Third-party logistics, or a 3PL, is a company that stores your finished products in its warehouse and packs and ships your orders for you, for a set of fees: receiving each delivery, storing it by the pallet or shelf, and picking and packing each order. A fulfillment center is the warehouse where that happens; the two terms are used for the same thing. For a small food business, a 3PL makes sense when packing orders is eating the hours you need for making, or when your kitchen has run out of room; before that, the fees can cost more than your own time did. For food, the warehouse also has to handle food properly: clean, pest-controlled, at the right temperature, and able to track lots and dates and pick the oldest first. In the example below, a chip maker shipping 600 online orders a month would pay about $255 more a month with a 3PL than packing in-house, to get back about 100 hours. Below is what a 3PL does, what it costs, when it's worth it, what to ask a food 3PL, and keeping your stock straight once it's in someone else's warehouse.
The short version
- A 3PL receives, stores, picks, packs and ships your orders, for fees.
- Fees: receiving per pallet or carton, storage per pallet or shelf a month, pick and pack per order.
- Compare against your own packing hours and space, not against zero.
- Worth it when packing is taking hours you need for making, or space has run out.
- For food: ask about cleanliness, pests, temperature, allergens, lots, dates and oldest-first picking.
- You still own the stock; keep your own record of what's there, by lot.
- TaroStack can treat the 3PL's warehouse as one of your sites, with transfers and stock by lot. More below.
What a 3PL does
| Step | What happens |
|---|---|
| Receiving | Your pallets or cases arrive; the 3PL counts them in, by lot if asked |
| Storage | Your stock sits on its shelves, charged by pallet, shelf or bin |
| Orders | Your online store sends orders to the 3PL through a connection |
| Pick and pack | It picks each order, packs it in your boxes, and labels it |
| Shipping | It ships with its carriers, sometimes at rates lower than yours |
| Reports | Stock on hand, orders shipped, and what was received |
What it costs against doing it yourself
Windward Roots, the made-up taro business I use in these examples, ships 600 online orders of taro chips a month. Packing in-house takes about 10 minutes an order. The 3PL quote is made up for the example; get your own.
| A month, 600 orders | In-house | 3PL |
|---|---|---|
| Packing time, 100 hours at $20 | $2,000 | |
| Receiving, 2 pallets at $40 | $80 | |
| Storage, 3 pallets at $25 | $75 | |
| Pick and pack, $3.50 an order | $2,100 | |
| Boxes and fill, $0.90 an order | $540 | $540 |
| Total, before postage | $2,540 | $2,795 |
The 3PL costs about $255 a month more here, and gives back about 100 hours, two and a half weeks of somebody's time, for making, selling or wholesale. Postage is left out because it's paid either way; ask whether the 3PL's rates are lower than yours, because that can close the gap. How the chips' cost and margins work by channel is in distributor margin, and what shipping food yourself takes is in shipping perishable food from a small business.
What to ask a food 3PL
- Is it set up for food? Clean, pest control, no chemicals stored with food, and allergens kept apart.
- Temperature. Ambient, chilled or frozen, and how it's monitored.
- Lots and dates. Does it receive by lot and best-by, and pick the oldest first, or by a store's shelf-life rule?
- Recalls. Can it pull a lot and tell you which orders it went to?
- Reports. Stock on hand by lot, daily or on demand, in a file you can use.
- Fees. Every fee written down: receiving, storage, pick and pack, packaging, returns, minimums.
- Minimums. Some 3PLs want a minimum number of orders a month or a minimum monthly fee.
The lots and dates question matters most. A warehouse that ships your newest lot first, or can't say which orders got a lot, leaves you exposed the day a supplier recalls an ingredient; how lots tie to customers is in one up one back traceability.
Keeping stock straight
Your stock is still yours when it's in the 3PL's warehouse, and so is the responsibility for knowing what's there. Keep your own record by site and lot: what you sent, what they received, what they shipped, what's left. Compare it with their stock report every month, and count the differences out with reasons, not by overwriting one record with the other; how is in inventory reconciliation template.
Where this stops working
With stock in two places, a spreadsheet has two versions of the truth. The kitchen sends 40 cases, the 3PL counts 39, its report arrives as a PDF with no lots, and your spreadsheet still shows what you think you sent. When a supplier recalls the sunflower oil in batch TC-1016, nobody can say how much of it is in the warehouse or which orders it went to.
How TaroStack does it
TaroStack can keep the 3PL's warehouse as one of your sites, with every lot that went there.
The warehouse as a site. Sites come in kinds, warehouse among them, so the 3PL's warehouse can be one of your sites, with its stock by lot and date beside the kitchen's. Transfers between sites carry stock in transit that belongs to nobody until it lands, with a transfer note to print.
Lots, in both places. Every batch goes into a lot with its best-by date, and stock is shown by site and lot, with its value by site and month. A recall report shows which supplier lots went into which batches, which customers got them, and what's still on your own shelves, wherever they are.
And counts that reconcile. Counting a site's stock against the 3PL's report records the differences as corrections with reasons, not overwrites, so the two records can be reconciled every month.
| The question | Spreadsheet | In TaroStack |
|---|---|---|
| What's at the 3PL? | Their PDF | The site's stock, by lot |
| 40 sent, 39 received | Noticed later, maybe | A transfer, then a count with its reason |
| Recall: how much is there? | Ask them | Stock by site and lot |
| Their report against ours | Two numbers | A count, with corrections and reasons |
More than one site is on Standard, from $99 a month, with up to 3 sites; lots, batches and recalls are on every plan, from $49 a month. The first 30 days are free, with no credit card. If you'd like a hand setting up, ask, and we'll do it with you.