Why Use a 3PL?
Warehouse logistics is a profession that requires specific knowledge and extensive experience to do well. Running a warehouse involves more than just overcoming the challenges of daily operations. Every process presents its own risks. It is the experienced facilities managers and warehouse operators who can most effectively and efficiently respond to these interconnected daily challenges. Many managers who understand the substantial benefits of effective/efficient warehouse and distribution management for their business outsource to third-party logistics (3PL) operations contractors, to gain the benefit of that capability and maintain their competitive edge.
Why should your warehouse and distribution operation hire out to a 3PL? The considerations are more than a back-of-the-napkin set of numbers. Utilizing a 3PL has impacts on your process management, resource allocation, human resource distribution, and risk profile, in addition to the cost calculation. Let’s examine how a 3PL can benefit every aspect of your current warehouse operations and distribution logistics.
Simplifying Complex Process Management
At first glance, warehousing and distribution appear to be a simple multi-step process: receive the order, pick products, assemble the order, pack, label and ship. The reality of the situation is that there are multiple processes at work: norms management, labor, rules and government regulations, and the all-important order fulfillment rate. Managing these efficiently requires in-depth knowledge, practiced efficiency, appropriate systems and equipment as well as precision and accuracy throughout the process to meet customer expectations.
As your business grows and scales up, you may quickly find that your requirements of effective warehouse and distribution management exceed the capabilities of your existing structure and team. Hiring a 3PL allows you to scale up your capabilities without sacrificing your order fulfillment rate as you scale.
Thawing Out Your Frozen Capital & Resources
Warehouse and distribution operations demand infrastructure and manpower investment over time to perfect logistics processes. These sometimes-heavy capital and resource demands can present a significant challenge to most business budgets. Especially as this capital is often referred to as locked-up or frozen.
You can’t reinvest it into growth objectives like operational capacity or the acquisition, development or production of new products when your money is tied up in payroll and existing inventory. Using a 3PL allows you to free up much of this capital and resources dedicated to logistics processes. Hiring a 3PL allows management to take over supply chain and distribution at lower cost without sacrificing efficiency or order fulfillment rate. It’s one of the easiest ways to free up capital and continue to grow while keeping customers and investors happy.
Just-In-Time inventory management, offshore warehousing, cross-docking, same-day delivery/return, inventory control and automation are all vastly simplified by using a 3PL rather than an in-house solution. Managers have learned throughout the two-decade history of 3PL that outsourcing their complex processes is often far more cost-effective long term than attempting to establish and maintain these processes on their own.
6 Convincing Reasons to Use a 3PL
1. Eliminate the Need for Significant Initial Investment
Starting up a warehouse and distribution facility requires a significant amount of capital. Warehouses demand a significant amount of real estate, which can mean large lease payments if you don’t own the property. The line items on the balance sheet are usually taken up by heavy racking costs, information technology (IT) costs and infrastructure, equipment for material handling, and any additional onsite assets you need for day-to-day operation. That’s a lot of cash up front for a fledgling company, and it can place significant limitations on growth and expansion.
Companies who choose to take advantage of 3PL services don’t have to bring as much cash to the table to get started. The better 3PL management companies already possess (or provide) their own facilities and equipment and deploy cutting edge technology that allows them to ‘hit the ground running,’ and manage storage and distribution for your business effectively and efficiently. 3PLs can accomplish this at a lower cost because their initial investment is distributed across their entire customer base. From a financial perspective, 3PL management offers significant benefits.
2. Reduce Warehouse Management Costs
Maintaining a warehouse facility and your supply chain logistics is expensive. Every square foot of empty space costs money every month. Unused equipment and hardware still have to be maintained in full operating condition, and that’s not money you can make back. Using a 3PL, you will only pay for the space and resources you use, rather than absorbing those additional costs for empty space.
3. Reduce Distribution Costs
Should your business not yet run at volumes that achieve discount pricing levels from transportation providers across mode of transport, a 3PL can likely consolidate shipments for you, leveraging volumes from multiple customers to secure discounted rates. Thus, the 3PL effectively combines consignments and/or volumes from multiple customers to reduce per-unit rates on shipping and handling across its customer set. Like all cost saving initiatives, this also gets passed on to customers and provides significant savings on getting your products into customers’ hands.
4. Observation Is Superior to Direct Handling
Managing your own warehouse and distribution is extremely time-consuming. When you outsource to a 3PL company, you can spend more time on core growth decisions and activities while your 3PL handles the day-to-day operations. You can move into an observer role and focus your energy and attention on the long-term decisions that will bring the greatest benefit to your brand’s growth and expansion.
5. Risk Reduction
This may be the single greatest benefit to hiring a 3PL to manage your warehouse and distribution logistics. There are risks involved in every stage of warehouse logistics, and catastrophes are difficult to predict. Supply chain resiliency in the fast-moving markets is essential as financial burdens when a risk becomes a reality can be substantial. Product spoilage, accidental damage in shipping, inventory shrink, modified requirements, operational failures, delays and other expensive costs incurred when your products are in the custody of a 3PL are typically absorbed by the 3PL.
They are responsible for your product from the time it enters the warehouse until it reaches the end user. Insulation from risk is not just good for your business, but your shareholders and customers, too. As a rule, 3PLs are sufficiently insured to cover such risk within their operating budget and distribute the costs for such protection across their customer base, again providing your business with significant savings and reduced overhead.
6. Take Advantage of Value-Added Services
For many companies, there are often special touches they want to add to how their products are delivered to their customers that increase the unit price or cut into profit. Value-added services like special labeling, kitting, assembling, bundling and packing can be quite expensive to provide for in-house.
3PLs, conversely, can provide these value-added services at a reduced cost because they are operating on a much larger scale than an individual warehouse and distribution facility. It can be far easier (and less costly) to outsource your special touches for packing and shipping to your 3PL than to take on those expenses in-house. Exceeding customer expectations in every way is critical to growth and taking advantage of value-added services is a financially sound and effective way to make that happen.
Ultimately, hiring out your warehouse and distribution to a 3PL management service is a weighty decision that requires forethought and research. There are advantages and disadvantages to putting any aspect of your business in the hands of another company. There is potential for issues and problems, and risk to your brand with your target audience and your existing customers.
It is important to take the time to research, learn about options and find the right 3PL for your business. You want to ensure that potential 3PLs are going to be the right fit for your products and customers. For manufacturers and businesses along the US west coast, and particularly in Northern California, Prism Logistics is the trusted choice.
Prism offers warehouse and distribution logistics services that can be custom fitted for your products, and we have the technology and expertise to ensure it arrives on time in the same condition as it left your manufacturing facility. If you’ve been considering a 3PL for your warehouse and distribution logistics needs, don’t wait. Cut your costs and your risks and let Prism Logistics take care of your warehouse logistics, shipping and handling.
Contact us today for a quote and let us handle the day-to-day details of your operations while you focus on what matters most: growing your business and keeping your customers happy.
