Dropshipping vs 3PL: Understanding The Difference
In our modern western society, it’s easy to overlook the supply chain when we’re ordering new items. We simply find something we like, click a button, and it’s on its way to us. However, as a distributor, you have the opportunity to choose how you fulfill orders, whether by housing your own inventory, outsourcing to a third-party logistics (3PL) provider, or using dropshipping. It’s not uncommon to confuse these two outsourcing options. Dropshipping involves individual purchases being shipped directly from the supplier to the customer, while 3PL is a dedicated order fulfillment service.
As an e-commerce business owner, one of the biggest challenges you may face is figuring out how to get your products to your customers efficiently and cost-effectively. In this blog post, we’ll discuss the differences between dropshipping and 3PL and help you determine which one is the best fit for your business.
Dropshipping vs 3PL
What is Dropshipping?
Dropshipping is a retail fulfillment method where a store doesn’t keep the products it sells in stock. Instead, when a store sells a product, it purchases the item from a third party and has it shipped directly to the customer. As a result, the merchant never sees or handles the product. The biggest advantage of drop shipping is that it allows you to sell products without having to invest in inventory upfront.
What is 3PL?
Third-party logistics, or 3PL, is a service that allows businesses to outsource their logistics operations to a third-party provider. This includes services such as warehousing, inventory management, order fulfillment, and shipping. 3PL providers have the infrastructure and expertise to manage these operations on behalf of the business, allowing it to focus on other areas of its operations.
So, what are the similarities and differences between these two?
Both dropshipping and 3PL methods involve third-party companies handling the packaging and shipping of products, making them more convenient for online sellers.
However, there are some differences between the two methods. Firstly, in 3PL, the retailer purchases products in bulk and then transfers them to a third-party company. This is a good option for retailers selling expensive or customized products who want to avoid managing their own order fulfillment in-house. In contrast, in drop shipping, the retailer doesn’t need to own inventory.
Additionally, in dropshipping, manufacturers are responsible for shipping orders to customers, while in 3PL, the third-party company manages all operations, from warehousing to packaging and shipping.
Dropshipping vs 3PL
While dropshipping and 3PL both offer solutions for fulfilling orders, they differ in several ways.
Dropshipping vs 3PL – Inventory Management
One of the main differences between dropshipping and 3PL is inventory management. With dropshipping, the merchant doesn’t hold any inventory and relies on the supplier to manage inventory levels. In contrast, with 3PL, the provider manages inventory levels and can provide real-time inventory data to the merchant.
Dropshipping vs 3PL – Product Lines
Dropshipping provides an easy way to add niche products to your eCommerce website or catalog, and if a product doesn’t sell well, it can be removed without worrying about excess inventory. In contrast, 3PLs limit your product line to what is purchased from manufacturers. Like managing your own warehouse, it’s important to consider SKUs that aren’t selling and taking up space. To clear out dead stock, creating a kit is a useful approach. However, testing new products will be more expensive for businesses using 3PLs compared to those who use drop shipping.
Dropshipping vs 3PL – Shipping Times
Another difference between dropshipping and 3PL is shipping times. With dropshipping, the supplier ships the product directly to the customer, which can result in longer shipping times. In contrast, with 3PL, the provider can warehouse the products and use its distribution network to ship them quickly.
Dropshipping vs 3PL – Costs
Costs are another key difference between dropshipping and 3PL. With dropshipping, the merchant doesn’t need to invest in inventory upfront, but they may face higher product costs and shipping fees. In contrast, with 3PL, the provider manages inventory levels and can negotiate better shipping rates, but the business will need to pay for warehousing and other services provided by the 3PL provider.
Dropshipping vs 3PL – Control
Another difference between dropshipping and 3PL is the level of control the merchant has over the fulfillment process. With dropshipping, the merchant doesn’t have control over the shipping process, which can result in delays or errors. In contrast, with 3PL, the provider manages the fulfillment process, which gives the merchant more control over the shipping process.
Which One Is Right for Your Business?
Now that we’ve discussed the differences between dropshipping and 3PL, how do you determine which one is right for your business?
If you’re just starting and don’t have the resources to invest in inventory upfront, dropshipping may be your best option. Dropshipping allows you to test different products without risking your capital. However, as your business grows, you may want to consider 3PL as a way to reduce your costs and improve your shipping times.
If you’re already an established business, 3PL may be a better option. 3PL allows you to outsource your logistics operations, freeing up your time to focus on other areas of your business. Additionally, 3PL can help reduce your costs and improve your shipping times, which can lead to happier customers and higher profit margins.
Another factor to consider is the type of products you sell. If you sell unique, high-end products that require careful handling and storage, 3PL may be the better option. A 3PL provider can ensure that your products are stored in the right condition and handled with care, reducing the risk of damage or loss.
Finally, consider your customer base. If you have customers who value fast shipping times and are willing to pay a premium for it, 3PL may be the better option. A 3PL provider can leverage its distribution network to offer faster shipping times at a lower cost than you could achieve with drop shipping.
Conclusion
Dropshipping is a fulfillment process where the manufacturer handles order packaging and shipping. It’s an excellent business model for e-commerce owners starting with limited capital. However, partnering with a professional order fulfillment company can streamline the supply chain and free up your time to focus on marketing and growing your online store.
Both dropshipping and 3PL offer solutions for fulfilling orders, but they differ in several ways. Dropshipping is a good option for businesses that are just starting and don’t have the resources to invest in inventory upfront. On the other hand, 3PL is a better option for established businesses that want to reduce their costs and improve their shipping times. Ultimately, the choice between drop shipping and 3PL depends on your business’s needs and goals. Consider your product type, customer base, and overall business strategy when deciding which option is right for you.
Read more:
Shift From In-House To Outsourced Fulfillment – When it’s Better & How to Do it Right
How Third-party Logistics Services Can Ensure E-Commerce Growth?
The Top 6 Reasons For Outsourcing in Supply Chain Management For Your eCommerce Business
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