Many retailers and manufacturers find themselves
grappling with the question of whether or not to outsource their logistics
needs. While it may be an easy decision to outsource these functions for small
businesses, the answer is not so clear-cut for larger manufacturers. Although
larger companies have the scale and volume to go at it alone, many are finding
that outsourcing certain parts of their logistics process to third party providers
(3PL) can be more cost-effective. However, there are also businesses who are
already working with a 3PL and wondering if the grass is, in fact, greener on
the other side.
There are plenty of reasons why either choice
can work. It all comes down to which option works best alongside your company’s
strategy, so consider how they each relate to three main areas: people,
technology, and vendors. No matter which side you side you fall on this
argument, there are a few simple tips and considerations that can help you
decide what the right move is for your company.
Think Beyond the Initial Investment
Most small businesses don’t have the resources
to build the staff, facilities, and processes needed to carry out fulfillment
obligations themselves. In fact, very few small businesses are able to manage
customer service, returns, and cash management on their own. For these
companies, working with a 3PL is the obvious choice.
However, the decision is not so simple for the
larger, mid-sized manufacturers and retailers. As businesses begin to reach a
scale that increases the amount of return on initial investments, it becomes
necessary to look beyond those initial investments. Consider whether you have
the ability, or even the desire, to commit to continual and unpredictable
investments that are needed to improve your capacity. You will also need to
consider whether or not it is beneficial in the long run to commit to these
continual investments.
Ebb and Flow
If your company experiences seasonal drops or
spikes in sales, you may also have unplanned expenses. Sales spikes often mean
paying your warehouse staff overtime and adding new shipping routes. If your
company is not able to handle the extra expenses, working with a 3PL is an
option worth looking into. Since 3PL providers often work with multiple
retailers and manufacturers, they are better equipped to handle these ebbs and
flows and can often protect your business from related expenses.
Consider Special Handling Requirements
If your company ships products such as
medication or food that require special handling, you need to be sure that you
can handle these special requirements. 3PL providers that specialize in
handling these types of products are likely to have invested in the best and
latest technologies and equipment to ensure your products are handled with
compliancy.
Consider how much you would normally spend every
year on special packing materials such as coolers and gel packs before
transportation costs. 3PL providers can often reduce these costs and increase
consistency by using refrigerated trucks and other technologies. This is
important because they can be leveraged across multiple customers without your
business floating the entire bill.
Ask the Right Questions
If you are considering working with a 3PL, it is
important to understand that not all providers are the same. To evaluate which
provider will best meet your needs, consider the following questions:
- How does your 3PL provider manage accounts? The biggest advantage to working with a third party is that you spend less time, money, and energy on logistics and more on your company’s core competencies. However, if your 3PL provider doesn’t utilize the right management structure, it can put a strain on your business and end up costing you more time and energy.
- Does your 3PL give you access to reporting data? Having the ability to review and assess your logistics, customer support, and order-to-cash data is vital to running a successful business. Make sure you partner can provide you with this data.
- Does your 3PL have regulatory expertise? Nothing can hinder the success of a product quite like regulatory issues. Luckily, most of these issues can be prevented with proper knowledge of the industry. Make sure your 3PL provider has strong relationships with the DEA and the FDA and utilizes proper systems to ensure your product is handled compliantly.
Regardless of whether you manage logistics
in-house, through a third-party, or a combination of both, these key issues
should be revisited on a yearly basis to ensure your company is utilizing the
most effective system. In most cases, there are at least some aspects of your
supply chain that can be outsourced to a qualified 3PL. You can always change your mind later.
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