When shipping out orders via ground, air, or sea, a 3PL provider has done enough freight operations daily to optimize the freight routes, costs, and travel times to increase supply chain efficiency.

Reporting and Analytics

Are you worried that using third-party logistics will lead to a lack of control over your e-business? Don’t worry! 3PL providers offer full visibility into operations through comprehensive reporting and analytics. 

They provide all the information you need to make informed decisions. In many cases, the analytics provider also shares the necessary data that could be tracked by you.

You’ll be able to continuously monitor performance, make data-based decisions about management and inventory, and constantly refine the supply chain processes. 

The graph below shows the third-party logistics market size since 2023 and is forecasted to consistently grow till 2032.

Third-Party Logistics Market Size from 2023-2032.

Global Reach

Your e-commerce brand may have successfully entered the domestic market, but what about expanding the business worldwide?

One of the best reasons to sell via e-business is to open your sales to global buyers. However, this move can be logistically complex, which a 3PL provider can make simpler to scale internationally.

Their infrastructure and knowledge of complex international logistics, from cross-border shipping to customs regulations, can ensure your global venture succeeds.

Beyond Standard Shipments

An e-commerce brand can often manage its standard shipments without much difficulty. 

However, the power of 3PL lies in the provider’s ability to handle diverse warehouse projects as your brand and products improve.

These non-standard warehouse projects can include product kitting (bundling and customized products), package rebranding initiatives, and conforming to packaging and labeling requirements. 

Conclusion

International business expansion and constant success is every company’s goal, in which operations management plays a vital role. In such cases, hiring a third-party logistics provider is the best option to scale your business. 

They take care of the inventory, warehouse storage, and order delivery which helps in customer satisfaction. It is a cost-effective system that is paving the way for the growth of new and big brands. 




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