Hiring a third-party logistics (3PL) company can greatly improve your supply chain and increase sales. 3PLs are companies that can handle logistics tasks such as storage, transportation, and delivery, allowing you to focus on other parts of your business.
Using a 3PL can provide benefits such as expertise in logistics, access to updated technology and help with international logistics. Whether or not a 3PL is appropriate for your company depends on factors like the size and stage of your business and logistics needs.
In this article, we will cover the pros and cons of using a 3PL and how to decide if it’s the right fit for your business. Making sure you make the right decision for your business goals.
What is Third-Party Logistics?
3PL stands for third-party logistics, and it refers to outsourcing logistics tasks such as warehousing and delivery, allowing you to focus on other areas of your business like sales, marketing, and product development. 3PLs have become more common in recent years as the way goods are sold and delivered has changed.
Many companies use 3PLs to handle logistics tasks such as storage and delivery, allowing them to focus on other aspects of their business. This handoff between taking orders and fulfilling them should be seamless, so customers don’t notice. 3PLs are often used to outsource logistics tasks such as distribution and fulfilment.
The Different Types of Third-Party Logistics Providers
- Full service, end-to-end solution
- Shipping and Receiving
Is a 3PL a Good Fit for Your Company?
The answer, of course, is that it all depends. Whether or not a 3PL is a good fit for your company depends on various factors, such as the size and stage of your business, existing infrastructure, and logistics needs. While it may not be the right choice in every situation, a 3PL can bring significant benefits under certain circumstances.
- Have seasonal demand. If your retail business has seasonal spikes in sales – for example, a busy lead-up to Christmas or Easter – a 3PL makes solid business sense. Instead of having to pay for extra warehouse space or resourcing to cope with these spikes yourself, a 3PL can step in during these peak periods to handle your fulfilment needs.
- Plan online expansion. The warehousing and distribution capabilities of 3PLs make it much easier to respond to the unpredictable needs of online shoppers. While finding your feet online, let a 3PL take this bumpy logistical ride for you.
- Plan overseas expansion. Before you invest in overseas warehouse and distribution facilities, test the waters with a 3PL. This way, you can clearly understand how your business will fare in new markets before taking the full plunge.
- Need competitive freight. 3PL providers have excellent buying power. They can negotiate the best deals on freight – what may cost your business £2 per mile when you go direct to a freight company will only cost £1.50 through a 3PL. These savings quickly add up.
What are the Benefits of Using a Third-Party Logistics?
Using a 3PL provider offers lots of advantages. The main benefit of using a 3PL is that it allows you to focus on other areas of your business, such as sales, marketing, and product development. Outsourcing 3PL leaves you with more time and resources as well as other advantages:
- Gain instant expertise and knowledge in the field.
If you’re starting, who better to take care of your logistics than a company that specialises in them? Outsourcing logistics tasks such as fulfilment, warehousing, and shipping to experts can improve your operations and allow you to focus on providing more value to your customers.
3PLs often have the latest technology, which can benefit your business by allowing you to access their knowledge and expertise in areas such as warehouse management systems for internal operations. A cloud-based WMS will ensure you receive all the latest updates to the technology as a user.
- Get a handle on international logistics.
If you’re selling internationally, 3PLs can take care of documentation, customs, duties and other issues at the borders that can delay your shipments and result in high costs if not done thoroughly. Plus, you save time working out complicated rules about different countries.
- Generate cost savings & scalability.
When it comes to warehousing, not having to maintain your own or extra space and or extra staff during peak seasons can be a big cost-saving measure. Also, companies that provide good inventory forecasting can help optimise your inventory levels and save money on inventory holding costs.
3PLs are almost infinitely scalable. If your business triples in 18 months, you don’t have to rush to secure new facilities, buy new equipment or hire and train staff. It’s easy to adjust logistics services with a 3PL by contacting them and requesting new rates or adding new locations to the transportation management system.
3PL Drawbacks You Need To Take Into Consideration
- Lesser control over the delivery process.
With a third party taking care of your shipping, there can be challenges when there are delays or problems in shipping a customer’s order. The customer will look at you for the resolution, not your 3PL.
- Larger upfront investment.
On the flip side of the cost issue, while hiring a 3PL can pay for itself in the long run, the investment can still be a large cost initially. If you don’t need a big warehouse or don’t have many orders, the cost of a 3PL can be prohibitive.
- More distance between you and your product.
The 3PL you choose may position you far away from your products, which would be an inconvenience if you run into quality control issues, or need to inspect your stock for any reason physically.
There are various 3PL companies that offer different levels of support. 3PLs offer different services, such as warehousing, forecasting, shipping, and delivery. Using an integrated warehouse management system across both your facilities and those of your 3PL provider can give you visibility and information on your products, deliveries, and returns.
Third-Party Logistics Critical Considerations
- Current and forecasted volumes
Choose a 3PL that can handle your current logistics needs but also be able to adapt to sudden changes such as an increase in stock or international expansion. You want to choose a 3PL that can handle your business now and as you grow or during peak seasons.
- References and business performance.
Check out references from other customers that use the 3PL provider and get a report on the company’s performance over the last few years. Seek out references and information about on-time deliveries versus delays and how they compensate businesses when there are problems. Check what previous customers have said about the 3PL provider, such as customer case studies and testimonials, to gauge how well they maintain customer relationships.
- Compatible technology
If you use a cloud-based inventory management system, choose a 3PL that is also technologically advanced and can integrate with your inventory software. Ensure that the 3PL provider’s technology works with how you work.
Is It Time to Take The Plunge?
Hiring a 3PL company to take care of your logistics can improve your supply chain and increase sales. Take the time to weigh the pros and cons and to ensure a good fit between your inventory management system and your third-party logistics provider. If you decide to go it alone, make sure you seek all the benefits of a cloud-based.
About Clarus WMS
Please speak to one of our team to understand how Clarus WMS can cost-effectively support best practice warehouse management processes, better customer service and highly efficient working for a range of warehouse operations with pay-per-month options and no IT infrastructure needed.
Our platform can scale from a one-user, small depot system to a 100’s user distribution centre operation. The Clarus WMS platform will cost-effectively scale with your business based on demand.
Clarus WMS is a UK-based supplier of warehouse management solutions with a wealth of industry experience in third-party logistics, wholesale/retail distribution, online fulfilment and manufacturing warehousing.