The debate that comes up among many manufacturers and companies is how to get products to their destinations in a cost-effective way, on time. One solution is to use a third-party logistics (3PL) company.
A 3PL is simply an outsourced logistics company that provides customizable warehouse storage, distribution and transportation solutions to other businesses. The services provided are based on the 3PL’s capabilities. Most 3PL’s typically offer inventory management, order fulfillment, goods shipping, and last-mile delivery services. Some companies may also offer additional services such as pick/pack/ship, marketing materials distribution, reverse logistics, and fulfillment consulting services.
There are numerous advantages to outsourcing these logistical tasks, but it’s important for businesses to find the right 3PL partner in order to receive the maximum benefits. Here’s what you need to know:
Cost Benefits of a 3PL Partnership
The cost benefits obtained from a 3PL partnership largely depend on the contracted services. These benefits may include the following:
- Inventory management software: Many small businesses and e-commerce startups do not have the software capabilities to monitor inventory levels. A 3PL invests in these technologies as part of their business structure, so that they know where shipments are, as well as how many products are on warehouse shelves. This feature allows a company to better manage inventory levels, reduce product waste, use warehouse space more efficiently and prevent backorders during peak sales periods.
- Billing services: A 3PL forms partnerships with all types of vehicle, rail, commercial airline and ocean liner transportation companies. Because the 3PL handles the logistical tasks, they also manage the invoicing and billing of shipments. They can ensure accurate transactions while you focus on promoting your business and bringing in new customers.
- Shipment tracking and accountability: Tracking shipments throughout the supply chain can help prevent bottlenecks and ensure packages reach their destinations. A 3PL often offers tracking capabilities in many forms – including warehouse management software and carrier tracking. Using this tracking information, delivery drivers can determine the best routes to cut down on fuel costs. Shipment tracking can also spur more accountability when it comes to lost or damaged shipments, as a company can switch suppliers and transportation partners if there are too many issues.
- Scalability: Companies may grow or downsize their product lines based on customer demand. Many 3PLs design their operations to align with a company’s current warehouse, fulfillment and shipping needs. Offering customizable solutions allows a company to pay only for the services that are needed.
Selecting a 3PL Partner
When evaluating 3PL companies for logistical operations, there are many factors to take into consideration. Consider the following:
- What services are needed? Before signing a contract, evaluate your current logistical needs. Perhaps create a list of requirements and expectations you want to see from a 3PL.
- Does the 3PL fulfill these service requirements? Your 3PL partner should meet at least most of the requirements and expectations on the list. There may be times when you modify your expectations because a 3PL may not offer a specific service. However, ensure that any tradeoffs still align with the company’s operations.
- Do they offer customized services? Some 3PLs will offer customizable solutions so that you can select only the services you need. Other companies may offer bundled solutions with varying payment levels.
- What is the 3PL’s business structure and stability? You should check the 3PLs financial health to ensure that it is stable and can weather any economic risks or uncertainties. Ask for references and read reviews to gain a clearer understanding about this potential partner.
The 3PL industry is vast. Businesses working in this industry are competing against each other to offer the right options to companies who need logistical services. A 3PL can offer a wealth of cost benefits — if their business structure aligns with a company’s supply chain. So, companies offering products to their customers can easily shop for the right 3PL to further leverage current operations.