Understanding Third Party Logistics (3PL) Warehouse Services and Costs – Part 4

understanding 3pl costsOrder Fulfillment

The primary activity of a 3rd Party Logistics Warehouse is to fulfill the orders that the 3PL’s client receives from its customers.

Typically the order fulfillment process will include the picking, packing and dispatching activities but may also include other value added activities that have been requested by the client.

The 3PL can receive its client’s orders in many ways. Orders can be received via fax or email and then manually entered into the 3PL’s warehouse management system (WMS) or they can be received electronically – data transferred via an interface between the clients order management system and the 3PL’s WMS.

Once the orders have been received or entered into the WMS the picking process can commence. In most instances the picking process will be completed by a 3PL staff member using a paper based “pick slip” that has been printed out from the 3PL’s WMS. The “pick slip” will list the product and the quantity to be picked. More sophisticated WMS will also include the storage location of the product on the “pick slip”. The storage location is a unique location within the warehouse and will be indentified by some form of marking (e.g. a label affixed to the racking or shelving). In warehouses where storage locations are used, the storage location will have been assigned to the product and recorded in the WMS during the put away process.

Assuming a paper based system is being used the “picker” will go to the location where the product is stored and remove the required quantity from the storage location and take it to the packing / dispatch area. Where there is no predetermined storage locations set up and recorded within the 3PL’s WMS the picker is reliant on his knowledge of the location of the products within the warehouse. Depending on the type of product that is being managed by the 3PL, the “pick” may be a pallet of stock that is being removed from a bulk storage location within the pallet racking or it may be a quantity of single items being removed from a “pick face” that has been set up as part of the shelving configuration within the warehouse.

In more advanced warehouses, there are no paper pick slips – the picking process is undertaken using electronic scanning devices that have the order information transmitted to them via wireless technology. Under this process the picker will use the devices to scan the bar codes at the storage location and on the items being picked to confirm that the location and the correct items have been selected. Neither of these steps can be completed unless both of the bar codes match the order data that has been sent to the device. This method is much more efficient than the paper based method and also ensures that picking errors are reduced and inventory accuracy is maintained.

Once the picker has returned the “picked” order to the packing and dispatch area the order will be physically checked to ensure that the right product and the right quantity have been picked. The physical checking can be done manually by visually checking the product code and counting the number of products or it may be done by scanning a barcode label on each product if the 3PL’s WMS has this functionality. Once checked and correct the order can be confirmed as being ready to dispatch and the products can be consolidated and packed into a shipping carton if necessary. The confirmation process will normally result in a packing list and / or an invoice being printed out from the 3PL’s WMS. These documents are usually attached to one of the items to be dispatched (pallet, individual product cartons or the consolidated shipping carton). The packing list or invoice is required by consignee to identify and confirm what has been shipped to them.

The last step of the order fulfillment activity is the dispatch process.

The dispatch process is where the 3PL will prepares the order for shipping with the preferred carrier. To ship the goods the 3PL staff member will create a consignment using the carriers dispatch system. The consignment note is the agreement between the shipper and the carrier to transport the goods form the 3PL site its client’s customers site. Apart from being the “contract for carriage” between the two parties, the consignment note provides all the practical information relative to the shipment. This includes:

  • the name, address and contact details of the shipper
  • the name, address and contact details of the receiver
  • the number of units (cartons, pallet etc.) , the physical dimensions and weight of each unit being shipped
  • the required service level

Once these details have been entered into the dispatch system a shipping label (or a consignment note) will be printed out. The shipping label is attached to each unit being shipped.

The shipping label usually has a barcode printed on it which will be used by the carrier for tracking the consignment during the transport process. The tracking of each unit is driven by the electronic scanning of each unit at various stages of the transport process (pick up, at carrier depots and on delivery). Typically a consignment note will only be printed for carriers that do not utilize electronic scanning. In these cases the electronic scanning is replaced by a signature on the consignment note at each stage of the transport process.

The dispatch process is repeated for each order and at the end of the day the nominated carrier will collect all of the units that are ready to ship and the transport process will begin.

Refer to the previous post Understanding Express Transport Services and Costs to learn more about the transport process.

Below is an example of a schedule of rates for the order fulfillment process.

Order Fulfillment Charges

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  5. Understanding Warehouse Services and Costs – Part 2
  6. Understanding Warehouse Services and Costs – Part 3

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