Every business needs a well-planned logistics strategy in order to run its operations smoothly. While some organisations prefer an in-house logistics system, many others go for third party logistics (3PL) companies. 3PL companies have a separate warehouse for the storage of products and provide services for assembly, packaging, shipping, delivery and customer support when an order is placed. It is a good alternative to leasing a warehouse, which involves forming your own team and managing the entire process on your own. Small businesses don’t usually have the required time and resources to set up a system internally, which is why 3PLs serve as a good solution.
When there is a business expansion, you are required to deliver products and services to a large number of customers. In such situations, it is best to outsource your shipping and operations in order to meet customer demands. 3PLs mainly help in providing warehouse solutions/services, transportation management, distribution and any additional technology that aids in cost efficiency. However, like any other tools and processes, partnering with 3PLs comes with its own set of pros and cons.
Pros of Partnering with a 3PL:
Flexibility – 3PLs offer a kind of flexibility that isn’t possible if you have in-house logistics. When it’s in-house, you have to spend a lot of time and money in leasing a warehouse and appointing staff, but in a 3PL system, payment for resources and storage is to be made only at a given time. Therefore, you don’t have to worry about long-term financial commitment like in the case of in-house logistics.
Convenience – Partnering with a 3PL helps save much of your effort and time associated with the logistics process. The process is quicker when compared to in-house logistics. All you need to do is provide the order details to your logistics partner and they will handle the order fulfilment for you. So you can use your time to focus on your business growth.
Money and Time Savings – With in-house logistics, small businesses usually cannot afford to offer free shipping owing to the high transportation and operation costs. But in a 3PL system, it works out to be economical for SMEs because 3PLs choose optimum means of transportation. They usually combine multiple cargos in a single vehicle, thereby charging you only for the space that your products occupy.
Scalability – When you outsource your logistics processes to a third-party company, there is no need to worry about expanding or contracting the space for your inventory. When your inventory volume changes, there’s no need to be concerned about creating extra storage space or paying for space that is not being used. Therefore, you have the freedom to scale up or down as per seasonal demands.
Expertise – While building and optimizing the supply chain, most business owners face the challenge of equipping themselves with the necessary knowledge and expertise. When you partner with a 3PL, this problem is taken care of because 3PLs show you their way of operation and introduce you to the best practices followed in supply chain management. It also introduces you to some of the most used technologies that aid in efficient business operation. If at all you plan to go for in-house logistics, you will be well-aware of the practices and technologies used.
Cons of Partnering with a 3PL:
Control – Your 3PL provider does all the work for you right from managing operations to delivery. This means that you have trusted your 3PL provider and given up some amount of control of your business operations. As a service provider, you have to give away that control and feel comfortable with a new entity being responsible for an important aspect of your business. Trusting them completely with logistics and being open to risks is a difficult thing to do.
Company Reputation – Once you outsource your logistics operations to a 3PL, a major part of the responsibility of customer satisfaction stays in their hands. If you have an excellent team of 3PL, who provide excellent services, there’s nothing to worry about. However, vendor mistakes are often a probability; like delivery of damaged items, shipping delay or transporting of wrong items. When the customer raises a complaint regarding the same, you know that your reputation is at stake. So you will have to prepare yourself for such unexpected issues.
Upfront Cost – Initial investment is one major disadvantage when partnering with a 3PL. During the early stages of your business, you will have to make a decision between money or time investment. If time isn’t an issue, outsourcing to a 3PL can be put off for a longer period in order to save money. Moreover, 3PLs usually charge you for the storage of items, picking, product packaging and shipping, which is alright if you have good sales and revenue. But if sales go down and your products are just lying in the storage, outsourcing can become an expensive affair.
Business Understanding – Effective communication with your 3PL provider is very important. Third-party companies often tend to service thousands of customers and may fail to give you the necessary attention. There could be a chance that they are the best logistics providers in town, but with a gap in communication or delay in responding to your requests. Furthermore, if you have specific expectations, for example, temperature-controlled delivery, cold storage, zero risks, etc. it may not be a great idea to partner with a 3PL. Finding a 3PL that fully understands your business goals and works efficiently towards it, is a tedious task. Additionally, if the distance between you and your 3PL provider is more, it can be frustrating when serious problems arise, and you are unable to visit their warehouse.
Partnering with a 3PL can be one of the best decisions that you ever made, but it also has its advantages and disadvantages. Comparing the different 3PL companies for their quality of services and the extent to which they suit your requirements is highly crucial for smooth operations.
– Swathi Bhat