The third-party logistics (3PL) industry is experiencing phenomenal growth, as demand for 3PL services from businesses across numerous industries continues to rise. The size of the global 3PL market – which is estimated at US$974.6 billion in 2022 – is projected to increase to US$1.3 trillion by 2026, representing a compound annual growth rate (CAGR) of 8%, according to a recent report.
One industry in particular that is fueling the growth of the 3PL industry is ecommerce. Indeed, ecommerce businesses account for almost 53% of the total 3PL revenue, and around 60% of all shipments made by ecommerce companies are handled by 3PLs.
The question that most ecommerce companies have to grapple with is not if they should outsource their logistics operations to a 3PL, but which 3PL they should work with. This is a difficult decision: In the US alone, there are currently 24,406 3PL providers – an increase of 2.1% from last year.
With so many options to chose from, how can you choose the right 3PL for your ecommerce business? In this guide, we’ll walk you through the four steps you need to take to find a 3PL partner that meets your business needs.
In order to select the right 3PL partner, you must first gain a good understanding of why your ecommerce business needs a 3PL.
Typically, there are two main reasons why companies start searching for a new 3PL partner:
There are many other factors that may compel your ecommerce company to look for a new 3PL. It’s imperative that, before you commence your search for a 3PL provider, you develop a clear understanding of the reasons why you need a 3PL – as this will help guide you on your journey to find the right 3PL for your business needs.
Once you’ve obtained a solid grasp of the reasons why your ecommerce business needs a 3PL, you should begin researching and learning more about the numerous 3PL providers out there.
Broadly speaking, there are two types of 3PLs:
Depending on your business needs and goals, you may find that a traditional 3PL or a more flexible 3PL is a better fit for your business – or you may even discover that it would be beneficial for you to forge business relationships with both types of 3PL providers.
As you research online, you should create a list of those 3PL providers that you think your business could potentially work with.
After you conduct your online research, you should begin to evaluate different 3PL providers. There are some important criteria to consider, including:
For example, when you engage Amazon Multi-Channel Fulfillment (MCF) as your 3PL, you get access to Amazon’s world-class logistics network – which stretches across 27 countries and has over 2,000 facilities (including more than 200 fulfillment centers) as well as 120,000 trucks, vans, and planes, and 1,275,000 associates and partners – and you can leverage this network to fuel the grow of your ecommerce business around the globe and across various sales channels.
Also, on the technology front, you should check to make sure that:
- The systems that your 3PL uses can be easily and effectively integrated with your order management, enterprise resource planning (ERP), and other systems. Some 3PLs – like MCF – offer free-to-use integrator apps and other integrations that can swiftly and seamlessly connect the back-end systems that you and your 3PL use.
- Your 3PL will safeguard the security of your data and other IT assets. Some 3PLs – like MCF – have achieved ISO 27001 certification, demonstrating a commitment to upholding industry-leading IT security best practices.
By taking the time to evaluate the 3PLs you are considering based on the criteria above and other factors, you should be able to narrow down your list to a handful of prospective providers.
You will probably want to start reaching out to the 3PLs on your short list to arrange a meeting (in person or virtual) to find out more about the services they offer (and take a tour of their facilities, if possible), tell them about your company’s challenges and goals, and determine if they would be a good fit for your ecommerce business.
After completing the evaluation process, you need to confer with stakeholders across your ecommerce company and decide on which 3PL provider you would like to work with.
This is a high-stakes decision – which will have an enduring impact on the performance of your business in key areas such as on-time delivery, customer satisfaction and retention, and profit margins – so it’s vital that you choose carefully and wisely.
Here are a few pieces of advice that can help guide you in your decision-making process:
- Think long-term when choosing a 3PL. You should select a 3PL provider that can not only help you conquer the logistics challenges that you face today, but also will be able to help your business scale in the future.
- You can choose more than one 3PL. Many ecommerce businesses partner with multiple 3PLs, although some do opt to work with only one 3PL provider.
- Given the supply chain challenges and volatility we have seen over the past few years, having a flexible 3PL partner is paramount. Choose a 3PL partner that you think will be able to consistently provide flexible, first-class logistics services – no matter how supply and demand conditions change.
- Although price is an important factor, you should really think about which 3PL provider is going to drive the most value for your customers. As the legendary investor Warren Buffett said, “Price is what you pay. Value is what you get” – and these words of wisdom hold true when it comes to 3PLs. Choose the 3PL that you believe can really help you delight your customers (and thereby drive business growth).