This is probably the question I get asked most often by founders who are starting to think seriously about their supply chain.
“Should we use a 3PL or build our own warehouse?”
And every time, my answer is the same: it depends. But not in the frustrating, consultant-speak way. There’s actually a pretty clear framework for thinking through it.
What’s a 3PL, and why do people use them?
A third-party logistics provider (3PL) is a company that handles your warehousing, fulfillment, and often shipping on your behalf. You ship your inventory to them, they store it, and when an order comes in, they pick, pack, and ship it to your customer.
For a lot of early-stage companies, this is the right move. You don’t have to sign a warehouse lease, hire a fulfillment team, or figure out how to run a distribution center. You pay for what you use, and you can focus on everything else.
When 3PL is the right call
You’re early stage and volume is unpredictable. 3PLs let you flex up and down without fixed costs. You’re not paying for warehouse space you’re not using.
You need to move fast. Setting up your own warehouse takes months. A good 3PL can have you operational in weeks.
Fulfillment isn’t a competitive advantage for you. If your customers just want accurate, on-time delivery — a 3PL can do that as well or better than you can.
You’re entering a new geography. 3PLs with distributed networks can get you closer to your customers without signing leases in markets you’re not sure about yet.
When in-house starts to make sense
The math on 3PLs shifts as you scale. At some point, the per-unit cost of outsourcing exceeds what it would cost to run your own operation. Where that point is varies by industry, product, and volume — but it exists.
You need control over the customer experience. If your fulfillment is part of your brand — custom packaging, specific handling, personalization — it’s hard to fully outsource that and get it right consistently.
Your volume is high and stable enough to justify fixed costs. Once you’re shipping enough that the economics work, owning your own operation gives you more control and usually lower cost per unit.
Your product has special requirements. Temperature-controlled, hazmat, fragile, high-value — a lot of 3PLs can handle these, but not all of them can handle them well.
The mistake I see most often
Companies either outsource to a 3PL and never revisit the decision, or they go in-house too early and end up with a warehouse that’s too expensive and too hard to staff at their current volume.
The right answer isn’t static. It changes as you grow. The companies that do this best make an intentional decision at each stage and actually revisit it.
One more thing
If you do go with a 3PL, spend time picking the right one. Not all 3PLs are equal. Ask for references. Visit the facility. Understand their error rate and what they do when something goes wrong. The cheapest 3PL is rarely the right 3PL.
Mina Hanna is the founder of KD Hanna, a supply chain consulting firm helping startups and growing businesses build resilient operations. Get in touch →