3rd Party Logistics: Key Insights & Business Considerations

There are too many definitions for 3rd Party Logistics services, the ambiguous part is some say “It’s all or at least a significant part of logistics services”, while others say “It’s just one, or a couple of services“, depending on who you ask. 

But, the main question is, 3rd Party Logistics...Is that all you need? Is it enough?‍

Well, we agree with Wikipedia, which says 3PL is the act of outsourcing activities related to Logistics and Distribution for part, or all of their supply chain management functions - which include Logistics Solution Providers (LSPs) and the shippers whose business processes they support.

What is a 3PL? Third-party logistics definition, process, and resources

What is third-party logistics?

What are 3rd party logistics is a question that can have different definitions across different sectors, but let us focus on the one that’s relevant in the e-commerce industry.

3rd Party Logistics refers to the outsourcing of logistics and supply chain management functions to a third-party provider. 

In this arrangement, companies rely on third-party logistics providers to handle various aspects of their logistics operations, such as transportation, warehousing, distribution, freight forwarding, customs brokerage, and other value-added services.

What Does a 3PL Do?

A Third-Party Logistics (3PL) provider is any firm offering outsourced services to control all or part of your supply chain and logistics operations. Their main goal is to ease the operations and make them as effective as possible, so that the business can focus on its key competencies. Here's what a 3PL will typically handle:

Third-party logistics provides a wide range of transportation services, in which it arranges the movement of goods from the point of origin (usually a manufacturer or supplier) to the end customer. It includes arranging various carriers, whether trucking, air freight, or rail among others, for on-time deliveries.

Warehousing and Storage: Third-party logistics manages storage inventory in warehouses, tracks stock levels, and ensures goods are stored in a safe and secure way. Such services as pick, pack, and ship come under their important services for order fulfilment.

Order Fulfilment: The 3PLs provide all the services right from ordering by the customer to picking, packing, and shipping of the product. This ensures that orders are processed with accuracy and timely dispatch.

Freight Forwarding: Some of the 3PL service providers specialise in international shipping and customs brokerage to help businesses overcome many headaches with cross-border logistics.

Returns Management: Return management is often cumbersome and time-consuming. A 3PL simplifies reverse logistics by processing product returns, taking inventory of those returns, and ensuring that returned items are handled in an effective manner.‍

The 3PL order fulfilment process

The 3rd Party Logistics market in India works towards order fulfilment process and involves several key steps to ensure that customer orders are processed, picked, packed, and shipped accurately and efficiently. Right from how to avoid shopping cart abandonment to adding to cart but not buying, here's a general overview of the 3PL order fulfilment process:

1. Receiving Orders:

Orders are received from customers through various channels such as online platforms, email, phone, or integrated systems.

Order information includes items purchased, quantities, shipping addresses, and any special instructions.

2. Inventory Management:

The 3PL provider maintains an inventory of products on behalf of its clients. Inventory management systems track stock levels, locations, and movement of goods in real time.

Inventory levels are monitored to ensure that products are available to fulfil customer orders.

3. Order Processing:

Orders are processed within the 3PL's system upon receipt. Order processing involves verifying order details, checking inventory availability, and allocating stock for fulfilment.

4. Pick and Pack:

Once orders are processed, items are picked from their respective locations within the warehouse. Pickers use picking lists or handheld devices to locate and retrieve items.

Picked items are then packed into appropriate packaging materials, which may include boxes, envelopes, or other containers. Packing may involve adding packing materials, inserts, and labelling according to the specific requirements of the order.

5. Quality Control:

Quality control checks may be performed to ensure the accuracy, completeness, and condition of items before shipping. This may involve visual inspections, scanning barcodes, or weighing packages to verify correct contents and quantities.

6. Shipping and Delivery: 

Once orders are packed and quality-checked, shipping labels are generated and affixed to packages. Packages are handed over to shipping carriers for delivery to customers.

Tracking information is provided to customers so they can monitor the status of their shipments.

7. Returns Management:

In cases where customers need to return items, the 3PL provider manages the returns process. Returned items are inspected, restocked, or processed for disposal or refurbishment as necessary.

Throughout the entire order fulfilment process, the 3PL provider utilizes technology, automation, and efficient workflows to minimize errors, reduce costs, and optimize delivery times. Effective communication and collaboration between the 3PL provider and its clients are also critical to ensure smooth operations and customer satisfaction.

Why Do You Need a 3PL?

Working with a 3PL may come with a good deal of advantages if you are into e-commerce or wish to expand your logistics quickly. This is why you should use a 3PL:

Savings: Outsourcing logistics to a third-party provider reduces the costs associated with warehousing, shipping, and staffing. The 3PLs usually have an established network and can negotiate better shipping rates due to the volume of business handled.

Scalability: As your business grows, so do your needs as far as logistics are concerned. A 3PL is in a position to upscale or even scale down its services with much ease, depending on demand; this, therefore, saves you the headache of managing order volumes that keep fluctuating.

Access to Expertise: 3PLs bring vast knowledge of supply chain management, technology, and logistics regulations that can help optimise your operations while keeping you in compliance with international trade laws.

Core Business Focus: With the outsourcing of logistics, core business functions of product development, marketing, and customer service can be concentrated on while the 3PL manages the operational intricacies of the supply chain.

Improved Customer Experience: 3PLs enhance customer experience through better shipment speed, efficient order fulfilment, and easier return processes-all factors that are core to an e-commerce business.

Types of 3PLs

Third-party logistics (3PL) providers offer various types of services to support different aspects of supply chain management. These services can be categorized into different types of 3PLs based on the range and depth of services they offer. Here are some common types of 3PL providers:

1. Transportation-Based 3PLs: These providers specialize in transportation services such as freight forwarding, trucking, air freight, ocean freight, and rail services. They focus primarily on moving goods from one location to another efficiently and cost-effectively.

2. Warehouse/Distribution-Centered 3PLs: Warehouse-based 3rd party logistics market in India offers storage, distribution, and fulfilment services. They manage inventory, pick and pack orders, and handle shipping and receiving operations within their warehouse facilities.

3. Forwarder-Based 3PLs: Forwarder-based 3PLs focus on international freight forwarding and customs brokerage services. They specialize in managing the complexities of cross-border shipping, customs compliance, and import/export documentation.

4. Financial-Based 3PLs: Financial-based 3PLs offer services related to freight payment, auditing, and financial management of transportation expenses. They help companies optimize transportation costs, manage invoices, and ensure billing accuracy.

5. Lead Logistics Providers (LLPs): LLPs take on a strategic role in managing and coordinating all aspects of a company's supply chain. They act as a single point of contact and accountability, overseeing multiple 3PLs and other logistics service providers to optimize supply chain performance.

6. Value-Added 3PLs: Value-added 3PLs provide additional services beyond transportation and warehousing, such as packaging, labelling, kitting, assembly, product customization, and reverse logistics (returns management).

There are more types of 3PLs that provide a range of options for businesses looking to outsource various aspects of their supply chain management. Companies often choose 3PL partners based on their specific needs, industry requirements, geographic coverage, and service capabilities.

Every single 3rd party logistics market in India service when it comes to assisting in e-commerce and logistics is a specialisation. 

And just like one can’t have a PhD in every field, one can’t be adept at every aspect of today’s logistical needs/essentials. Which is why brands reach out to 3PLs.

But is it worth spending over 50% of your funds on something that services at less than Max Potential?

‍Simply put - “3PLs are Ineffective or Least Effective without Collaboration.”

‍Because 3PL lacks the Data.

1. They do NOT know the brand for what it is.

2. They do NOT have the information to optimise themselves in order to suit a brand..

3. They do NOT know the hitches brand’s face as a whole.

How do you bring about that teamwork?

1. You need to connect the various different 3PLs you use, to your brand
2. Follow the thread of involvement for each and every order, over a period of time, and analyse
3. Understand & learn the roles of the various individual 3PL entities, to maximise their potential and improve combined efficiency. 
4. Gather and compile info through every iteration & reiteration - that is when you get the data to calibrate and optimise every minor aspect based on what works for your brand.

Integrating a system that can compile the collective efforts of the 3PL services, and to tune them to the needs of your brand is the specialisation of Pragma. ‍

What Pragma brings to the table

1. Aggregation of 3PL actions
2. Preparation in Accordance to Brand Data
3. Selective Optimization
4. Open-up Scope for Testing‍

What is 3PL Terminology?

Understanding the basic terms used in 3PL operations is crucial to navigating the logistics industry. Here are some commonly used terms:

• Fulfilment: Refers to the process of receiving, processing, and delivering customer orders.
• Pick and Pack: The process of selecting products from inventory and packing them for shipment.
• Last Mile Delivery: The final leg of delivery, which involves transporting goods from a distribution center to the customer.
• Cross-Docking: A logistics strategy where incoming goods are unloaded and immediately reloaded onto outbound transportation, with little or no storage in between.
• Reverse Logistics: The process of managing returns, including transportation, restocking, and disposing of returned items.
• Inventory Management: Tracking and managing stock levels by monitoring the inflow and outflow of goods in real-time.

How Third-Party Logistics Work

Third-party logistics involves several activities, which can be customized to meet a company’s needs:

• Receiving Orders: Orders are received through various channels, including e-commerce platforms or manual entries.
• Inventory Management: Products are stored in 3PL warehouses, where the level of inventory is tracked in real time to make sure that stock is always on hand to handle the fulfilment.
• Order Processing: Once an order is received, it’s processed within the 3PL’s system. Items are then picked and packed for shipment.
• Order Picking and Packing: Items will be picked by the warehouse staff and then packaged to meet the delivery requirements. This may include customised packaging or inserts, including marketing materials.
• Shipping and Delivery: Once the order is packed, it is labelled, and shipping documentation is prepared. Third-party logistics companies co-coordinate with carriers in the timely delivery of merchandise. Tracking information about the package is forwarded to customers.
• Returns Management: 3PLs handle returns, inspecting and restocking returned items or disposing of them appropriately.

What are the benefits of working with a 3PL?

1) Real-time communication to Police Partners - 

To keep your customers in the loop. To keep the Logistics provider in the loop.

Maintaining a smooth customer journey for every order.

This way there’s no miscommunication, no fake scenarios, and no fulfilment-related issues.‍

Sample Problem - NDR (Non-delivery Report)

Issue - Over 45% of NDRs are reported stating “Delivery wasn’t attempted” by customers.

Where Delivery Partners are required to attempt deliveries at least thrice in most cases. 

And not doing so places them on notice for SLA breach (Service-Level Agreement).

Solution - This is countered by keeping the 3rd party logistics companies or partners in check for every order. Where a verification is received from the customer for each attempt. And the 3rd Party Logistics provider is notified in case of a false attempt.

Meaning

• No attempt was made.
• The customer was not informed of the change in delivery time.
• Delivery partner contacted the customer but didn’t attempt delivery etc

Communication Channels - This is where Omnichannel Reach comes handy.

Where you can communicate through the customers’ choice mode - WhatsApp Broadcast, Facebook, Instagram, Email, or VoIP.

Where these channels act as a service medium for -

1. High-value transaction notifications and

2. Customer support

(Promotional content too)

Offering

• Formatted text messages
• Media messages (audio, video, document, image, stickers)
• Group messages
• Media message templates
• Messages can be sent in a pre-defined language or localised to the user's device language settings.
  Thereby answering a wider audience base.

And the best of all - is WhatsApp Automation. To enhance the consumer experience, reduce costs, and ultimately improve operational efficiency.

This service achieves real-time communication + histories that the internal teams can refer back to whenever they need it.

Monitoring

SLA criteria of your 3rd party logistics companies at every stage.

• Checking every objective
• Scope services covered
• Optimise responsibilities through performance metrics (response time, resolution time, etc.)

2) Reduce losses through elimination of RTOs

‍Monitoring various stages of an order journey with our algorithm, you get over 300 layers of verification protocols - to effectively cut down RTOs by 60%.

• Customer info check
  
  Here, details such as address and phone number are verified. And if the delivery address is a temporary address such as a hostel, resort, PG, etc, then the order is automatically flagged.
  
  
• Prior data analysis
  
  Most orders are not first orders, meaning, there is pre-existing information on previous purchases (from various eCommerce sites).
  
  Pragma can now tell the number of previous order cancellations if the same order was placed in multiple sites etc., and red flag orders if suspicious - this way you can review the flagged order and accept or reject them.
  
  
• Log data analysis
  
  This step is to reduce impulsive purchases, which directly impact RTOs when they fall under the COD mode of payment - if the order is not received, the product will have to be shipped back and the seller will incur losses.
  
  To avoid that, Pragma would use the duration of the consumers' time on your site along with other data to make the decision.

3) Simplifying Logistics through Geoanalysis

Understand what's happening in any area you target

• Locations with Maximum User churn out
• Is it expensive to deliver in the region
• Where you have lots of idle assets
• Should you expand to a region with similar potential
• Find where occasionally cancellations occur vs repeated cancellations etcetera

“Losing money on shipping may be a part of business, but finding a way to minimise that loss is up to you.”

The data gained from Geo analytics can render ideal solutions for fuel adjustments in logistics, moderating post-shipping accessorial charges and more. 

Adding this information to your existing sales data, inventory, customer profiles, demographic profiles, mailing lists and others can improve performance greatly.

Integrating your data with Geographical data can reveal where you have your customers, around what locations, what specific product/service they are looking for, and when they make their purchases - meaning, is it during a holiday celebrated widely in the region or any such data?

Data aggregator  → Analytics engine‍

4) Integrating a system for seamless Returns

It is simply a System developed to handle product returns efficiently while monitoring various intricate aspects. Some of them include Categorising requests into returns/refunds/exchanges.
For example: Equal exchange, Full refund.

• Warehouse data on specific product necessities (SKUs). 
• Closest distribution house for a cost-effective delivery.
• Real-time monitoring of order status and progress.
• Identifying fraud and tampering. ‍

5) Zero Drop-off Analysis

‍Analysing the situation that leads to a customer dropping from a purchase process is NOT an objective of a 3rd Party Logistics.

Pragma enables the brand by extracting the necessities from the various 3PLs to come up with the various reasons behind major drop-offs.

1. Implementing effective Abandoned Cart Recovery

68.63% of online shopping carts are abandoned, with over $4 trillion in purchases left behind!

BUT.. 63% of all abandoned carts are recoverable.

• Pragma analyses the key dropoff stages where customers abandon carts
• The data provides you the ability to take the right approach, and choose the right channel - WhatsApp, Facebook, Instagram, SMS or Email
• And you can further optimise by segregating Abandoned Cart Recovery - by segmenting users based on region/demographic/age/past purchases etc., and target them with different marketing approaches  
• Send cart recovery notification addressing the drop-off reasons based on analysis, compensating with offers

2. Implementing a personalised checkout experience

It’s key to implement a checkout process that suits the individual. 

An ideal checkout process involves the least friction & seamless payment among many like in the 1Click Checkout.

‍But adding the element of customer experience to the checkout process requires Personalisation. This is achieved through analysis -

• Whether they are Repeat Shopper/Subscriber/VIP Members
• The type of Device they use (for example ease of payment mode varies between PC & mobile)
• Choice of delivery option (mode of delivery, speed etc)
• The Channel of approach (via social media, ad promotions, website etc)
• Choice of payment (BNPL, UPI etc) with the Location of the individual (analyse the major mode of payment used in the area)

Most of the personalisation is addressed through brand data coupled with the 3PL logistics solutions data, working together to establish the right system.‍

1. Supply chain optimization tests to function as a whole

When a brand employs 2 or more 3PLlogistics solutions entities to accomplish a perfect customer journey, it doesn’t work without tests.‍

But to understand the influence a change in one 3PL has on the other and as a whole needs external examination.

• The delivery efficiency that varies with 3PL partners can be studied to give you the optimal 3PL that could suit your brand
• The changes in the supply chain with climate, region, time, holiday, and other criteria to prepare for demand, tweak marketing etc.
• Establish percentage of drop-off in the areas of pre-purchase, post-purchase, and post-delivery in order to optimise services.

With the wants & needs of e-commerce changing every day, this helps keep track of the…

Normal - Demand that remains relatively unaffected on the day-to-day

Unusual - Sudden increased interests, but just a fluctuation that returns to normal after a period

New Normal - Consumer interests that have increased and remain

3PL Ecommerce Platform Integration

In the fast-paced world of ecommerce, 3PL (Third-Party Logistics) platform integration has become essential for businesses looking to streamline their operations. 3PL providers offer outsourced logistics services, such as warehousing, inventory management, order fulfilment, and shipping.

By integrating these services with ecommerce platforms, businesses can automate and optimise their supply chain operations, saving time and improving efficiency.

Many ecommerce platforms, such as Shopify, Magento, and WooCommerce, offer seamless integration with 3PL providers, allowing for real-time order syncing, inventory tracking, and automated shipping processes.

This integration ensures that when a customer places an order, the 3PL provider receives the details immediately and can begin fulfilment without manual intervention.

The benefits of integrating 3PL services into your ecommerce platform include:

1. Real-Time Inventory Management: Businesses can keep track of stock levels across multiple warehouses, preventing stockouts and improving customer satisfaction.
2. Faster Shipping Times: Automated order processing and shipping allow for quicker fulfilment, enhancing customer experience.
3. Cost Efficiency: 3PL integration eliminates the need for businesses to invest in their own warehousing and logistics infrastructure, reducing overheads.
4. Scalability: As businesses grow, 3PL services can scale with them, offering more warehouse space and logistics resources as needed.

Overall, ecommerce businesses that integrate with 3PL providers can focus on core activities, such as marketing and product development, while leaving logistics to the experts.

3PL versus 4PL

While 3PL refers to third-party logistics providers that execute logistics tasks, 4PL, or Fourth-Party Logistics, takes logistics management to a higher level, overseeing the entire supply chain. Here’s how they differ:

3PL: A 3PL is actually for the execution of logistics operations in the fields of transportation, warehousing, and order fulfilment. They operate the transportation with the carriers, handle shipments, and operate the inventory.

4PL: The main contractor is a general logistics partner who takes full responsibility for the supply chain of a company. It may include regular negotiations with several 3PLs, integrating various systems of technology, and also providing the necessary strategic oversight to ensure that the supply chain is optimised.

Generally, a 4PL provides end-to-end solutions and takes responsibility for the whole supply chain, rather than just one aspect of it.

3PL Services vs. Drop Shipping

When it comes to order fulfilment, ecommerce businesses often choose between 3PL services and drop shipping, but the two models are quite different.

3PL Services:

With a 3PL provider, businesses store their inventory in the provider's warehouse. When a customer places an order, the 3PL company picks, packs, and ships the products on behalf of the business. The company maintains ownership of the inventory but outsources the logistics and fulfilment operations.

• Advantages of 3PL:
  • Greater control over inventory and packaging.
  • Faster shipping times as products are often stored in local or regional warehouses.
  • Ability to scale logistics as the business grows.
  • Customisation options for branding and packaging.
• Challenges of 3PL:
  • Businesses need to manage their own inventory and restocking.
  • Higher upfront costs for warehousing and storage.

Drop Shipping:

In contrast, drop shipping involves no inventory holding. When a customer places an order, the business forwards the order details to a supplier, who then ships the product directly to the customer. In this model, the business does not handle the physical product at any stage of the process.

• Advantages of Drop Shipping:
  • Low upfront costs as no inventory needs to be purchased in advance.
  • No need for warehousing or logistics management.
  • Ideal for testing new products without risk.
• Challenges of Drop Shipping:
  • Longer shipping times, as products may come from suppliers in different regions or countries.
  • Less control over the quality of packaging and shipping.
  • Slimmer profit margins due to higher product costs from suppliers.

In summary, businesses that want more control over their brand and logistics typically prefer 3PL services, while drop shipping is a low-risk, low-cost option for those looking to enter ecommerce with minimal investment.

3PL vs. Freight Forwarding

Though 3PL (Third-Party Logistics) and freight forwarding are often discussed in the logistics space, they serve distinct functions within the supply chain.

3PL (Third-Party Logistics):

3PL providers offer comprehensive logistics services, including warehousing, inventory management, order fulfilment, and shipping. They act as an extension of your business’s supply chain, handling the movement of goods from your warehouse to your customer’s doorstep.

• Core Functions of 3PL:
  • Storage and warehousing.
  • Order fulfilment, including picking and packing.
  • Managing shipping to customers.
  • Returns management.

3PL providers are ideal for ecommerce businesses that need to outsource their end-to-end logistics operations.

Freight Forwarding:

A freight forwarder is responsible for organising the transportation of goods, typically from the manufacturer to the warehouse or distribution centre. Freight forwarding focuses primarily on international shipping, managing the logistics of moving goods across borders, including customs clearance, carrier selection, and documentation.

• Core Functions of Freight Forwarding:
  • Organising international shipments by sea, air, or land.
  • Handling customs regulations and documentation.
  • Negotiating with carriers to secure the best shipping rates.

While freight forwarders play a critical role in global supply chains, they do not provide warehousing or fulfilment services. Instead, they act as intermediaries, coordinating the shipment of goods from one location to another.

Key Differences:

• Scope of Services: 3PL covers a wider range of services (warehousing, fulfilment, shipping), whereas freight forwarding focuses mainly on transportation.
• Customer Interaction: 3PL providers often have direct interactions with customers as they handle order fulfilment, while freight forwarders work behind the scenes to transport goods between businesses.
• Use Case: 3PL is best suited for businesses looking to outsource their logistics and fulfilment needs, whereas freight forwarding is more appropriate for businesses managing international imports and exports.

In conclusion, if your business needs end-to-end logistics solutions, a 3PL provider is the way to go. However, if you require assistance in moving goods internationally, freight forwarding services will be more suitable.

To Wrap it UP  ‍

Ensure maximum and optimal utilisation of e-commerce services along with 3PL services. By making decisions using Logistic intelligence.

• Providing you with the information to customise functions of your 3PL services to work as a whole instead of separate units
• Optimising them for the reverse logistics essentials based on location and other criteria
• Effectively managing RTOs and NDRs. (RTOs sometimes cost 5-10 times the cost of fulfilment, and brands don’t need that)
• Coordinating through a secure communication channel where the customers are all kept in the loop throughout purchase/refund/exchange journeys

Connecting the dots the right and desired way is the goal. 

The dots are the 3PLs. And with Pragma, you see the big picture. 
Simplifying all of E-commerce!