With costs steadily rising, maintaining your online store’s profitability can become strenuous. Numerous factors—such as stretched supply chains, limited capacity, and the labor shortage—have caused the cost of operations to skyrocket. Pairing these obstacles with the pressure of meeting customer demands adds to the stress most online stores are facing. Trying to manage these factors has caused many e-merchants to turn to cost management or outsourcing to alleviate rising fees.
What is a 3PL Company?
A 3PL—or third-party logistics—company offers logistics services that facilitate a business’ fulfillment operations. By integrating your business’ warehousing and transportation procedures, 3PLs can increase supply chain visibility and improve finances depending on the level of involvement your business requires.
Not only do 3PLs aid in the fulfillment process, but they can additionally assist with global shipping, LTL (less than truckload), and FTL (full truckload shipments). Also on the shipping end, a 3PL company can assist with customs, freight forwarding, and consolidation of orders. Through cloud-based systems, 3PLs manage e-commerce and fulfillment operations to promote efficiency and end customer performance. 3PLs have the connections and experience to cut down operation costs for your business.
Common 3PL functions are summarized below:
- Freight forwarding and importing products into their warehousing facilities
- Receiving product into the warehouse
- Storage of product in their warehousing facilities
- Pick and pack and fulfillment of orders, both B2C and B2B
- Shipping of orders to end customers
- Online visibility of inventory, product, and shipping statistics via a 3PL technology system
How Can 3PLs Reduce Costs?
Aside from managing the overall product receiving, storage and shipping process, 3PLs offer valuable cost savings over in-house operations. Especially in difficult economic times where warehouse leases and employee labor costs are growing 20-30%, outsourcing is proving to be a more viable option for online merchants than ever before.
- The “Pay-for-Use” Model—When doing fulfillment in-house, businesses sometimes pay for more storage than what is being used. 3PLs offer the “pay-for-use” model which allows customers to only pay for space needed, monthly receiving, and the number of orders processed. With this model, storage costs and unnecessary employee hours are reduced.
If you are not looking to outsource all your storage needs, any overflow of product can be stored by a 3PL company to avoid the cost of renting a new space. For storage, the 3PL company will charge by pallet and manage all pallet in and pallet out scenarios. Along with the pain of finding an affordable space to house your products, storage costs can be significantly reduced by utilizing 3PL company warehouses.
- Wider Packaging Options—The wrong packaging can increase the shipping cost of products. By using the wrong box, the dimensional or actual weight of your products can increase, causing an avoidable rise in shipping rates. 3PLs provide a wider range of packaging options that will best fit your products. The wrong packaging can also lead to the damage of any fragile or perishable items. A 3PL company ensures your products are packaged appropriately to avoid damages and to promote customer satisfaction. Making sure your packages reach customers safely will increase the likelihood of future orders while preventing the loss of profit.
- Better Carrier Rates—3PLs have better connections with national carriers than those doing fulfillment in-house have access to. 3PLs work directly with national carriers which creates opportunities for deals and contract negotiations. Furthermore, by aggregating freight of all their clients, 3PLs have better negotiating leverage. These deals often reduce both product and shipping costs. By receiving this discount, your business can obtain either decrease overall shipping costs or offer more shipping discounts and incentives to end customers. Working with a 3PL company ensures you get the best deals and frequent interaction with national carriers that those doing fulfillment in-house typically do not receive.
- Access to Beneficial Technology—3PLs provide access to technology that may not be available to those managing operations on their own. A 3PL company can provide digital operations that can identify the best shipping rates, routes, and arrangements. Being able to track and manage shipments ensures packages arrive on time and intact and utilizing the most preferred carrier and service available regardless of the order. This increases customer satisfaction and boosts the probability of future orders.
3PL technologies also provides access to up-to-date inventory and product tracking. By maintaining an accurate inventory, unnecessary purchases, delays, and labor costs can be prevented. Remote access to inventory can also identify avoidable fees and low performing products that can be reduced or eliminated. Better technology also improves employee efficiency and cuts down on errors. This allows unnecessary employee hours to be reduced while decreasing the time and money needed to reverse errors. Overall, digital operations can reduce rates across many areas by highlighting processes that need improvement.
Finding the Best 3PL Companies
While it may seem that outsourcing logistics to a 3PL company is a no brainer, finding the right 3PL company isn’t as easy as it seems. The most critical aspect of finding the best 3PL companies is performing an exhaustive due diligence on all final candidates. Due diligence is the process of researching the company from top to bottom to ensure that they are truly the best option for your organization. Due diligence includes:
- Touring the facility, either in person or via video conference
- Speaking with every critical staff member that you will interface with
- Talking to customers to gain reviews and feedback
- Discussing KPIs (key performance indicators, such as on-time receiving, inventory accuracy, and shipping and order accuracy rates)
- Obtaining a demo of any systems that will be utilized
3PLs Can Truly Benefit Your Business
Outsourcing logistics services provides ample benefits for managing rising costs. By providing better rates and amenities, 3PLs can reduce costs in storage, packaging, shipping, and labor. Managing your businesses operations is essential to staying afloat when facing never ending fee increases, so arming your company with the tools and support 3PLs have to offer will increase your business’ likelihood of survival.