Going It Alone
Third party logistics is big business, an industry that generates billions with an expected growth rate of 7 percent through next year. One of the chief reasons for that big growth is how popular third party logistic providers—3PLs to their friends—have become with small businesses. Rich in resources and facilities, adept at adapting to changes whether they be technological or seasonal, 3PLs have become increasingly useful to small businesses who’ve found that leveraging their services can strengthen the links in their supply chains, making them more efficient and, ultimately, more profitable.
While some small businesses still think of 3PLs as cost prohibitive, others have discovered that contracting with a logistics partner is a business expense that ultimately requires far less capital than implementing one’s own supply chain operations.
Not convinced? Here are a handful of other reasons a 3PL could make a big difference for your small business.
For many companies, the number one reason to leverage a 3PL is the flexibility it affords them in capacity. Nate Rosier, senior director of Strategy for enVista, a leading global supply chain consulting and IT services firm, once ran his own small food company and, like other similarly sized companies with limited resources, found that utilizing a 3PL just made things easier. “To own capacity year-round can be very expensive when you need a lot of capacity during your peak season but require a lot less during a low season,” he says.
A 3PL allows a company to scale its warehouse and transportation according to inventory needs, eliminating the frustration of unused space during off-season sales periods and providing additional space during high-season demand—all of it just a phone call away, something that can be especially critical when your product is especially sensitive.
“Many food companies leverage 3PLs to have access to flexible outside storage requirements because their internal capabilities are insufficient to handle their total storage capacity requirements throughout the year,” says Marc Wulfraat, president of international supply chain, logistics and distribution consulting firm MWPVL. “We often see the 3PL offer storage, plus order picking and shipping services, for refrigerated and frozen-food manufacturers. They become an extension of their business.”
Not only is a 3PL crucial in the storage and movement of an existing product but it can help launch a new one faster and less expensively than if a company did it all on its own. A 3PL is able to immediately supply the working infrastructure and staffing needed to get a new product to market, shaving months off the time it would otherwise take. From material handling equipment to IT infrastructure to warehouse space, a 3PL can bring an operational, fully staffed distribution center into existence much quicker and cheaper. And it’s not just smaller companies that consider this a benefit, Wulfraat points out that very large companies prefer to do what they do best while letting 3PLs do what they do. “Some companies consider themselves to be marketing and product companies and they consider logistics to be a function that is best outsourced to a specialized expert company who has a core competency in logistics,” he says.
To gain an edge in a competitive market, 3PL providers stay up to date with the latest developments in technology so you don’t have to. The software that 3PLs create can provide visibility to monitor the entire supply chain through advanced reporting, helping inventory management, logistics planning and many other business processes. Sophisticated software systems analyze and track processes to eliminate inefficient areas and fast track necessary links in the chain. “For small and midsize firms, the 3PL may have a WMS [warehouse management system] that is state of the art and the price tag of deploying a WMS in one’s own operation is cost prohibitive so the company decides to leverage the 3PL rather than managing distribution in-house,” says Wulfraat. By outsourcing logistics needs to a 3PL, a company is able to focus more on its core competencies while being ensured that its logistics needs are being handled by reliable, seasoned professionals who are not only good at what they do but constantly looking for the newest ways to improve clients’ tech options.
It may seem counter intuitive to say that hiring an outside company can save money, but the fact is most companies want to focus on making their product the best it can be and don’t have the time, desire or expertise needed to effectively get their products to customers. This shows itself in the kind of facilities 3PL have, their technological expertise or in being able to procure better freight rates; logistics firms have significant buying power due to the volume of freight they deal with and their ability to leverage load consolidation and backhaul opportunities usually means lower rates. Sometimes a particular geographic region of the market is outsourced to a 3PL because it is a small market and operating an in-house facility there is more expensive than outsourcing to a 3PL which has a shared facility. “Some large and small retailers outsource their e-commerce fulfillment operations to a 3PL who has invested in the technologies and material handling systems to be cost effective in this type of operation,” Wulfraat says. “These are often multi-tenant shared warehouse environments. Amazon is in fact an example of a 3PL to smaller businesses.”
A 3PL can allow a company to seamlessly grow a new product into a new region without sacrificing other resources or space. A 3PL can improve your global capabilities through their on-ground knowledge of local markets, including regulations and government agencies.
Most 3PLs have warehouses located strategically throughout the United States, and many others throughout the world, allowing businesses the ability to expand into new markets while keeping costs to a minimum. Outsourcing to a 3PL provider not only improves the likelihood of having more capital to spend on one’s business, it means that a company will consider moving into markets previously considered cost-prohibitive. Consider that many companies are able to penetrate regions previously thought too small for a significant investment. But because a 3PL may have a shared facility and infrastructure, a new market may suddenly seem feasible.