Nowadays, some companies do not have enough resources to store and deliver their products themselves. In this case, outsourcing logistics and relying on a 3PL service provider is a good solution.
In the 26th Annual Third-Party Logistics Study, 73% of companies working with a 3PL service provider said it helped them optimize service and better satisfy customers. The study was conducted by well-known companies such as Infosys Consulting, Penn State University and Korn Ferry in 2022.
In the 26th Annual Third-Party Logistics Study conducted by well-known companies such as Infosys Consulting, Penn State University, and Korn Ferry in 2022, 73% of companies that work with a 3PL service provider said that it helped them optimize service and better satisfy their customers.
In this article, we take an all-round look at the topic of 3PL, distinguish it from 1PL, 2PL, 4PL and 5 PL, and tell you how to select a suitable 3PL service provider.
Table of contents
- 1PL, 2PL, 3PL, 4PL and 5PL: What does it mean?
- 3PL und 4PL: What are the differences?
- Services of Third Party Logistics Providers
- Advantages and disadvantages of Third Party Logistics (3PL)
- 3PL Logistics: When is it really worth it?
- 3PL companies: How to choose the right one
- Shopify Fulfillment: third-party logistics partner of Shopify
- Shopify Plus Fulfillment: Shopify Fulfillment API
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1PL, 2PL, 3PL, 4PL and 5PL: What does it mean?
The various logistics service providers are classified according to the tasks they perform within the company. The English term Party Logistics or the abbreviation PL is used for classification, with the numbers partly reflecting the services provided:
|1PL First Party Logistics
|Outsourcing von Transporten mithilfe eines Dienstleisters, der die notwendigen Fahrzeuge und Fahrer für den Warentransport bereitstellt. Die Unternehmen bewirtschaften dabei weiterhin ihre eigenen Lager.
|2PL Second Party Logistics
|2PL-Dienstleister übernehmen neben dem Transport auch die Lagerhaltung. Die Verwaltung dieser beiden Bereiche obliegt jedoch dem auftraggebenden Unternehmen, damit Fahrzeugflotte und Materialflüsse weiterhin selbst organisiert werden können.
|Transport & Lagerhaltung
|3PL Third Party Logistics
|Der Logistikdienstleister ist sowohl für Transport und Lagerhaltung als auch für Management und Organisation dieser beiden Bereiche verantwortlich.
|Transport, Lagerhaltung & Management
|4PL Fourth Party Logistics
|Diese Logistikdienstleister fungieren als Berater und Prüfer für 3PLs, um Logistikabläufe zu bewerten und zu optimieren. Sie verfügen über keine logistische Infrastruktur und erfüllen nur beratende Funktionen.
|Beratung, Optimierung, Steuerung & Koordination von 3PL-Anbietern
|5PL Fifth Party Logistics
|Diese Dienstleister sind groß genug und verfügen über die notwendigen Mittel, um die Aufgaben von 3PL und 4PL zu vereinen.
|Alle 3PL- & 4PL-Leistungen
Now that you know what the differences are between the various logistics service providers, you may be asking yourself which of these partners could be the right one for your company. The answer depends on the extent to which you can and want to carry out your logistics yourself.
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3PL und 4PL: What are the differences?
The main difference between 3PL and 4PL service providers is the physical resources available to each. 3PL service providers own a fleet and warehouse space, while 4PL service providers are only used to manage and monitor the logistics process. Thus, 3PL providers provide physical resources to optimize the supply chain, while 4PL service providers offer experience and knowledge. Often, 4PL companies work with a network of 3PL service providers to distribute tasks based on customer requirements and the profile of the respective 3PL provider.
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Services of Third Party Logistics Providers
3PL suppliers can take over the entire organization and implementation of customer logistics. From the planning of all logistics processes to implementation and final inspection. In addition to warehousing and shipping, they can also be responsible for the following tasks, for example:
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Advantages and disadvantages of Third Party Logistics (3PL)
The advantages and disadvantages at a glance:
|✅ Time and cost savings
|Limited control over logistics processes
|Heavy dependence on the logistics partner
|Measures to optimize the service or reduce costs could be neglected
|✅ Competitive shipping costs
|Could become cost-intensive in the long run
Outsourcing to an external logistics service provider offers many advantages, which we would like to look at in more detail below:
Time and cost savings
Resource savings are a major benefit. A 2014 global study showed that transportation costs could be reduced by an average of 11% and storage costs by an average of 6%. At the same time, delivery times were reduced by an average of 30%. Since all logistics and warehousing are outsourced to external service providers, capital employed can also be greatly reduced. With 3PL, companies no longer need their own fleets, machinery or warehouses. In addition, 3PL providers are very flexible and can absorb strong seasonal fluctuations well. As a result, warehouses and other resources are used optimally.
If your own requirements fluctuate greatly within a year, 3PL may be particularly suitable for you, as it will prevent your own warehouse from being very poorly utilized during some periods.
You and your company can benefit from the logistics provider's industry experience, especially since they have often developed large, global networks.
Competitive shipping costs
Because 3PL service providers typically work with multiple customers, they can handle high volumes of goods and thus offer competitive shipping costs.
The biggest disadvantage of 3PL service providers is probably the limited control over logistics operations. This can lead to a strong dependency on the logistics company, possibly causing measures to optimize the service or reduce costs to be missed. Furthermore, in the long run and depending on the level of activity, outsourcing logistics may turn out to be cost-intensive.
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3PL Logistics: When is it really worth it?
You may be asking yourself at this point whether you should actually call in a 3PL provider or continue to map your logistics in-house. Are there any small companies besides the big players that use 3PL? If you can answer "yes" to the following questions, 3PL can really be worthwhile for you:
Is there growth happening with your brand?
If your order volume is still quite low, so that you can probably still handle your orders yourself in the future, then 3PL is rather less worthwhile for you. In this case, you would not only give up a certain amount of control, but it would also mean additional costs for you. If, on the other hand, you can see gradual growth and there are already initial indications that your logistical resources will soon be exhausted, then a 3PL service provider may be just the thing for you. Incidentally, it is often only through working with a third-party logistics provider that young companies become scalable.
Are you planning to expand?
Since established 3PL providers often have a transnational network of warehouse locations, such logistics outsourcing may well be worthwhile if you plan to enter new markets.
Do you want to optimize your service?
In times of Amazon, eBay & Co. it is very important for online retailers to continue to meet the new standards of the clientele and to be able to keep up on the market. For this, the processes in logistics must be designed very efficiently, which is often very difficult to implement on one's own. This is where 3PL service providers can provide a very good remedy, since on the one hand they are designed to handle a high volume of orders in the shortest possible time and since on the other hand they are probably closer to their customers with their numerous warehouse locations. This can further shorten the delivery time.
3PL companies: How to choose the right one
Once you've come to the conclusion that it might be time for a 3PL provider, it's on to selecting potential candidates. This can be a very difficult one. That's why we're going to show you what's involved in the selection process.
If you have decided to work with a 3PL provider, you should consider the following 5 criteria in particular:
Geographic location: since your 3PL partner should deliver your products to your clientele as quickly as possible, their location is crucial.
Price: another main criterion when choosing a suitable logistics service provider is, of course, the price. So you need to think about how much budget you can spend to outsource areas of your logistics. Factors here include whether the shipment is urgent, where the destination is located, and what goods are involved.
Capacity: it is also important that your logistics partner can adapt to your requirements and respond quickly. Because this is the key to sustainable growth.
Technology: for both warehousing and order preparation and shipping, your prospective 3PL provider should have up-to-date technology and automation capabilities to operate as efficiently as possible.
References: Be sure to also find out about the 3PL service provider's reputation up front: does it demonstrate financial stability? Does he provide efficient service? The references should be excellent.
Incidentally, the top three third party logistics providers worldwide in terms of revenue in 2020 were DHL Supply Chain & Global Forwarding ($28.45 billion), Kuehne + Nagel ($25.79 billion) and DB Schenker ($20.76 billion), according to the Statista study.
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Shopify Fulfillment: third-party logistics partner of Shopify
If you have a Shopify or a Shopify Plus store, the following 3PL service providers would work best for you, as they integrate seamlessly with your store through an existing app or interface:
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Shopify Plus Fulfillment: Shopify Fulfillment API
Fulfillment can be easily outsourced with the Shopify Fulfillment Network. As listed in the section before, there are several providers that can be connected via the Shopify Fulfillment API. This user-friendly API is the interface between the Shopify backend and the fulfillment merchandise management system. This allows for seamless data exchange between the two systems, ensuring fast order and shipping processes. This is a great advantage for Shopify Plus merchants, as customer, order and inventory data can be easily kept in view. Customer satisfaction is guaranteed through transparent tracking and fast processes.
However, there was a recent update to Shopify's Fulfillment API. Starting in April 2023, the new Fulfillment Order API will be available. Users who were previously using the Order or Fulfillment API resources (REST or GraphQL) will need to switch to the new API.
This switch should not be missed, otherwise your logistics provider will no longer be able to send tracking updates to your Shopify interface. The exchange of information would thus only be one-way - namely from store to logistics provider. So if you have been using the Shopify API for your fulfillment so far, you should discuss the changes with your fulfillment provider.
Since the decision for a logistics service provider is an important future decision for your company, you should sufficiently weigh the factors listed above and not simply be tempted by the cheapest offer or the company with the highest turnover. In the best case scenario, you will work with your 3PL partner for several years, which is why they should be a good fit for your company and also be able to react flexibly to future changes.
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Frequently Asked Questions about Shopify Fulfillment and 3PL Logistics
What is 3PL?
3PL stands for Third Party Logistics and refers to a specific logistics model. Here, the logistics partner takes over the transport, storage and management. With a fulfillment partner you can easily outsource your logistics.
What does a 3PL Logistics Partner do?
A 3PL logistics partner handles logistics, warehousing, order preparation and goods transportation for companies.
What is the difference between 3PL and 4PL?
The most significant difference between 3PL and 4PL are the services offered. While 3PL partners take care of transport, storage and management, a 4PL partner, on the other hand, takes care of consulting, optimization, control & coordination of 3PL providers.
How do I choose the right Shopify fulfillment partner?
When choosing a partner, merchants should look at criteria such as location, experience, cost, contract length, and integration options. Shopify provides a list of trusted fulfillment partners.
What Shopify 3PL logistics partners are there?
There are a number of third-party logistics partners for Shopify, including Easyship, Shipbob, ShipHero, ShipperHQ, Shippo, Shipstation or Veego.
How does the Shopify Fulfillment integration work?
The integration is simple. Merchants can enable Shopify Fulfillment in their Shopify dashboard and send their products to a Shopify Fulfillment Center. From there, Shopify Fulfillment takes care of warehousing and order fulfillment.
How do I create a fulfillment request in the Shopify Fulfillment API?
Shopify offers a way to pick, pack, and ship your orders for you with the Shopify Fulfillment Network. The SFN recommends that you use distribution centers close to your customers to regionalize your inventory. Once an order is placed through your store, you will be notified by the warehouse. Your product will then be picked, packed and shipped. Since you don't have to do anything for this, you have a significant time savings.
How do I find out if Shopify Fulfillment is right for my business?
To determine if Shopify Fulfillment is right for your business, you should evaluate your unique needs and goals. You can also contact Shopify or a fulfillment partner for more information.