3PL and Dropshipping for Dummies 

Explore 3PL and Dropshipping in Layman’s Terms | Meaning, similarities, differences

Choosing the right fulfillment method is a crucial decision for businesses, as it directly impacts operational efficiency and customer satisfaction. Two popular options are third-party logistics (3PL) and dropshipping, which offer distinct advantages and drawbacks. In this article, we will discuss 3LP and dropshipping in layman’s terms, the pros and cons of both, and a guide to choosing the best solution for your business. 

Understanding 3PL and Dropshipping

Before diving into the differences between third-party logistics (3PL) and dropshipping, it is essential to understand what these fulfillment methods entail and their roles in eCommerce.

Third-Party Logistics (3PL)

3PL refers to a service where sellers outsource their logistics operations, including warehousing, inventory management, order fulfillment, and shipping. In this model, the seller buys products in bulk from the manufacturer and sends them to the 3PL service partner’s warehouse. 3PL partner stores these products, and when the seller receives the order, they (3PL) pack and ship the products to the buyer’s location. 

3PL example in layman’s terms: 

• Bob is a football enthusiast who has in-depth knowledge about upcoming matches, popular players, terminologies, and trends. He owns an online store for custom football merchandise. 

• He partners with a print-on-demand business (manufacturer) named Stitchi to order customized tees, caps, hoodies, and sweatshirts with popular football themes in bulk. 

• Now, Bob partners with a 3PL company named ABC and asks Stitchi to send all the merchandise to ABC’s warehouse. 

• Alice is a buyer who orders a tee with her favorite footballer’s image from Bob’s online eCommerce store.

• As soon as the order is placed, Alice’s order details are received by ABC 3PL partners. Now, ABC 3PL partners will pack the tee and ship it to Alice’s address. 

Things to note in the above 3PL example: In the above example, Bob, the seller, and eCommerce store owner, doesn’t store, pack, and dispatch the order. That means, he doesn’t need to invest in a warehouse facility nor require staff to handle packing and dispatching. Using a 3PL business model, Bob is able to run his eCommerce store hassle-free and avoid entire inventory management complexities. 

Software integration: 3PL companies generally have software that integrates with the seller’s eCommerce store. So, when the seller receives the order, the 3PL software automatically informs the warehouse systems about the order dispatched. Alternatively, the seller can manually register the order as well. 

Dropshipping

Dropshipping is a fulfillment method where the eCommerce store owner (seller) does not order or keep any inventory. Only when a customer places an order, the seller forwards the order details to a third-party supplier or manufacturer, who then ships the product directly to the customer. In this arrangement, the seller never handles the physical product, and the supplier is responsible for production, storage, packaging, and shipping.

3PL example in layman’s terms: 

• Bob owns an online store for football merchandise. He doesn’t have inventory, though.

• When Alice, the buyer, places a tee order on Bob’s online store, Bob contacts Stitchi, the manufacturer, to create the merchandise, pack it, and ship it to Alice’s address. 

Things to note in the above dropshipping example: 

Bob, the seller, doesn’t own any inventory. He purchases (or orders to manufacture) the product only when he receives the order. He doesn’t take any risk nor does he require any upfront investment to get the products manufactured. 

The role of dropshipping in eCommerce is to enable businesses to sell products without the need for inventory management and upfront capital investment. This method is particularly appealing to new or small businesses as it allows them to test the market with minimal risk and expand their product offerings without significant investment in inventory.

3PL Vs. Dropshipping: 6 Main Differences

Although 3PL and dropshipping seem similar concepts at first glance, there are some small, yet, crucial differences between these concepts. 

3PL vs. Dropshipping

1. Inventory: In 3PL, the seller gets the products manufactured in bulk and sends them to the 3PL partners. In dropshipping, the seller (store owner) doesn’t have any inventory ordered/manufactured until they receive the order. They get the product manufactured or buy it only after receiving an order from the buyer. 

2. Risk: In the 3PL business model, the sellers take more risk because they are ordering (getting manufactured) the products in bulk. In dropshipping, the seller gets the product manufactured only when a buyer places an order. Hence, it is a risk-free business model.

3. Shipping speed: In the 3PL business model, the stock is already manufactured and ready to be shipped as soon as the order is placed. That’s why buyers receive the delivery quickly. In dropshipping, the seller orders the product only after they receive the order. That means, the delivery will take longer time because it involves product procurement/manufacturing + shipping time, compared to the 3PL model which involves only shipping time. 

4. Costing: The 3PL model is cheaper because the seller is getting wholesale discounts when they get the products manufactured in bulk. While dropshipping is generally 3X more expensive due to its independent ordering nature. 

5. Business model suitability: Dropshipping is suitable for microbusiness owners who don’t want to invest in inventory. The 3PL model is suitable for SMBs and big businesses that can invest upfront in inventory ordering/manufacturing. 

6. Product suitability: When the product doesn’t have a lot of variants and customization, the 3PL model is preferred while for products with large variants, dropshipping is less riskier. 

3PL for Dropshipping

You can use the 3PL for dropshipping business by combining both models to leverage the maximum benefits of supply chain outsourcing while reducing the risk. You can do so when your manufacturer and 3PL partner are the same, like Stitchi. Stitchi is an all-in-one platform that manufactures, stores, packs, and dispatches custom merchandise like tees, sweatshirts, hoodies, bottoms, caps, aprons, totes, bags, etc. Get dropshipping in 3PL rates because Stitchi is 2X cheaper. Plus, it takes only 12 days for order fulfillment in dropshipping and less than 5 days for 3PL orders i.e. when you already have the stock ready in their warehouse.