Charting the Course
In a world where e-commerce logistics costs are projected to soar to astronomical figures—expected to reach $633 billion by 2024—understanding Amazon’s intricate logistics model isn’t just a recommendation; it’s a necessity for survival. In this guide, we’ll unravel the complexities of Amazon 3PL logistics models, offering you a roadmap to e-commerce success.
What Is Amazon Logistics? Get a Rundown in 2023
Amazon has built one of the most advanced, expansive logistics and fulfillment networks in the world, revolutionizing the e-commerce space. Unlike traditional logistics models that rely on an array of third-party freight and common carriers, Amazon has a much more centralized, consolidated approach. It exerts end-to-end control over nearly every aspect of the supply chain, from warehousing and inventory management to packaging, shipping, and last-mile delivery.
Key capabilities of Amazon's logistics include:
- Fulfillment centers: These massive warehouses around the world store third-party seller inventory. Amazon handles picking, packing, and shipping orders from these centers.
- Delivery stations: Local facilities that are launch points for Amazon’s last-mile delivery fleet. Packages arrive here from fulfillment centers before going out for delivery.
- Flex drivers: Amazon’s network of independent contractors who provide last-mile delivery services in their personal vehicles.
- Amazon Air: The company’s expanding fleet of cargo planes shuttle inventory between key facilities to enable rapid fulfillment.
- Amazon Ocean: Ocean freight services to transport goods from Asia to North America and Europe.
- Amazon trucks: Tractor-trailers owned by Amazon help move products between fulfillment and delivery centers.
This level of supply chain control delivers higher efficiency, lower costs, faster delivery, and immense scalability compared to traditional logistics approaches.
Amazon’s logistics network enables faster delivery, lower costs, and immense scalability compared to traditional models.
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Table of Contents
Leveraging Amazon Fulfillment Centers
Amazon Fulfillment Centers are the backbone of Amazon’s e-commerce ecosystem. These vast warehouses can store millions of products to handle inventory management and order fulfillment for third-party sellers.
To fully leverage the capabilities of Amazon’s logistics network, it’s crucial to understand how to effectively get your products into these fulfillment centers. Here, 3PL providers can play a pivotal role, offering services like:
- Freight forwarding to ship pallets and containers from suppliers and manufacturers to Amazon facilities.
- Inventory forecasting and supply planning to ensure adequate stock levels.
- Storage, labelling, and prep services to ready products for fulfillment.
- Customs brokerage to streamline global shipping and compliance.
How to Choose a 3PL Partner
Selecting the optimal 3PL partner is a massively important decision that could make or break your Amazon business. Not all 3PLs are created equal – various providers cater to different needs.
Key factors to consider:
Some 3PLs specialize in supporting small sellers, while others are focused on big brands. Choose a partner that best aligns with your current scale.
Compare pricing models – some charge monthly fees, others per order, etc. Make sure the structure fits your sales volume.
Many 3PLs provide value-added services like labeling, kitting, and returns management. Choose one that provides the specific services you need.
Technology & Data
Advanced 3PLs provide inventory analytics, shipment tracking, and performance dashboards. Prioritize technology & data capabilities
Logistics involves constant problem solving. Strong customer service should be non-negotiable when selecting a 3PL.
Flexibility & Scalability
Your 3PL should be able to seamlessly scale to meet sales spikes and seasonal peaks. Seek a partner positioned for growth.
Operational Side: How 3PLs Handle Amazon Orders
Understanding the nitty-gritty of 3PL order fulfillment processes is key. Once an order is placed on Amazon, the 3PL takes over order management:
- Locate the ordered items within your inventory at the 3PL facility.
- Carefully pack orders, adding any necessary inserts, and paperwork.
- Apply shipping labels, FNSKUs, and other required markings.
- Determine the best carrier/service based on location, delivery promise, etc.
- Monitor shipments and provide status updates to you and your customers.
- Assist with any delivery issues, returns, or related inquiries.
A 3PL handles every step from order receipt to final delivery
The Explosive Growth of 3PLs
The role of 3PL providers in e-commerce has grown exponentially in recent years. According to industry reports, the global 3PL market size is expected to reach a staggering $1.2 trillion by 2025 as supply chains become more complex and the demand for fast, flexible delivery accelerates.
In the U.S. alone, revenue generated by 3PL services has expanded at a compounded annual growth rate of over 7% over the past five years. The rapid adoption of 3PL services is driven by the many benefits they offer online sellers.
The 3PL market has seen double-digit growth year-over-year.
Why Sellers Choose 3PLs
By aggregating inventory across many sellers, 3PLs achieve economies of scale that significantly reduce logistics costs in areas like:
- 3PLs ship extremely high volumes across multiple clients. This allows them to negotiate substantial discounts with parcel carriers like UPS, FedEx, and USPS. The discounts can be 40-60% compared to published rates.
- They are able to optimize routes and fill trucks, rail cars and other transport methods. This reduces costs per package or per pound.
- The volumes also give them priority access to carrier capacity when there are shortages.
Lower Labor Costs
- Sophisticated warehouse management systems and optimized processes reduce labor hours per task. This could be seen in streamlined receiving, put-away, picking, packing, shipping areas.
- Workers get very efficient at specialized tasks through repetition. This leads to standardization and lower costs per unit.
- Automation opportunities are identified and implemented leading to higher productivity.
Bulk Purchase Discounts
By consolidating purchase volumes across clients, 3PLs get excellent bulk pricing on pallets, boxes, tape, foam, labels and all packaging materials.
This purchasing power benefits all their customers. Small retailers can get big discounts!
Flexibility & Scalability
- Leading 3PLs operate massive warehouse networks totaling millions of square feet across multiple sites. This creates abundant buffer capacity that can absorb sudden capacity needs.
- They are set up to open temporary pop-up warehouses extremely quickly when demand surges in a particular market.
- By serving multiple clients, they can easily shift capacity between clients based on who has greater immediate needs.
- Their infrastructure and software systems are designed for scalability to manage warehouse expansions and contractions smoothly.
- 3PLs maintain access to large flexible labor pools that include temporary & seasonal workers. This allows them to scale up or down quickly.
- Sophisticated labor management systems optimize worker allocation and scheduling to match business volumes and SLAs.
- The workforce is well trained in the specific warehouse execution tasks from years of specialization. This allows rapid onboarding of seasonal teams.
- Leading 3PLs have huge databases of product transaction history across thousands of SKUs to inform forecasting and stocking levels. This prevents excessive stockpiling or stockouts.
- Their WMS systems provide real-time visibility into inventory across the warehouse network down to the SKU level. This allows dynamic reallocation.
- They understand product margin profiles, storage costs, and other factors that guide intelligent safety stock rules, velocity-based slotting, and cross-docking.
Order Processing & Fulfillment
- Order information automatically flows into the WMS platforms to trigger efficient wave planning, batch picking, and outbound processes based on carrier integrations and delivery rules.
- Visibility tools track orders end-to-end providing monitoring and exception management to prevent errors and delays.
- Returns are efficiently sorted and processed based on predefined workflows for inspection, triage, restock eligibility checks and inventory updates.
Things to Consider
Loss of control over customer experience
Using a 3PL means you are handing over parts of your customer experience like order packing, shipping speed, and returns/exchanges. This can be concerning for brands with a strong focus on customer service. Mitigate by thoroughly vetting the 3PL’s processes and reputation.
Inventory mistakes and inaccuracies
Since inventory is stored offsite, there is an increased risk of errors like misplaced products, incorrect counts, or outdated locations. This can lead to order errors and stockouts. Choose a 3PL with rigorous quality control and inventory management systems. Require regular audits.
3PL vs. 4PL: What's the Difference?
The world of outsourced logistics includes more than just 3PL; there’s also an emerging model called 4PL or Fourth-Party Logistics. The core difference lies in their scope:
- 3PLs provide operational execution – warehousing, inventory control, order processing, shipping, etc.
- 4PLs function more like an advisor, overseeing and optimizing your entire supply chain strategy end-to-end.
- 4PLs don’t own or handle any actual inventory or equipment. Instead, they analyze supply chain data to identify inefficiencies and areas for improvement. 4PLs then coordinate process changes across your network of 3PLs, carriers, and other partners.
Comparing 3PLs and Freight Forwarders
Many businesses get 3PLs and freight forwarders confused. While both are logistics partners, they serve very different functions:
- Facility management of warehouses and distribution centers
- Inventory receiving and put-away
- Inventory storage and locations management
- Order picking, packing and shipping
- Inventory cycle counting and auditing
- Cross-docking services
- Automation technologies like AS/RS
- Inventory tracking and reporting
- Cycle counting procedures
- Inventory optimization analytics
- Safety stock analysis
- Replenishment planning and monitoring
- Multi-channel order management (EDI, API, web, etc.)
- Wave planning
- Picking and packing workflow execution
- Customized B2B/B2C packing
- Shipment processing based on business rules
- Shipment tracking and event alerts
- Product price tagging and labeling
- Gift wrapping and packaging
- Product assembly and repair
- Returns processing and reverse logistics
- Exception order monitoring and management
- Proactive customer updates and notifications
- Inventory lookup on availability
- Post-sales customer support
The wide range of service capabilities allows 3PL clients to outsource a variety of supply chain execution processes so they can concentrate on high-value business priorities. The one-stop solution simplifies logistics outsourcing.
Take possession of goods and physically handle inventory.
Freight Forwarder Services
- Freight forwarders have extensive carrier networks across modes (truck, rail, air, ocean). This allows them to shop rates and connect clients with the most efficient transport options.
- They become experts in trade lanes and compliance rules. This facilitates optimal transit routing and paperwork/documentation handling.
- Forwarders provide booking, routing, tracking and status updates as a shipment oversight service. But they do not take physical custody of goods.
Coordination, Not Possession
- The forwarder secures capacity with a carrier on behalf of the client. But the client’s goods ship directly from their location to the destination.
- This is a key difference from a 3PL model where the goods are temporarily stored and handled at a 3PL warehouse before final delivery.
- Under a freight forwarder model, the goods remain with the seller, then transport carrier, then finally the buyer without stopping at a middle warehouse.
In summary, freight forwarders offer transportation management versus comprehensive logistics services. They coordinate and oversee freight movement as a broker without taking possession of product inventory. This provides flexibility for companies that just need assistance getting items from point A to B.
Navigating the intricacies of Amazon’s fulfillment ecosystem is no easy feat, especially against today’s backdrop of exploding e-commerce growth. As we’ve explored in this comprehensive guide, leveraging the expertise and infrastructure of a Third-Party Logistics (3PL) partner can provide a significant strategic advantage.
From streamlining inventory management to providing flexibility and scale, 3PLs empower brands to optimize their Amazon presence and unlock faster growth. The rapid rise of e-commerce is only set to accelerate, so focusing time and resources on sales and marketing while a 3PL handles operational execution is key to staying ahead of the curve. Partner with an experienced 3PL provider to successfully navigate the complex but rewarding world of Amazon logistics.
Frequently Asked Questions (FAQ)
A 3PL, or Third-Party Logistics provider, is an outsourced service that handles various aspects of your distribution and fulfillment processes. They offer services like warehousing, inventory management, packing, shipping, and sometimes even customer service.
Using a 3PL means you are handing over parts of your customer experience like order packing, shipping speed, and returns/exchanges. To ensure a positive customer experience, it’s crucial to thoroughly vet your 3PL’s processes and reputation.
Yes, since your inventory is stored offsite at the 3PL’s facility, there is an increased risk of errors like misplaced products, incorrect counts, or outdated locations. However, this can be mitigated by choosing a 3PL with rigorous quality control and inventory management systems.
A 3PL provides operational services like warehousing, inventory control, and shipping. A 4PL, or Fourth-Party Logistics, acts more like a consultant, overseeing and optimizing your entire supply chain strategy end-to-end.
Many 3PLs offer global shipping services and can handle customs paperwork, making them a good option for businesses that ship internationally.
Consider factors like cost structure, range of services offered, technology and data capabilities, and customer support. It’s also important to consider the size and scale of your business to find a 3PL that’s the right fit.