3PL Distribution Guide
With so many operational activities to oversee, it’s not always viable for ecommerce businesses to handle everything in-house. In these cases, brands often outsource to a third-party logistics service provider, or 3PL.
But selecting the right 3PL for your brand can be a complicated task, as there are many different elements to consider. In particular, ecommerce companies should always evaluate a 3PL candidate’s distribution network — that is, the number and locations of 3PL warehouses and/or fulfillment centers that the 3PL runs.
The size and reach of a 3PL’s distribution network is more important for an ecommerce business than one might think, as it directly impacts your business’s shipping costs, 2-day capabilities, and scalability in the future.
So to position your business for growth, it is absolutely critical to find a 3PL partner with a distribution network that fits your vision and enables your brand to reach its goals.
In this article, you’ll learn what 3PL distribution is, why it’s important to partner with a 3PL that has a distributed network of warehouses, and how ShipBob’s fulfillment center network helps DTC businesses grow.
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What is 3PL distribution?
3PL distribution refers to when an ecommerce business outsources distribution (that is, the processing, fulfillment, and shipping of orders) to a third-party logistics company.
In 3PL distribution, your 3PL partner handles all logistics services involved in distribution, including:
- Inventory reception, storage, and labeling
- Kitting and assembly (when necessary)
- Arranging shipping and/or last-mile delivery
- Reverse logistics and returns
A 3PL may perform these functions for an ecommerce company in just one warehouse or fulfillment center, or may utilize multiple fulfillment centers in different locations.
What role do fulfillment centers play in logistics?
Fulfillment centers are facilities where ecommerce businesses store their inventory and prepare orders to be shipped to end customers.
Typically, fulfillment centers receive inventory directly from an ecommerce business’s manufacturer or supplier, and then store that inventory within the facility. Once an order is placed, that order is prepared in the fulfillment center — meaning the purchased SKUs are picked and packed in a box — and set aside to be shipped out later (usually through last-mile shippers such as UPS, FedEx, and USPS).
In this model, ecommerce brands get the best of both worlds: while they are not responsible for the facility’s rent, maintenance, or labor costs, they get access to warehouse space for their inventory and can completely outsource time-consuming distribution processes such as receiving, stowing, picking, packing, and shipping processes.
How 3PLs with distributed warehouses are facilitating DTC growth
While some third-party logistics companies operate using a single fulfillment center, more established 3PLs will have a network of fulfillment centers in various locations across a country, or even internationally.
For ecommerce companies, partnering with a 3PL that has an extensive distribution and fulfillment network can serve as a major competitive advantage. Here are just a few of the benefits that ecommerce businesses can expect from working with a 3PL with a sizable distribution network.
Offer fast shipping to meet customer expectations
Thanks to retail giants like Amazon, customers have come to expect lightning-fast shipping for their orders, with 67% of consumers expecting 2-day delivery. 3PLs with a broad network of distribution centers enable smaller DTC brands to meet this expectation by optimizing the physical distribution of products.
With multiple fulfillment centers at their disposal, the right 3PL can store portions of your inventory in different locations. This way, when an order comes in, it can be processed, fulfilled, and shipped from the fulfillment center closest in proximity to the final delivery location.
This greatly shortens the average transit distance, which results in significantly faster deliveries that increase customer satisfaction.
“For us, changing from a 3 week lead time to 3 days through ShipBob is what drove our sales. Even now, one of the primary reviews we get on Etsy is, ‘My order arrived really quickly!’ Having the stock locally in the US means that lead times and shipping times are minimal, and that you’ll get higher conversion rates because you’re offering better lead times.”
John Greenhalgh, Co-Founder of A Year of Dates
Reach international audiences without the headache
For DTC brands that want to expand internationally, global shipping can be extremely complicated and time-consuming, as you have to consider import laws and customs procedures.
It can also be extremely expensive, as international orders are subjected to import duties, taxes, and fees that can balloon shipping costs, discourage buyers, and cut into your profits or bottom line.
3PLs with international warehouses help alleviate these burdens by allowing you to store inventory within the country you’re shipping to. This drastically reduces the distance orders must travel, meaning that orders arrive more quickly and cost less to ship.
Additionally, because your inventory is stored locally and never leaves the country, your brand can bypass many import duties and customs fees that you would otherwise be forced to absorb or pass on to the customer.
Distribute inventory more tactically
When you have access to a solid network of fulfillment centers, you have the freedom to distribute your inventory between multiple locations.
By distributing inventory strategically, you can better manage inventory holding costs, allocate product to best meet customer demand regionally, and protect your business from inventory loss in the event of unforeseen disasters.
Some 3PL services include software and analytics tools to help you distribute inventory. ShipBob, for example, has built-in analytics to provide you with the historical sales data to help you understand where your current customers are buying from, and which distribution centers see higher inventory turnover rates than most.
Based on this data, our tool calculates your ideal inventory distribution proportions, so that you know precisely how much inventory to store at each fulfillment center to minimize shipping time, maximize cost savings, and prevent stockouts.
“We have access to live inventory management, knowing exactly how many units we have in Texas vs. Chicago vs. New York. It not only helps with our overall process in managing and making sure our inventory levels are balanced but also for tax purposes at the end of the year. ShipBob made that entire process very simplified for our accountants and us.”
Matt Dryfhout, Founder & CEO of BAKblade
Consolidate your fulfillment to a single 3PL
To expand into new regions, some ecommerce businesses choose to partner with several different 3PLs in different areas, each of which operates a single fulfillment center.
However, this approach is almost always more trouble than it is worth; not only does it require a business owner to constantly check in with different stakeholders, but each 3PL’s idiosyncratic warehousing SOPs can easily lead to inconsistent customer experiences and pointless inefficiencies.
Working with one 3PL that runs multiple fulfillment centers eliminates this hassle. With the right partner, you gain all the benefits of a broad distribution network without complicating communication or juggling dozens of platforms — and with one standard set of procedures for ecommerce fulfillment, orders are fulfilled uniformly every time.
How ShipBob helped TB12 grow with their distributed 3PL network
In 2018, TB12 — a growing health, wellness, and fitness brand that sells supplements, protein power, and other products that promote performance enhancement — knew the time had come to scale.
With customers all over the US, they partnered with ShipBob to expand beyond the Northeast while simultaneously improving delivery times.
ShipBob offers a robust distribution network, with dozens of fulfillment centers across the country and abroad. By distributing their inventory between various ShipBob fulfillment centers, TB12 achieved 2-day shipping on their orders and reduced shipping costs significantly, enabling them to offer free shipping once a certain purchasing threshold is hit to increase AOV and conversions.
“As we started to hit that first inflection point of growth, it became apparent we needed to look for a 3PL that could help us expand geographically in the US and also drive down shipping costs and expenses. Since switching to ShipBob from our previous 3PL, our fulfillment cost on comparable orders went down by 25%.”
Michael Peters, VP of E-Commerce Operations at TB12
But distributing inventory with ShipBob did not make TB12’s inventory management or fulfillment more complicated — in fact, it got easier. Because all of ShipBob’s fulfillment centers operate under the same vetted warehouse management system (WMS), TB12’s inventory was stored and received uniformly across locations, and orders were fulfilled accurately and efficiently.
With ShipBob keeping their logistics operations and distribution organized, TB12 has grown over 75% since 2019, and continues to innovate new ways to promote the health of their customers.
“We grew our ecommerce business by around 75% last year. The ability to execute as well as we did was due to ShipBob’s team and facility in Pennsylvania.”
Michael Peters, VP of E-Commerce Operations at TB12
Getting started with ShipBob is easy
With a global network of fulfillment centers, ShipBob makes it simple to optimally distribute your inventory across multiple locations, save on shipping costs, and achieve 2-day delivery.
ShipBob’s distribution network includes dozens of fulfillment centers across the US, Europe, and Australia, making both regional and international expansion simple and cost-effective for smaller DTC brands.
Using our analytics, merchants can calculate their ideal inventory distribution to better meet customer demand while avoiding stockouts, backorders, and deadstock.
Powered by best-in-class fulfillment technology, ShipBob also provides full visibility in operations throughout the entire distribution network. From one dashboard, merchants can check real-time inventory levels, track orders through the supply chain, manage warehouse operations, and more — all while ShipBob’s trained experts handle order processing, fulfillment, and shipping for you.
To further optimize your 3PL experience, ShipBob also tracks critical metrics such as inventory turnover, order accuracy, and time in transit, and on-time percentage at every location you utilize.
With this data, you can identify opportunities for improvement and optimize supply chain management for success at every location you utilize.
3PL partner FAQs
How does a 3PL work?
3PL companies work with DTC brands and ecommerce businesses to take over the execution of various logistics operations, such as inventory management, order fulfillment, and shipping. 3PLs receive finished goods directly from an ecommerce brand’s manufacturer or supplier, store them in one or multiple fulfillment centers before picking, packing, and shipping orders as they come in.
What is the difference between a 3PL and a 4PL?
Third-party logistics services involve outsourcing the distribution and logistics of your business to a 3PL company, while letting you retain oversight of the entire supply chain. On the other hand, fourth-party logistics services involve outsourcing not just the distribution and logistics management, but also the management and organization of your entire supply chain.
Do 3PL companies use multiple fulfillment/distribution centers?
Not all 3PL providers utilize multiple fulfillment or distribution centers. However, 3PLs that do have a broad fulfillment center network (like ShipBob) allow merchants to split inventory between multiple fulfillment centers to improve shipping speed and efficiency while keeping costs low.
Does ShipBob have a distributed network of fulfillment centers?
ShipBob has dozens of fulfillment centers distributed across many countries and continents to support local, regional, and international fulfillment.
Where are ShipBob’s fulfillment centers located?
ShipBob has multiple domestic fulfillment centers in the Midwest, Northeast, Pacific Northwest, Southeast, Southwest, and West Coast of the US. It also maintains fulfillment centers in international locations including Canada, Poland, Australia, and the UK.