Using a third-party logistics (3PL) vendor can be a great way to improve your business in a variety of ways. The benefits of this relationship can potentially include some cost savings, but even if there are no direct cost savings or even an increase in costs, there are still potential benefits for your customers’ overall experience.
What is a 3PL and how does it work?
A 3PL is a vendor that fulfills your orders for you. Typically, you ship them inventory in bunk that they keep in their warehouse. As you receive orders, that information is forwarded to them, and they use this inventory to fulfill your orders and bill you for their services.
What are the benefits of using a 3PL?
Given that a 3PL will charge for their services, what are the advantages of outsourcing fulfillment?
Reduce overhead increases
If your sales volume starts to increase beyond your capability for housing inventory and fulfilling orders in a timely manner, there’s the issue of how to meet this increased demand. Investing in new, larger facilities and additional staff will not only take time to bring about, but may not be the best option right away. If you meet the new demand by using a 3PL there may be an increased cost per order, but you will be able to more quickly expand your operations to meet demand. This can also be used to buy time. While you may have reduced margins for these orders while using the 3PL, in this time you can more carefully consider not only if increased operations are justified long-term, but seek out the most cost-effective solutions for increasing your operations internally.
Reduce shipping time and costs
If your operations are located on the West Coast, shipping to customers on the East Coast will always take longer and cost more. Large retail companies typically operate several fulfillment centers located around the country to address this but for small and medium businesses this can often be cost prohibitive. If you are finding that a large portion of orders are coming from the other side of the country, a 3PL located closer to these customers can allow you to offer reduced shipping times. Depending on the fees of the 3PL the shipping costs may even be able to be lowered for some of these customers.
Reach new markets
Some products may have shipping costs that render certain geographical markets impractical to market to in your current state. For example, a US based company may find it hard to sell large or heavy products to European customers due to the large costs of shipping. Similarly, some products cannot be shipped by air due to hazardous material restrictions and can cost sales based on the shipping time. If you have a 3PL located in Europe, your goods can be sent to the 3PL by slow but relatively inexpensive ocean freight and the fulfillment center can then ship these products to European customers with more competitive rates and shipping times.
Leverage their expertise
Just as you focus on sales, a 3PL’s focus in on the fulfillment process. Whether it’s their shipping process, their packaging, or their relationships with shipping carriers, this can all translate into an improved customer experience as well as a learning experience as you grow your business.
For more on the power of digital transformation, see How Technology Enhances The Customer Experience.