3PL vs. Wholesale Distributors: What Software Is Right for You?

Danielle Lobo

For a small to medium-sized business that is venturing out and trying new business practices, you may realize that your software requirements will change. Whether you need inventory management, warehouse management, accounting software, a robust CRM or an ERP (Enterprise Resource Planning) software that includes it all like Blue Link ERP, it can be hard to know where to start looking. When it comes to basic requirements, you’ll likely find that a lot of ERP software vendors will have what you need but, you’ll need to identify the details about your company that are not laid out on your website in order to determine the best fit. Talk to vendors in-depth about your processes, for example, how you store your inventory. Your software provider will need to know if you’re storing your inventory in a warehouse that you own, using a 3PL or are even considering your own warehouse to be a 3PL. In some cases, ERP is the perfect solution for a small-to-medium business (SMB) but in others, it’s just not the right fit. 3PL’s are a completely different business than wholesale distribution which requires differing software requirements.

What Is a 3PL?

The use of a 3PL (Third Party Logistics) is when organizations use a third-party warehouse to store inventory. Third party logistic companies will store products in their warehouse (which may reside in a different city or country as their partners) to assist businesses with their supply chain. Some distributors buy and sell products without ever actually touching the physical items! Once manufactured, the product is transported directly to the 3PL warehouse and when a customer places an order, the item is shipped from the 3PL to the customer. Some big 3PL businesses  have massive warehouses that can store and hold inventory for multiple companies but will require the 3PL to have robust software that can handle storing inventory for multiple sources. Many small 3PLs are created from small to medium-sized businesses that have extra warehouse space and have offered that space for rent to other companies. It's easy to think that you can continue to use the same ERP software you have implemented but once you start handling someone else’s inventory, your accounting requirements change and the type of software you require changes.

Software For a 3PL

Since a 3PL is holding a product as opposed to owning it, look for accounting functionality to manage the service aspect of the business such as rental fees. Every 3PL will calculate profit differently, some will charge based on how many pallets or boxes they are moving for a particular customer while some will charge based on available space and time to store a product in their warehouse. Since a 3PL does not own any product, there's no need to handle sales or purchase orders so accounting does not need to consider inventory numbers. Accounting for a 3PL can be done with introductory accounting software.

3PL’s with massive warehouse space and multiple customers will require a full WMS (Warehouse Management System) that is much more in-depth than what may come with a base ERP system. For example, it is beneficial if a 3PL’s software tells them that they have a specific bin and shelf available following a FIFO (First in, first-out) method. When storing inventory just based off of availability, it becomes impossible to manually determine whose products are whose. A full WMS system will be able to keep track of these smaller details and provide comprehensive warehouse management functionality.

What Is a Wholesale Distributor?

A wholesale distributor is often the middleman between the manufacturer and the retailer (or in some cases end consumer). Distributors will buy inventory from the manufacturer and either hold it in their own warehouse or partner with a 3PL for storage then sell it to the retailer. When wholesale distributors buy, hold, and sell inventory using a warehouse that they own, their accounting practices will take into account additional costs such as storage when calculating profit and their sales and purchase orders will need to balance with their inventory.

Software for a Wholesale Distributor

As a wholesale distributor, a robust ERP system like Blue Link ERP is an all-in-one solution including powerful accounting, inventory management, contact management, lite warehousing and more. An ERP system will track the movement of products and your numbers will be up to date in real-time. Even if you’re partnering with a 3PL, Blue Link allows you to see your inventory in the 3PL warehouse and lists it as a “secondary warehouse”  in the system. With each product that moves in and out of the 3PL’s warehouse, communication is being sent back and forth between distributor and 3PL either by email or EDI depending on sophistication. You can then have Blue Link be up to date with accurate numbers.