In this article, learn about:
What third-party logistics providers are
How third-party logistics providers conduct the shipping and receiving process
The advantages of partnering with a third-party logistics provider
As businesses grow, managing shipping, warehousing, and fulfillment can become overwhelming. Even small inefficiencies—a delayed shipment here, or a misplaced item there—can compound into lost revenue and damaged customer trust.
That’s where third-party logistics providers (3PLs) come in. 3PLs help to streamline operations, reduce costs, and improve customer satisfaction. By outsourcing warehousing, fulfillment, and transportation to specialized partners, companies can focus on their core strengths while ensuring their products reach customers quickly and accurately.
What Is a Third-Party Logistics Provider (3PL)?
At its most basic level, 3PLs are companies that manage logistics and distribution on behalf of other businesses. These third parties typically specialize in warehousing and transportation, providing a level of integration and service that is difficult to achieve through a non-dedicated provider.
When choosing a 3PL, it’s important to keep in mind your company’s specific logistics needs, as different types of 3PLs perform different functions and come at varying price points. There are four standard types of 3PLs:
Standard 3PL Providers
Standard 3PL providers offer basic 3PL services, such as storage and transportation. These are typically cost-effective options for smaller suppliers without any sort of intensive picking, packing, or shipping needs. However, standard 3PL providers typically don’t offer further logistical services, such as transportation management systems (TMS), customized packaging, or cross-docking, making them unsuitable for complex logistical tasks.
3PL Service Developers
3PL Service Developers offer basic 3PL services, but also additional information technology (IT) infrastructure and management. This gives customer value-adds including shipment tracking and compliance management, helping to avoid mistakes in shipping processes and the resultant fines.
3PL Customer Adapters
3PL Customer Adapters is a type of logistics company which handles nearly all logistics activities for their customers. These providers handle the packing, shipping, and receiving processes from beginning to end, often offering services such as rate maintenance and negotiation with carriers. This type of 3PL is ideal for larger, specialized suppliers with complex and/or individual shipping needs, or a shipping volume outside of their ability to handle.
3PL Customer Developers
3PL Customer Developers are a type of 3PL in which the third-party provider is integrated fully with their clients, serving as their entire logistics provider, like a dedicated supply chain team. These 3PLs typically don’t have a large number of customers, but instead focus intensively on the logistics needs for one or two large suppliers or retailers. These 3PLs can also be quite costly, due to the heavy amount of work and personnel required to run all logistics for a large retailer or supplier.
The Order Fulfillment Process
Here is how the order fulfillment process works at most 3PLs:
Receiving
The receiving process begins when a 3PL accepts incoming shipments from a manufacturer or supplier. Upon arrival, the goods are checked for accuracy against the provided purchase order (PO), to make sure quantities, SKUs, and conditions match expectations. Most 3PLs use advanced inventory management systems to scan and log each item into their system, giving suppliers real-time visibility into stock levels. This inspection and data entry helps to prevent discrepancies that could cause delays later in the fulfillment process.
Related Reading: What Is Stock Control?
Once entered into the system, products are labeled and organized according to their storage requirements, such as SKU groupings, carton size, required temperature, or other factors. 3PL’s efficient receiving processes minimize dock-to-stock time—the window between receiving goods and having them available for sale—which allows for faster turnaround and better order accuracy down the line.
Warehousing
After receiving, products are stored within the 3PL’s warehouse facilities. Most 3PLs utilize warehouse management systems (WMS) to monitor inventory levels, assign storage locations, and optimize space utilization. Inventory can be stored in a variety of configurations depending on the supplier's needs—from pallet racks and bins to climate-controlled storage for sensitive goods.
Modern 3PLs also employ automated systems, barcode scanning, and data analytics to maintain precise inventory counts and ensure stock is rotated properly using First-In, First-Out (FIFO) or Last-In, First-Out (LIFO) methods as needed.
Picking
The collection, or picking, stage is where warehouse staff (or automated systems) locate and retrieve products to fulfill customer orders. Depending on the 3PL’s sophistication, this may involve batch picking, wave picking, or zone picking, which are methods designed to reduce travel time within the warehouse and increase fulfillment speed.
Using handheld scanners or automated guided vehicles, pickers ensure that the correct items and quantities are selected. The WMS verifies each pick in real time, greatly reducing human error. This streamlined collection process is a key advantage of using a 3PL, as it enables rapid scaling during periods of high demand while maintaining accuracy and consistency across hundreds or thousands of orders.
Related Reading: Pick and Pack 101: Methods, KPIs, Costs, and Tech
Packaging
Once items have been collected, they move to the packaging area, where the 3PL ensures products are prepared for safe and efficient shipping. Depending on specifications, this may include custom-branded packaging, protective materials, labeling, and inserts such as invoices or promotional flyers.
3PLs leverage packaging automation and standardization to minimize waste and ensure uniform quality across shipments. Many providers also optimize packaging for dimensional weight (DIM) pricing, helping clients reduce shipping costs by using appropriately sized boxes and materials.
Shipping
After packaging, orders are passed to the shipping stage, where the 3PL selects the carrier option. Most 3PLs maintain partnerships with multiple carriers—such as UPS, FedEx, DHL, or regional couriers—to provide clients with competitive rates and flexible delivery options. Other 3PLs operate their own fleets, which can also help their clients save money compared to handling shipping themselves.
The 3PL generates and affixes shipping labels, updates tracking information in the client’s system, and dispatches the packages for delivery. Many 3PLs use transportation management systems (TMS) to coordinate routes, manage carrier performance, and track shipments in real time. This integration provides both the supplier and the end customer with transparency throughout the delivery process, ensuring that shipments arrive on schedule.
Related Reading: What Is Global Logistics Network Optimization?
Returns
Returns management, or reverse logistics, is a critical service offered by 3PLs that helps businesses maintain customer satisfaction and operational efficiency. When a customer initiates a return, the 3PL handles the process end-to-end, from issuing return shipping labels to inspecting and restocking items once received.
Returned products are evaluated for condition and either restocked, repaired, recycled, or disposed of according to supplier or retailer policies. Advanced 3PLs provide real-time visibility into return trends, helping companies identify common issues such as product defects or packaging damage.
Advantages of Using a Third-Party Logistics Company
There are many advantages to hiring a 3PL. 3PLs can:
Enhance the customer experience
Partnering with a 3PL directly improves customer experience by ensuring faster, more reliable, and more transparent order fulfillment. 3PL providers have established carrier relationships and optimized processes that allow them to deliver goods quickly and accurately, even during peak seasons. Many 3PLs also integrate directly with e-commerce platforms, giving customers real-time tracking information and consistent delivery updates.
Additionally, 3PLs often provide customizable packaging, branded inserts, and precise handling instructions. By outsourcing logistics to experts, suppliers can focus on product quality and customer service while ensuring their buyers receive a smooth, predictable post-purchase experience.
Boost cost-cutting
Working with a 3PL can significantly reduce operating costs by streamlining logistics and eliminating the need for in-house warehousing, staffing, and transportation management.
3PLs also use advanced technology such as WMS and TMS to identify inefficiencies, minimize waste, and avoid costly errors. This data-driven approach translates into savings that would be difficult for individual companies to achieve on their own, especially smaller or growing businesses.
Encourage scalability and resilience
A major advantage of using a 3PL is its ability to scale operations up or down depending on seasonal demand, product launches, or market shifts. During peak periods, such as holidays or sales events, a 3PL can quickly allocate additional warehouse space, labor, and transportation resources without requiring long-term commitments. When demand slows, these resources can be scaled back just as easily.
This flexibility also enhances business resilience. If supply chain disruptions occur, a 3PL’s established network of partners and backup systems helps mitigate risk. Companies that rely on 3PLs can adapt more quickly to unexpected challenges without sacrificing service quality or customer satisfaction.
Provide access to skill and experience
3PL providers bring a wealth of industry expertise, built over years of managing complex logistics networks. Their teams are trained in areas such as compliance, customs clearance, freight optimization, and warehouse safety—areas that can be difficult or expensive for businesses to manage internally. By leveraging a 3PL’s specialized knowledge and technology, suppliers gain access to best practices and tools that continuously improve efficiency. This expertise reduces the likelihood of costly mistakes, ensures regulatory compliance, and allows businesses to make informed decisions.
Facilitate business and market expansion
Partnering with a 3PL makes it easier for businesses to expand into new domestic or international markets. Many 3PLs already have global networks of warehouses, carriers, and distribution centers, enabling companies to reach new customers without the burden of building infrastructure from scratch. They can also manage international shipping complexities such as customs documentation, tariffs, and duties, which often pose major challenges for businesses entering foreign markets.
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