Third-Party Fulfillment Services
by Jaidyn Farar
Are third-party fulfillment services right for your business? Learn what third-party fulfillment is, how it works, and how to choose a reliable provider.
What is third-party fulfillment?
Third-party fulfillment is when an outside company, known as a third-party logistics provider or 3PL, stores, picks, packs, and ships orders for your business. You send your inventory to the third-party fulfillment center, and when orders are placed, the 3PL handles picking, packing, and shipping. This saves time, reduces overhead costs, and allows you to scale more easily.
While third-party fulfillment is a good option for many businesses, it’s not the only way to pick, pack, and ship orders. Alternatives include in-house fulfillment, dropshipping, and hybrid fulfillment.
- In-house fulfillment. Your business handles storage, picking, packing, and shipping, keeping full control over the process. This fulfillment strategy requires an upfront investment in logistics facilities, equipment, technology, and labor.
- Dropshipping. Your supplier ships products directly to customers, eliminating the need to hold inventory but reducing your control over delivery speed and quality.
- Hybrid fulfillment. You combine self-fulfillment, third-party fulfillment, and/or dropshipping based on your business needs.
Interested in perfecting in-house fulfillment? Learn more in our guide: How To Build Your Ideal Order Fulfillment Process.
What does a third-party fulfillment service do?
Third-party fulfillment services, also known as third-party logistics providers or 3PLs, handle order fulfillment from start to finish. It all starts with receiving inbound inventory shipments.
Receiving
A third-party fulfillment provider receives your inventory at their distribution center, checking each inbound shipment for accuracy and damage before adding items to their system. They organize products for efficient storage and log them into the warehouse management system (WMS), ensuring they’re ready to go when a customer places an order.
Inventory management
The 3PL tracks inventory levels, locations, and movements to make sure stock counts are accurate; this real-time visibility helps prevent stockouts or overstocking. They integrate their inventory management software with your sales channels so updates flow seamlessly from one system to another.
Inventory management tasks may also include the following:
- Conducting regular cycle counts and audits
- Managing low-stock alerts and reordering recommendations
Picking and packing
When an order is placed, 3PL workers select the items (picking), then securely pack them according to your specifications.
While pickers are responsible for choosing the right products, packers will double-check for accuracy before packing. If you have special packaging requirements, such as adding inserts or using custom packaging, packers will take care of this too.
Shipping
The fulfillment provider partners with carriers to ship orders at the best rates and speeds. They handle the following shipping-related processes:
- Generating shipping labels
- Selecting the best carrier and service level
- Scheduling pickups with carriers
- Providing tracking information to customers
- Handling customs paperwork for international shipments
Returns management
If a customer sends back an item, the 3PL processes the return by inspecting the product, updating inventory, and restocking or disposing of the item based on your policy.
How does third-party fulfillment pricing work?
On an episode of the Unboxing Logistics podcast, Adam McCoy from eHub explains that 3PL pricing depends on the services your business needs.
He says, “There's a cost for every touch. … When [a 3PL] picks an order, packs an order, [or] ships an order, all of those different touchpoints result in a fee.”
Paying a fee for every touchpoint might sound overwhelming, but this pricing model allows for flexibility, ensuring that your business only pays for services it uses.
Adam gives an example: “You may have one-way logistics, where [the 3PL is] doing the pick and the pack and the ship, but they're not handling returns. … So that could differentiate the services and therefore the price.”
For tips on choosing a 3PL, listen to the full podcast episode: Choosing the Right 3PL.
Benefits of using a third-party fulfillment service
With the right 3PL, you’ll save time and money, set your business up to scale more rapidly, and benefit from the expertise of an experienced logistics partner.
Time savings
Outsourcing fulfillment frees up your time by taking warehousing, picking, packing, and shipping off your plate. Instead of managing inventory and handling orders yourself, you can focus on growing your business, improving products, or enhancing customer experience.
Cost savings
In the right circumstances, using third-party fulfillment can cut logistics costs.
In-house fulfillment requires an investment in warehouse space, technology, and employees. It can get expensive, especially if your processes aren’t fully optimized.
Because 3PLs operate at scale, they negotiate better shipping rates and optimize storage, reducing overhead. Plus, you only pay for the space and services you use, meaning you can more easily adapt to fluctuating demand.
Scalability
Working with a 3PL allows your business to grow quickly without the stress of finding more storage space or hiring more staff. Whether you experience seasonal spikes or rapid growth, a fulfillment provider can quickly adjust to changing order volumes—meaning you’re not left scrambling.
Expert logistics support
Fulfillment providers specialize in logistics, bringing expertise in warehousing, shipping, and inventory management. They also stay updated on the latest technology and carrier options, giving you access to resources you might not otherwise be able to afford.
This expert support can be invaluable for businesses that prefer not to build out a fulfillment network on their own.
When to keep fulfillment in-house
We’ve covered many benefits of third-party fulfillment. But plenty of businesses—including both SMBs and major enterprises—choose not to go the outsourcing route. What gives?
Simply put, there’s not one right way to handle fulfillment—no perfect strategy. Every organization must evaluate its resources, capabilities, and priorities before choosing the fulfillment method that works best for them.
So, when should you consider keeping fulfillment in-house? The most important factor to consider is control. If your business prefers full oversight over the delivery process and customer experience, it may be best to handle fulfillment internally. While most 3PLs are professional and reliable, issues can still crop up when you allow someone else to manage your inventory and fulfillment processes.
Keeping fulfillment in-house can also make sense for businesses with low order volumes. If you're just starting out and handling a manageable number of orders, fulfilling them yourself is usually more cost-effective than outsourcing.
Businesses with highly customized packaging or special handling requirements may also benefit from in-house fulfillment. Similarly, companies that sell high-value or sensitive items often prefer to oversee security and inventory management themselves.
Choosing the right third-party fulfillment partner
Choosing a third-party fulfillment service is a little bit like online dating—a potential partner might sound great in theory but not live up to your expectations. To find the right match, you’ll want to carefully research all your available options.
As you connect with 3PLs, make sure to determine whether their pricing, technology, reliability, customer support, and niche expertise align with your business’s needs. Let’s break each factor down.
Cost
Every 3PL has a unique pricing model, so it’s crucial to compare pricing structures before signing a contract. As you meet with potential partners, ask what they charge for onboarding and technology integration, storage, picking and packing, shipping, and additional services like returns processing or custom packaging.
After requesting a detailed breakdown of fees, use your projected order volume to estimate what you’ll pay for fulfillment. Then compare those costs to in-house fulfillment or other providers.
Keep an eye out for hidden fees—like long-term storage charges or account management fees—so you don’t face unpleasant surprises down the road.
Technology integration
Beware of outdated or clunky technology—this could quickly lead to bottlenecks and inefficiencies. Instead, verify that the provider uses up-to-date inventory management software (and other systems) to keep things running smoothly. Additionally, make sure they can seamlessly integrate with your ecommerce platform and order processing tools.
Reliability
Customers expect fast, accurate deliveries, so a reliable 3PL is essential. Remember, it’s your reputation on the line! Late shipments, frequent errors, or inventory mismanagement can quickly erode trust with customers.
To assess reliability, look into a 3PL’s order accuracy rate, on-time shipping performance, and reviews from other clients. Visiting one of their warehouses and asking about contingency plans for peak seasons can provide valuable insight into their dependability.
Customer support
A responsive and knowledgeable support team makes a huge difference when issues arise.
How long does it take the provider to respond, and when are they available? What communication channels do they offer? Answer these questions now so you don’t end up with a 3PL that’s hard to reach when disaster strikes.
Expertise in handling specific products
If your products have special storage, packing, or handling requirements, it’s worth looking into 3PLs with experience in your particular niche.
Whether it’s temperature-controlled storage for perishable goods, secure handling for high-value items, or compliance with regulations for hazardous materials, the right fulfillment partner should have the necessary infrastructure and expertise.
To ensure a good fit, make sure to ask about certifications, storage capabilities, and past clients in similar industries.
Keeping fulfillment in-house? Cut costs with EasyPost
Any business handling order fulfillment in-house knows that shipping accounts for a significant portion of logistics expenses. Fortunately, shipping platforms like EasyPost make it simple to save money. With the EasyPost suite of APIs, you can quickly integrate with carriers, access pre-negotiated rate discounts, and create a smoother delivery experience for your customers.