How Third-Party Logistics Can Boost Profits
By outsourcing your fulfillment, warehousing, and shipping processes to a third-party logistics (3PL) provider, you can grow your e-commerce business without investing heaps of cash.
What Is Third-Party Logistics (3PL)?
When third-party logistics first became a business term, it meant transportation services which an intermodal marketing company (IMC) offered.
The meaning of 3PL grew to include all kinds of logistics services. Nowadays it means any services where someone handles your freight without owning it.
What a 3PL Does
As you grow your business, scaling your supply chain gets expensive and time consuming.
- Buying or leasing warehouses
- Buying or leasing delivery vehicles
- Recruiting and training staff
But instead, you can outsource supply-chain tasks to 3PL companies.
When you partner with a 3PL, you use their infrastructure to handle all or part of your logistics needs.
The most common 3PL services include -
- Order fulfillment
Some 3PLs offer all three services, but not all. A 3PL might offer only one of these services, but many will offer at least two.
Full Truckload (FTL).
When you ship product without sharing cargo space with other shippers, it's called Full Truckload, or just Truckload. If you're shipping 10 or more pallets, FTL is likely your best option.
Less Than Truckload (LTL).
When your shipment is too large to send through a parcel carrier, you might ship LTL. With LTL, you share cargo space with freight from other shippers.
Final Mile or Last Mile.
Sometimes you may need to ship FTL and have the load broken down into individual orders at a cross-dock (more about cross-docking later). The packages then go onto smaller delivery trucks.
A 3PL that provides warehousing can give you flexibility in managing inventory. You can easily scale your inventory according to product demand.
During peak demand times, you can get more space with a phone call or an email. During slower times, you can rent less space.
Keeping a large product inventory carries a lot of costs:
- Opportunity costs. You have money tied up in inventory. That's money that's not available when a profitable opportunity arises.
- Deterioration. This isn't only for products with an expiration date. Even durable goods show signs of deterioration when kept in storage.
- Obsolescence. What's trendy now may not be so in the future.
Rather than keeping your product in storage, a cross-dock receives incoming freight, breaks it down, and then loads onto outbound trucks for distribution.
Provided your supplier can handle a surge in demand, cross-docking can greatly reduce the cost of inventory.
Almost all 3PL warehouses offer some level of fulfillment service.
If you are a Business to Business (B2B) merchant and mostly ship Full Truckload to your customers, you may only need a warehouse that will load outbound trucks and fill out a Bill of Lading (BOL).
But if you often ship parcel and LTL, you'll need a warehouse that picks, packs and ships your product. This kind of warehouse is also called a Fulfillment Center.
Other than storage, a 3PL Fulfillment Center might offer -
If your supplier doesn't package your product, some 3PLs offer custom packaging.
If you want to offer bundles and value packs, a kitting service lets you fill those orders based on real-time demand.
For example, if you sell hair care products, your customers might buy shampoo, conditioner, hair gel, a comb, and a brush separately. But you can offer them more value by offering a kit that bundles these.
When a customer orders the kit, the warehouse staff assembles it before sending it out for delivery.
Point of Sale and End Cap displays.
If you ship to brick-and-mortar retail stores, some fulfillment centers can build a display in the warehouse.
No need to set up in the store. Just unbox it in its place in the store and it’s ready to go.
How a 3PL Can Increase Profits
It's a wonderful thing when you find your passion and make it into a business. So, of course, you want to grow that passion, and 3PL partnerships can provide profitable business solutions.
You won’t need to invest a lot of capital. This leaves you with more money to focus on the parts of your business you’re passionate about and make them more profitable.
Hiring and training new employees eats up time and money. The average US employer spends about $4000 and 24 days to recruit one new employee.
You're probably already spending about 40% of your time with non-billable tasks. Why take up precious time hiring new staff?
And then there’s money you’d spend posting on job boards or participating in career events.
Background checks can cost as much as $80 per candidate.
Don’t forget the onboarding and training costs. It takes about 20-26 weeks to train a new hire, costing you about 1.5%-2% of revenues during that time.
Most 3PLs can serve as a single point of contact, freeing you to spend time making profits.
3PLs can get volume discounts on shipping that you probably couldn't on your own.
Many 3PLs have decades of experience in the industry, so they know how to run things efficiently. This lets you offer first-rate customer service so you can promote customer loyalty and earn repeat business.
A 3PL can be an efficient way to scale your business as you grow.
A 3PL’s existing infrastructure, trained personnel, and business experience can give you a competitive edge.
A 3PL can help you quickly meet the demands of business growth. For the long haul, a 3PL could help you reduce expenses and increase profits.