What is 3PL Inventory Management?

Managing inventory can be a massive headache for eCommerce businesses. Tracking stock levels across multiple locations, fulfilling orders accurately, managing returns – it’s an increasingly complex juggling act. What if you could outsource these supply chain processes to dedicated experts?

Enter 3PL inventory management. By partnering with a 3rd party logistics provider, you can leverage their advanced software, resources and logistics know-how to streamline your inventory and order workflows. 3PL inventory management injects your eCommerce operations with accuracy, efficiency, and insight through outsourced warehousing, shipping, and reporting.

In fact, 71% of shippers report that outsourcing inventory and fulfillment to 3PLs has reduced their shipping costs, according to a 2021 study by Capgemini.

This hands-off approach enables you to focus on high-level strategic initiatives while the 3PL sweat the details of your supply chain. In this guide, we’ll explore what 3PL inventory management entails, its benefits, features to look for, and how to implement 3PL software. You’ll uncover how outsourcing inventory tasks can help your business scale and keep customers satisfied. Let’s dive in!

TLDR; What is 3PL Inventory Management?

• 3PL inventory management involves outsourcing warehousing, tracking, picking, packing, shipping, and returns to a specialized logistics provider.
• Key benefits include cost savings, technology access, improved efficiency and accuracy, and real-time visibility into inventory.
• 3PLs use advanced warehouse management software (WMS) with features like automated order processing, wave picking, robust reporting and analytics.
• When implementing 3PL software, focus on system integrations, staff training, data migration, and choosing a partner with strong capabilities.
• Tight 3PL integrations allow eCommerce businesses to focus on innovation and rapid growth rather than daily supply chain operations.
• 3PL inventory management brings strategic advantages that can transform eCommerce businesses through optimized, scalable logistics.

What is 3PL Inventory Management?

3PL inventory management refers to outsourcing your inventory and order fulfillment operations to a specialized third party logistics provider. Rather than managing these complex supply chain tasks in-house, you leverage the expertise, resources and technology of a 3PL company.

The 3PL takes over key warehouse and inventory management functions for your business. This includes storing and tracking stock in their warehousing facilities, receiving and putting away inbound inventory, picking and packing customer orders, shipping orders out, and managing returns.

The 3PL handles these logistics tasks using advanced warehouse management software (WMS), barcode scanning, RFID tracking, and other technologies to optimize efficiency. The inventory data and order information is integrated back to your sales channels and other business systems in real-time.

Some of the main functions of 3PL inventory management:

• Warehousing and Storage – The 3PL stores your products in their warehouse network and manages inventory across multiple facilities.
• Picking, Packing, Shipping – When orders come in, the 3PL handles timely and accurate order picking, packing, and shipping using their streamlined processes.
• Returns and Inventory Tracking – The 3PL manages product returns and tracks inventory in their system down to the SKU level, providing real-time visibility.
• Sales Channel Integrations – The 3PL system integrates with your ecommerce store, online marketplaces, ERP, and other systems to exchange order and inventory data.

By leveraging a 3PL for these supply chain responsibilities, you can focus your in-house resources on high-value strategic initiatives and leave the operational logistics to experts.

 

The Benefits of 3PL Inventory Management

Outsourcing your inventory management and fulfillment to a 3PL offers many compelling benefits:

1. Cost Savings – 3PLs provide economies of scale, allowing you to save on warehousing, labor, shipping, and other logistics costs. Their expertise also improves efficiency.
2. Access to Technology – A 3PL provides access to advanced warehouse management software and logistics technology that would be costly for you to implement solo.
3. Improved Accuracy – 3PLs develop tight processes for inventory and order management that minimize errors in order fulfillment.
4. Enhanced Visibility – The 3PL gives you real-time inventory tracking and reporting across your supply chain for proactive management.

For eCommerce specifically, 3PL inventory management also provides advantages like:

• Faster, more reliable order processing and shipping to delight customers.
• Tight marketplace integrations to enable multi-channel sales.
• Leveraging the 3PL’s negotiated shipping discounts.

By tapping into the established logistics infrastructure and expertise of a 3PL, eCommerce businesses can focus on rapid growth and optimization rather than day-to-day supply chain execution.

Features of 3PL Software

The warehouse management software (WMS) used by 3PLs for inventory management contains advanced features and functionality including:

• Automated Order Processing – the WMS automatically processes orders, triggers picking and packing based on rules, generates shipping documents, and syncs data with connected sales channels.
• Real-Time Inventory Tracking – the system uses barcode scanning and RFID to capture stock movements and provide real-time visibility into inventory across all connected locations.
• Wave, Zone & Batch Picking – the WMS optimizes the pick path and uses batching methods like wave and zone picking to maximize efficiency.
• Customized Reporting & Analytics – users can generate reports with real-time operational data and insights into inventory levels, orders, shipping performance, costs, and more.

Some additional capabilities offered by advanced 3PL WMS systems include:

• Transportation Management System (TMS) Integration – connects the WMS with trucking, routing and freight systems.
• EDI & API Connectivity – integration with partner systems through EDI and robust APIs.
• Forecasting & Optimization – advanced algorithms help optimize inventory levels, picking paths, staffing and more.
• Mobile Access – warehouse staff can leverage mobile apps and barcode scanners to access the WMS on-the-go.

These features enable highly precise, efficient and data-driven inventory and order management processes.

Implementing 3PL Software

When transitioning inventory management to a 3PL’s warehouse management system, there are a few key steps to focus on for a successful rollout. 

First, work with the 3PL partner to determine the best deployment option – whether an on-premise or cloud-based WMS configuration better suits your business needs and infrastructure. The next critical task is tightly integrating the new WMS with your existing ecommerce platform, ERP system, transportation management system, and any other relevant business applications. Robust APIs and EDI connectivity allows these systems to seamlessly exchange and unify important inventory, order, and fulfillment data. 

Additionally, thoroughly train your warehouse personnel and any other staff who will be utilizing the 3PL’s WMS software day-to-day. Proper training helps maximize the value derived from the platform. It’s also important to document updated processes and procedures. 

Finally, migrate your product catalogs, historical inventory records, open customer orders, and other essential data into the new warehouse management system. Migrating this information accurately enables the 3PL to have the full context needed to manage your inventory and order workflows. 

Keeping these key steps in focus will drive effective implementation of 3PL inventory software.

When evaluating potential 3PL partners, there are several important factors to assess in your decision process. Carefully examine the capabilities of the 3PL’s warehouse management system and whether it provides all the key features and functionalities your inventory and order workflows require. 

Also look at how robust and customizable the WMS reporting capabilities are. Review the 3PL’s specific implementation experience with clients in your industry as well to gauge their relevant expertise. Furthermore, verify that the 3PL meets all critical security, data protection, and compliance standards your business requires. 

Evaluate if their systems can smoothly scale up to support your projected business growth and seasonal peak demand. And lastly, examine how user-friendly and intuitive the WMS interface and any complementary mobile apps are to use so your team can efficiently leverage the platform. 

Selecting the ideal 3PL partner means implementing a fully-featured, secure, and scalable warehouse management system that provides end-to-end visibility and control over your supply chain operations.

Wrapping Up: What is 3PL Inventory Management?

After reading this guide, you should now understand the immense value that 3PL inventory management can provide for your eCommerce operations. Outsourcing complex supply chain execution allows you to focus on business growth, while the 3PL expertise brings accuracy, efficiency and real-time visibility.

The benefits range from cost savings to technology access, along with the ability to delight customers through faster fulfillment. When partnering with a 3PL, be sure to assess their WMS capabilities, implementation experience, security standards and scalability.

With robust integrations between the 3PL’s systems and your own, you gain end-to-end inventory and order management that seamlessly operates in the background. 3PL inventory management is a strategic play for eCommerce brands to offload logistics and unleash new levels of performance. Implement it right to maximize supply chain agility while outsourcing the heavy lifting to specialists.