Logistics

How to Start an E-commerce 3PL Business

If you are planning to start a 3PL business, here is our detailed guide that will help you to create a successful e-commerce 3PL business while focusing on all core aspects of a 3PL business plan

Team Hopstack
January 29, 2023
how to start a 3PL business

Introduction

Over the past two years, the logistics industry has undergone profound transformative changes. Technological advancements, changing customer behavior, and a rise in delivery vehicle traffic are a few reasons for the change.

It is anticipated that the global 3PL industry will exceed $1.3 trillion by 2026 and $1.75 trillion by 2027 growing at an average 8% CAGR. 

Before starting a 3PL business, it is very important to understand the market trends, opportunities, competition, etc. Starting a 3PL business can be quite overwhelming, but starting it off right with a proper 3PL business plan will help in flourishing the business.

This blog will provide a detailed insight into the basics of how to start a 3PL business and its business opportunity.

Business Opportunity in Starting a 3PL Company

The benefits of starting a 3PL business are immense. The development of e-commerce and the shift in customer expectations are creating new business opportunities for 3PL firms.  

Nowadays, customers are leaning towards online purchasing due to ease and convenience during the pandemic. Hence 2020 witnessed 77.6% growth in e-commerce.

Global demand for 3PL services is being driven by the exponential rise of e-commerce. Consumers are expecting on-time delivery and accurate orders from the brands.

It indicates how e-commerce sellers are striving for catering to their customers' needs.

Many smaller online merchants are unable to afford to have internal logistical services. Hence, they are outsourcing distribution and fulfillment operations to 3PL partners to stay competitive.

3PL companies are embracing several modifications in supply chain management while addressing e-commerce challenges. Reducing delivery time, adopting the latest technologies, and increasing efficiency are the growth metrics of 3PL business growth.

Steps to Start an e-Commerce 3PL business

To start a successful 3PL business, many aspects need to be considered. It might sound tedious in the beginning. However, following the correct steps will help to stay ahead of the competition.

Part 1- Evaluation and setup

The first step of starting a 3PL business is to choose the product class they want to cater to. Then it comes to setting up the warehouses while finalizing the location. Let’s dive into detail about the steps.

1. Deciding 3PL Type and specialization

To start a 3PL business, it is important to understand the industry verticals and decide on the specialization. To begin with, 3PL can focus on targeting a single specialization or a product class like retail, food and cold storage, apparel, retail, and large appliances.

Either they could specialize in one category of product or they specialize as generic 3PL e-commerce fulfillment providers. For instance, a 3PL that specializes in fulfilling electronics can also fulfill apparel as the nature of the fulfillment is the same.

The kind of product class that a 3PL wants to specialize in would determine the type of warehouse layout that needs to be set up. The warehouse layout of apparel will not be the same as that of appliances. The reason behind this is the nature of products is different and hence the storage needs will also differ.

As per the nature of the product class a 3PL wants to specialize in, it determines the bins and pallet configurations. It will be different for each product class. Hence, 3PL needs to configure their pallets and bins accordingly.

If a 3PL wants to specialize in fulfilling a special product class, then not all sales channels will be relevant. 3PLs need to choose e-commerce sales channels relevant to their specialization of fulfilling a certain product class.

2. Finalizing Location

The location of the warehouse is a crucial factor that a 3PL owner must emphasize. When it comes to finalizing the location of the warehouse, 3PL must first consider the proximity of where the products are stored.

It should be centrally located to the e-commerce activity. The location of the warehouse should have easier access to both e-commerce sellers and buyers. It will help the 3PL to achieve fulfillment efficiency and lower shipping costs. Because they can receive and dispatch the products to a shorter distance.

3. Setting Up Warehouse Space

Each 3PL warehouse space is different and has its storage capacity as per the product category it is fulfilling. There are a few warehouse layout basics, that 3PL warehouse managers should focus on. These are:

  • Consider the space restrictions and regulations
  • Reduce the amount of movement required
  • Standardize packing for smooth item movement and storage
  • Predict peak season and ensure flexibility
  • Ensure warehouse design is similar to material handling equipment
  • Consider the health and safety of the associates

Each warehouse has its space areas which are important for the smooth movement of inventory. Below are some of the stock areas that a warehouse must have.

  • Receiving and Inspection Areas
  • Reserve storage Area
  • Carton Picking and Item picking Area
  • Value-Adding Service Area
  • Packing and Dispatch Area
  • Cross-Dock Area
  • Empty Pallet and Packaging Storage Areas
  • MHE changing area
  • Shipping Area

When arranging warehouses and storing goods, there are various approaches to consider. One approach is to categorize products by type using an organized cluster method. All staff should have easy access to each cluster.

Another option is to organize the storage using aisles. Utilize vertical space whenever possible because stacking items will enhance storage capacity and make the most of available space.

Apart from optimizing warehouse layout, there are a few other tasks like hiring warehouse associates and investing human capital for training and development programs for boosting employee productivity.

Part - 2 - Technological Aspect

To enhance the customer experience, there is nothing better than using modern warehouse management software that will cater to the individual needs of the customers and manage 3PL e-commerce fulfillment operations efficiently.

1. Acquiring the right 3PL Software

The right software helps to optimize fulfillment operations seamlessly for modern 3PLs. 3PL companies that use fulfillment platforms are known to have efficient and seamless operations in every facet of their business.

Manage Warehouse Operations

Implementation of 3PL warehouse management software enables the optimization of both inbound and outbound operations by offering extensive flexibility, and real-time visibility of data. 

It simplifies inbound processes by reducing the dock-to-stock time with zero shrinkage allowance. A 3PL warehouse management platform gives 3PLs access to information about all incoming shipments from various merchants. It manages and optimizes the entire inbound process seamlessly including receiving, quality control, and putaway.

It allows 3PLs to set the slotting strategy and place goods in the most efficient way possible to save time and money. An ideal 3PL WMS automates and optimizes the picking, packing, sorting, and shipping processes while providing its customers with a superior fulfillment experience.

Managing Client Operations

With the help of 3PL warehouse management software, 3PLs can easily manage the individual needs of each client.

Customers of 3PL have unique needs depending on the type of product, nature of packaging, storage guidelines, and many more.

Once clients are added, the right software will connect with online marketplaces, sales channels, integrations, etc. Then it will streamline the 3PL e-commerce fulfillment process by centralizing data about orders, shipments, inventory tracking and stock levels, and more.

Configure Customized Workflow

The 3PL warehouse management system also offers a multi-tenant approach, which enables the 3PL's clients to log in, examine their inventory levels, orders, and fulfillment data, and create alerts for certain events or actions.

It also provides a greater level of control, ability to configure, and visibility to the clients which provides 3PLs a higher degree of flexibility.

It will also enable setting up rules to give more specialized services to 3PL customers while customizing inbound, storage, and outbound workflows for each warehouse, station, and even tenant.

3PL Billing

It is an important task for a 3PL owner to decide the pricing strategy and rate card of their services for each customer. Below is a list of a few factors that need to be considered before deciding the price.

  • Geographical Area
  • Size of the warehouse
  • The reputation of the company
  • The demand of the warehouse
  • Slow season/peak season 
  • Complexity of operation
  • in/out volume
  • Returns ratio 
  • Market charges 
  • Real Estate price
  • Government regulations

A manual billing process can hinder productivity and lead to costly mistakes such as underbilling. Using software can help in streamlining the 3PL billing process by automatically tracking their consumption. It automatically generates invoices for each customer based on some variables such as:

  • inbound orders,
  • storage of units, boxes, and pallets (per day), 
  • person-hours in total, 
  • packaging and labeling material consumed, 
  • outbound orders fulfilled,
  • shipping costs (if applicable)

Using a 3PL WMS also helps to save time in sending invoices to customers by minimizing errors when sent manually.

2. Acquiring the necessary warehousing devices

It is important to use necessary warehousing devices to improve the efficiency of warehouse operations.

Handheld scanners are used to enhance efficiency and reduce errors across inventory, receiving, picking, and shipping. For instance, barcode scanners, mobile scanners, and RFID scanners are used in receiving process, picking, location management, and dispatching of orders.

Weighing scales and dimensioning robots like Dymo, Cubiscan, and FreightSnap help 3PLs to comply with the maximum weight limit, ideal dimensions, and the maximum number of units required in each package. It also set up alerts in the system in case there is any deviation.

3PLs also use printers for printing packing and shipping labels against each package.

However, 3PL WMS integrates all the hardware devices, generates shipping labels, and offers order tracking for both 3PL and clients. 

Part 3 - Acquiring tenants

IBISWorld projects that there will be 21,027 3PL businesses as of 2023, which is 1.8% more than in 2022. It shows that the 3PL market has a huge prospect for growth. 3PL businesses must emphasize creating strategies for acquiring new clients. 

The goal should be to keep existing clients satisfied to receive positive testimonials and references.

1. Target Customers List

The third-party logistics market is expanding along with the e-commerce sector. The current estimated market size for global e-commerce is approximately $5.55 trillion.

With roughly 53% of the market, e-commerce businesses are the top users of 3PL services. They rely largely on shipping and delivery services to deliver their products to the customers. E-commerce businesses couldn't function without a dependable Third Party Logistics service.

2. Ways to find e-commerce brands

After knowing the ideal customer profile, it is important to find their pain points and focus on them. 

  • 3PLs must focus on delivering higher customer satisfaction to their existing clients. It will fetch other customers due to positive WOM promotion.
  • Apart from that, referrals and testimonials of existing clients also act as social proof for customer acquisition. 
  • In this competitive market, customization and flexibility are the two aspects that 3PL companies should offer in terms of nurturing customer retention as well as customer lifetime value.
  • With the rising needs of e-commerce brands, 3PLs can offer value-added services that go above and beyond standard warehousing. It helps them to stay ahead of the competition and attract new customers.

Below is the list of a few value-added services that 3PL can offer:

  • Negotiating Shipping Rates
  • Product Inspection
  • Return Processing
  • Repackaging

3. Onboarding Clients

Compared to manual onboarding, it is better to use a warehouse management platform to make the process seamless and error-free.

A best-in-class WMS should be capable of accommodating a range of customer needs and providing real-time inventory visibility. 

3PLs must onboard their clients seamlessly while keeping in mind their individual fulfillment needs. The platform should sync all client data (marketplaces, sales channels, etc.) with ease.

It will also help 3PLs to manage multi-tenants at a time while catering to individual needs and meeting all retail compliances.

Final Thoughts

Starting a 3PL business initially might be overwhelming, however, a proper business plan and following proper steps will boost the chance of success as a 3PL provider.

The blog covers the basic steps of starting a 3PL business that will help to create a solid business plan. The success of a 3PL provider depends on how successful they are in catering to the unique needs of their customers and differentiating them from competitors.

It is also important for a 3PL owner to know the business opportunities in the target market which will help in determining pricing and strategies to attract customers to the business.

A 3PL business can accelerate its warehouse operations as well as handle customer needs efficiently by integrating a modern 3PL warehouse management system. It helps in managing warehouse operations, billing, 3PL e-commerce fulfillment operations, catering to customer needs, onboarding customers, and many more.

Hopstack Platform for 3PLs

Hopstack offers a robust fulfillment and warehousing platform to modern 3PLs while assisting them to execute omnichannel fulfillment seamlessly and efficiently. 

The platform also helps 3PLs to onboard multiple clients, and manage their inbound, outbound, and storage operations. It also configures the workflows at the warehouse, product, and tenant levels while integrating required sales channels.

Hopstack’s comprehensive 3PL billing module helps 3PLs to create highly configurable billing profiles, track activity, and usage, and generate invoices automatically on a monthly or weekly basis. 

Schedule a demo with us to learn more about how Hopstack’s platform will lead the digital transformation of your 3PL journey and assist you to carry out complex omnichannel fulfillment.

Learn more about Hopstack’s robust 3PL Warehouse and Fulfillment platform

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ABOUT THE AUTHOR
Team Hopstack

Hopstack brings you the latest articles, guides and long-form explainers on topics relating to warehousing technology and automation, supply chain and robotics