Up until the outsourcing boom in the last couple of decades, it would have been impossible to imagine growing a business with a limited product on hand, no dedicated warehouse, and no in-house delivery team. It would have also meant throwing down thousands of dollars by default on inventory, storage space, and a fleet of delivery vehicles.
But thanks to the ingenuity now found in the modern logistics industry, there are myriad ways to stock up on product and move it from Point A to Point B. Now, merchants need only ask themselves: “Of the logistics options currently available out there, which one is the best for me?”
There are two top contenders in the debate for best logistics solutions: the first is drop shipping, and the second is third party logistics or 3PL. If you’re an entrepreneur looking to choose one over the other to replace in-house order fulfillment and delivery, you’re likely wondering what sets them apart. To that end, this feature will enlighten you on the differences between drop shipping and 3PL, the pros and cons associated with them, and some brief tips on choosing 3PL services should you decide on that method.
Let’s now unpack the mystery behind drop shipping and 3PL!
What’s the Difference between Drop Shipping and 3PL?
Before getting to their differences, let’s outline what these two solutions have in common: they are both a means of outsourcing your business’s order fulfillment processes, warehousing, and shipping. Both are highly convenient in the sense that they cover many aspects of supply chain management for you, thus freeing you up to concentrate on other entrepreneurial tasks (such as marketing and managing your store’s customer care team).
That said, the difference between drop shipping and 3PL services lies mostly in the levels of service achieved by both. Understanding how each method affects your inventory, the frequency of your shipments, and other factors may save you time, money, and grief about your business operations.
In the process of drop shipping, a business can sell products that have not yet been purchased or added to their inventory for lack of storage. Orders are forwarded to the manufacturer, who will take care of shipping the product directly to customers from their warehouse.
With 3PL services, however, it’s the 3PL company that handles the picking, packing, storage, and delivery to customers on the merchant’s behalf. A seller must first buy their inventory in bulk, then contract a 3PL provider to undertake the aforementioned services for them.
Weighing the Pros and the Cons
There’s no singular correct answer for whether you should choose drop shipping over 3PL. It all depends on your business type, your goals for moving a particular line of product, your cash situation, and other factors that apply specifically to your business. To give you a better idea of what either method entails, here are their pros and their cons in a nutshell.
Definite pros for drop shipping are its appropriateness to businesses that don’t have an expansive inventory and are limited by their cash flow. Compared to 3PL services, drop shipping is the method that requires less of an upfront investment since you can sell products you haven’t paid to add to your inventory. It is also the ideal method to use if you are testing out a new product in the market—it enables you to order it in small volumes, and it cushions your risk if the product fails. But there are also cons to drop shipping, in that your shipping is at the mercy of your manufacturer. This means that you may need to wait longer to acquire your product based on its availability.
On the other hand, 3PL is great for companies that have already made a name for themselves, have a consistent and growing demand for their products, and are looking to expand. The pros of 3PL services are that they’re convenient for large volumes of product. You can depend on the 3PL provider’s superior inventory management practices to accurately sort and package your products for you, and you can also breathe easy knowing that their warehouse keeps the products secure. You might also pay less in terms of operational cost; having high volumes of product consolidated in the 3PL warehouse may also mean that you ship out fewer packages. In addition, most 3PLs don’t require long-term leases, so you don’t have to worry about being tied down to them. The cons of 3PL services are that they require a hefty upfront investment, and they are not practical if you aren’t selling a product in bulk. Plus, with the 3PL model, you are limited to selling inventory that you’ve already purchased.
Choosing the Right Method—and the Right People—to Move Your Product
Settling on drop shipping versus 3PL may take a lot of thought on your part. But once you’ve aligned your logistics solutions with your business goals, the choice should reflect positively on your sales. There’s a lot of talent in the 3PL industry in particular—it’s full of bright, decisive, and forward-thinking individuals who can promise you something simple but meaningful: that they will get your products to your customers on time and in good shape.
It’s best to find people who specialize in your business type, who deal with clients that are related to your industry, and who can scale their services according to what you need. If you can achieve that, then you’re sure to see your company profits move as quickly as your products.
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