June 14, 2024
Third-party logistics involves entrusting a separate business entity to manage the finished goods intake, storage, picking, packing, and distribution on a retailer’s behalf, as the retailer. A white label service, the proliferation of eCommerce fulfilment centres means 3PLs are being forced to innovate, and as a result, many offer additional complementary services such as inventory analysis dashboards, outsourced customer service, product customisation, customs clearance, and extending deeper into the supply chain, with manufacturing, procurement, and strategic consultancy.
- Insourcing is the method of carrying out order fulfilment in-house. This requires investment in one’s own pick and pack operations, warehousing and storage, along with fully-trained staff and equipment such as pallet racking, barcode scanners, parcel conveyor belts and forklift trucks. While insourcing fulfilment helps Shopify sellers retain greater control, it can be more capital-intensive, involves fixed overheads, and can pull retail decision-makers’ attention away from other mission-critical business operations such as marketing, sales, strategy, competitor analysis, customer service, and new product development.
- Dropshipping is when an eCommerce store lists products for sale, but doesn’t have any physical interaction with the products. This can help smaller Shopify businesses from expanding their product range, although at the expense of exclusivity, as most dropshipping suppliers work with multiple vendors. Once a product is sold, a supplier will ship directly to the consumer, and the retailer earns a revenue share for each sale. While this option is much less capital-intensive, and requires zero investment in physical operations, profit margins are significantly less with the dropshipping business model.
*It’s important to mention that fulfilment setups are not necessarily mutually exclusive; multichannel retailers often have their own fulfilment operations, and rely on third-parties for extra warehouse space, and dropshipping specialists to expand their product range.
3PLs vary in many ways, and the first step is to check their third-party reviews on platforms such as Google My Business, Trustpilot, Clutch and G2 Crowd, along with their on-site customer success stories. It’s also sensible to check out the 3PL’s employee reviews on Glassdoor, after all, happy employees typically translate to an excellent client experience. Some specialise in particular product verticals, while others focus on particular business models, such as subscription. Pricing varies in terms of minimum monthly spend, average daily shipments, and setup costs including website integration. Fees are determined by order picking, packaging, shipping, returns, and storage volume requirements. 3PLs are also diverse in terms of partnerships, and work with a range of agencies, eCommerce platforms, packaging suppliers and technology providers. Once you’ve found the best fulfilment centre to suit your needs, then begins the negotiation stage, at which point it’s best to agree on KPIs (key performance indicators) and OKRs (objectives and key results), so that both parties can monitor performance in real-time, and on a periodical basis.
The first step of working with a Shopify 3PL is to establish lines of communication, between the 3PL and your suppliers, leadership key contacts, and your customer service representatives. Then, your developers will work with the fulfilment centre to connect your Shopify store, marketplaces, and order management system with the 3PL’s warehouse management system (WMS).
Once integration is complete, and finished goods are sent from supplier to fulfilment warehouse, products can be placed into specific picking locations, and orders can start flowing in. As a customer places an order, a picking note is generated on the 3PL’s WMS, along with packing instructions. The picking team will collect the product(s) from the picking location(s) for each order, and take to the packing bench, ready for packaging and application of the shipping label. Items are grouped by parcel carrier, ready for collection by the 3PL’s courier partners. At each stage, the picking and packing team scans the products with a barcode scanner, and tracking details are sent to the customer, so that they can monitor their delivery progress through to the final mile. Depending on courier partner, each will offer a variety of in-flight delivery options, such as timed delivery windows, photos of the parcel during its journey through the courier network, and options such as stating a ‘leave safe’ place. 3PLs can go beyond this, and also offer returns support, and help with managing customers’ WISMOs (‘Where is my order?’ queries).
Outsourcing Shopify fulfilment means you typically only pay for what you use, and gives you access to the shared, collaborative buying power of all of the other retailers that use the same 3PL. This can mean discounted packaging, shipping, and storage rates. The best 3PLs will act as a partner, and offer strategic consultancy to help you find new markets, and achieve new efficiencies, based on their, in some cases, decades of experience helping other, similar eCommerce entrepreneurs scale their enterprise. Some 3PLs can even help increase your order conversion rate, with later order cut-off times, helping you offer next-day delivery for orders as late as 10pm. 3PLs with overseas fulfilment centres can also help you offer next-day delivery overseas, and minimise customs paperwork.
Shopify's Fulfilment Network (SFN) is only available in the USA currently. It's a fulfilment service app that retailers can use to integrate with Shopify's USA 3PL partner, Flexport. The benefits of this service for USA-based retailers is that you have the option to ship your inventory to a single fulfilment centre, and Flexport will then distribute your inventory throughout its own network of other fulfilment centres. Flexport has packaging requirements, and a range of restricted products.
While some fulfilment centres are focused on the logistics of processing orders, others go one step further and offer deep insights into inventory analysis. Systems such as Zendportal gives Shopify merchants better control and complete visibility of their supply chain operations, with an inventory analytics dashboard. This technology houses all shipment data in one place, and allows retailers to automatically send branded tracking notifications. Real-time data also helps online sellers make smarter business decisions when it comes to demand planning; having a system tell you when to, and not to order new stock for replenishment, can help avoid understocking (and missing out on sales), and overstocking (where capital is tied up in excess inventory, that could be better allocated elsewhere).
Zendbox works with leading brands including PRIME, USN, Puresport, and fourfive. Processing over three million orders annually, Zendbox connects eCommerce businesses’ sales channels, such as Shopify, eBay, and Amazon, with Zendportal, Zendbox’s virtual warehousing, inventory analysis & management technology. This helps retailers streamline their business operations, giving them greater visibility of their supply chain activity.
Complete Strength founder, Rob Whitfield, has acquired new customers thanks to Zendbox’s 10pm order cut-off time, adding: “The majority of our orders will come in of an evening. When we had an earlier cut-off time, we missed out on sales. Now we’ve got a later cut-off time with Zendbox, we get less abandoned carts. We have also noticed customers are shopping with us simply because of the later cut-off time.”
With the DTC (direct-to-consumer) model experiencing robust growth, the future is bright for Shopify, businesses powered by it, and 3PLs that help them process their orders more efficiently. The 3PL market is predicted to nearly triple in size by 2030, and due to this, the need for differentiation between fulfilment houses will grow too. Consumers increasingly demand personalised, omnichannel ‘on-brand’ experiences, along with fast, environmentally-friendly, yet free shipping. 3PLs will be under greater pressure to innovate and leverage the latest technology to drive efficiency, and retain their strongholds as a key method for ambitious Shopify brands to meet their growth targets.
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