At a certain growth stage, dropshippers need to consider upgrading to 3PL fulfillment and controlling their logistics.
This is because, traditional dropshipping businesses can only scale up so far, even when using a dropshipping agent and the best processing tools available.
But is your business ready to take the next step? And what are the downsides? Let’s take a closer look at 3PL fulfillment.
What is 3PL Fulfillment?
3PL stands for Third Party Logistics.
3PL companies manage inventory, warehousing, and order fulfillment for e-commerce companies. Because these companies integrate warehousing and transportation, they offer a more complete logistics solution.
3PL fulfillment companies manage:
They have processes for receiving expected inventory and tracking incoming units, which should sync with your online store and inventory management systems.
Your inventory is stored in the 3PL’s fulfillment centers. Many 3PLs allow you to distribute your inventory so you can offer expedited local shipping.
A 3PL has a picking team that processes orders with your stored inventory.
Orders are packed by the company, often with some options for your customization or specifications.
3PLs typically purchase and print shipping labels for your orders and offer you a range of shipping providers and pricing options. In the US, most 3PLs offer 2-day shipping that allows your business to compete with Amazon and other online retailers.
Some 3PLs will also offer return processing or allow you to include return labels with your orders.
In other words, working with a 3PL fulfillment company allows you to offer the same level of service as other online retail giants. Also, it gives you more insight, options, and control over your logistics and fulfillment processes.
You may also occasionally see references to “4PL”, i.e. including supply and manufacturing, in their portfolio of services.
AliExpress Suppliers vs Shipping Agents vs 3PL Companies
For a better understanding of how 3PL works, here’s a comparison:
Suppliers are invested in maximizing turnover of their own inventory, so they may promote products that aren’t a good fit for your business.
Agents don’t represent specific products, so if they do sourcing, they will help you find the best products and suppliers.
|3PL fulfillment companies do not do product sourcing.|
Some suppliers are dropshipping themselves, and pass marked-up prices along to you.
Because agents order in bulk, they are able to negotiate competitive prices.The agent per-order processing fee is added on top of the prices.
|As in agents’ case, you are able to get competitive prices by ordering in bulk.|
However the processing fee structure is more complex and and higher in 3PL case, which includes warehousing cost.
A dropshipping app can streamline the ordering process, but it can still be time consuming to process orders every day.
An agent can use a CSV file to process up to 100 orders a day in a batch, and they can be paid with a single payment transfer for the batch of orders.
|3PL companies typically use WMS (warehouse management system). So you need to upload or enter the orders yourself.|
Suppliers completely manage fulfillment, so you don’t have any insight or control over the process.
Agents give more visibility into the fulfillment process, including sharing information about inventory levels and delivery companies.
|The highest visibility among the three. You can view the inventory levels and the order status from their WMS.|
An AliExpress seller typically takes 2-5 days to process your order and uses shipping methods like ePacket or AliExpress shipping that will deliver your order in 20-40 days.
A shipping agent usually takes 1-2 days to process your order and uses faster shipping methods. Some own overseas warehouses and can ship your orders from warehouses that are closer to the destination address.
|The fastest among the three. 3PL uses automated warehouses and domestic shipping in your target countries.|
Are You Ready to Take Your Dropshipping Business to the Next Level?
Generally speaking, you should consider upgrading to 3PL fulfillment when your current business model is no longer efficient.
Most dropshippers start out by merely building a storefront, finding a supplier, and having the supplier manages shipping and fulfillment.
Over time, if your business is successful, you will have more orders than you can manage every day.
You then contract with a dropshipping agent, who manages suppliers and shipping for you, so you can work on product research, marketing and advertising, and customer service.
Suppose your business scales even further, and you have more orders than your dropshipping agent can handle effectively. In that case, it may be time to scale up. 3PL fulfillment is an excellent choice for dropshippers when:
- You consistently have more than 100 orders a day
- Your agent or supplier is struggling to keep pace with your orders
- You want more control over your inventory, storage, and shipping options
- You want to avoid having your packages delayed by customs, duty, or import fees
- You want to offer local, expedited shipping to your customers
- You have enough capital to invest in the upgrade.
Pros of 3PL Fulfillment
3PL fulfillment isn’t the right choice for every dropshipper. Here are the most common pros and cons.
Faster and More Reliable Shipping
3PL usually offers same-day order processing and local shipping that delivers the product faster.
Depending on your warehouse and customer locations, you can use 3PL fulfillment to bypass customs and import problems, improving the customer experience.
Lower Your COGS
Upgrading to local warehouses allows you to order in bulk from your suppliers and store inventory against future orders. This lowers your purchase price with your supplier.
Reduced Shipping Cost
Because 3PL warehouses typically serve a large number of customers, they can get bulk pricing from carriers and that reduces your shipping cost.
Improved Inventory Control
Working with a 3PL company lets you automate and control your inventory, monitoring how many units you have on hand and restocking as needed. You can fulfill orders with confidence and plan ahead for anticipated demand.
Many 3PL companies will perform QC on your inventory for you. This means that you can often address quality issues or product discrepancies before they reach your customer.
Trusted by vendors
Many ad platforms and payment processing providers prefer working with companies with inventory control, which reduces the likelihood that your accounts will be suspended or banned on a whim.
Many 3PL companies will also manage and expedite product returns for you.
If you choose the right 3PL fulfillment company, they will have enough capacity and a range of services so that they can grow with you over time.
Do your products have special shipping requirements? Do you want to include marketing inserts or return labels? Do you want branded boxes?
If you don’t want these services now, you may want them in the future, and many 3PL fulfillment companies offer them.
Cons of 3PL Fulfillment
Naturally, all these benefits come with a cost. You will need to pay for storage space, shipping fees, and labor costs for receiving, picking, and packaging.
To protect big shipments, sometimes you need to pay for a shipping insurance. You will also need to spend some upfront onboarding costs.
Also, some 3PLs offer various customization and upgrades, including return labels, branded shipping boxes, and other services. Consequently, you will have to spend money on design and full branding.
Overall, 3PL fulfillment comes with greater risk because you hold inventory. Compared to dropshipping model, you are more likely to make greater losses if you make a wrong decision in your business, such as choosing a product with no demand (use our product research system to avoid that).
How to Choose a 3PL Fulfillment Company
Here are some of the key criteria to look for if you are ready to work with a 3PL fulfillment company.
Reputation is always critical. Ask your business contacts for recommendations or look for online reviews.
Most importantly, do business with companies that have been around for a while. If you can’t visit their facilities in person, request a virtual tour.
Do they have a warehouses in your target countries? How do they manage international shipping?
Proven Track Record
Good 3PL companies will tell you their return rate due to shipping damage or errors and their on-time delivery track record. If they won’t disclose this information, look elsewhere.
Capacity and Scalability
Do they have room in their warehouses for your inventory? What if you want to grow in the future?
Can they handle your volume? How many SKUs do they support?
Do they have an organized, transparent process for fulfillment, shipping, and returns?
Software and Apps
At the very least, your 3PL should use bar codes and WMS software to track your inventory precisely. Even better, look for a 3PL that integrates with your system, so you can automatically track inventory against orders.
Service and Support
Some 3PLs offer customer support for shipping and returns. Even if they don’t, you need to be able to communicate with the company and trust them as a business partner.
What is Their Service Level Agreement?
Look specifically for provisions for late, lost, or broken items; will you be refunded or credited? Do they include a non-disclosure agreement?
Be sure you know details like daily order cutoff times and hours of operation, including nights, weekends, and holidays. It is always a good idea to get expert or legal advice before signing a contract.
With these factors in mind, we’ve compiled a list of the best 3PL fulfillment companies for dropshippers.
Reconnify’s Directory of 3PL Fulfillment Companies
|Name||Warehouse||Cost Structure||Shopify Integration||Remarks|
|China||Yes||Product photography service – Get professional photos/videos to your products.|
|China||Standard (1-30 orders / day) $0.99 per order|
Advanced (30-100 orders / day) $0.95 per order
Pro (100+ orders / day) $0.89 per order
|Private app||Fluent and professional English customer support|
|China, USA, Europe, Australia||Yes||Support Subscription Boxes|
|China, USA, Europe, Australia||Yes|
|USA, Canada, Europe, Asia||Yes||Good for fashion bizs|
|USA||Need to request a quote||Yes|
|USA||Need to request a quote||No|
|USA||0-100 orders per month from $2.25 per order|
100-2500 orders per month from $1.75 per order
2501+ orders per month from $1 per order
|USA||Yes||Support b2b bizs|
|USA||Yes||Offer Same-day fulfillment|
|USA, Ireland||Need to request a quote||Yes|
|USA||Need to request a quote||No|
Successful dropshipping companies eventually leave dropshipping behind and become full-fledged e-commerce brands.
When you are ready to grow your business beyond the limits of dropshipping, improving control and efficiency, and offer your customers new service level and satisfaction, 3PL fulfillment is a reasonable option.