Companies tend to be elastic in their use of third-party logistic providers for warehousing, freight forwarding and other services.
According to the 2016 Third-Party Logistics Study, surveyed organisations outsource more of their logistics than “insource”, by a ratio of 2:1.
“Customers generally exhibit a greater understanding of their organizations’ core businesses, and how improved supply chain capabilities can help to achieve overall organizational objectives,” the study’s authors write. “This includes the ability to determine when and for what reasons the use of outsourced logistics services may be desirable, and how best to work with commercial providers to create the best results for their organizations and their supply chains.”
One size does not fit all in logistics, and choosing 3PL over inhouse depends on a business’ requirements. In addition to warehousing and local shipping, 3PLs can provide international freight and customs brokerage, reverse logistics, cross-docking, drop-shipping, consulting and other services. When and what a company outsources to a 3PL provider comes down to where a company is and where it intends to go.
“Working with 3PLs is all about gaining economies of scale,” Professor Tava Olsen, academic director at the University of Auckland’s Centre for Supply Chain Management, tells Cin7. “Most SMEs don’t have the scale to run their own warehouses particularly efficiently. If the goods and warehouse space are cheap, this may not matter much. Or if for various reasons it’s critical or cost effective to have the warehouse onsite then they won’t benefit much from a 3PL operating it because they’re not gaining many economies of scale by using the 3PL onsite). Otherwise, they should consider 3PLs.”
Larger and older companies balance these questions frequently. Back in 2007, Supply Chain Quarterly wrote about the steps an American clothing company took to make its supply chain more productive. This included paring down its 3PL distribution services in favor of a centralised facility that took advantage of underutilised company-owned building space adjacent to its existing factory. The company did not stop doing business with its 3PL partner, but rearranged its supply chain to realize efficiencies.
Supply chains in general have evolved since that time, particularly with the rise of eCommerce, and a customer-centric focus on order fulfillment. Third-party providers have shifted in kind, offering a wider array of solutions beyond moving and storing stock. The 3PL industry went through a wave of consolidation, with fewer companies offering more services over wider geographic areas. This has created a kind of convergence in which the shipper and the 3PL partner solve particular supply chain problems.
“[I]t’s important to remember that 3PLs create more value by being more than just a vendor,” said Cathy Robertson, president of research firm Logistics Trends and Insights LLC, in an August 2016 roundtable discussion. “Shippers should expect them to become a real partner. It’s not unrealistic to expect 3PLs to focus on their strengths and also provide value-added services such as light assembly manufacturing, vendor-managed inventory, and to identify efficiencies across the supply chain.”
The best way to begin thinking about using 3PL providers is to come up with a business case for what your company needs.
1. Is 3PL better for your warehousing requirements?
Do you operate a warehouse directly? Do you need to operate your own warehouse (ie, is it imperative to have full control over packaging)? Do you have the technology, manpower and resources to operate a warehouse? And is this all proving more trouble or expensive than it’s worth?
2. Is 3PL necessary for accommodating customer growth?
Are you expanding your sales channels, such as through eCommerce, winning more customers across the country? Are you able to meet fulfilment by shipping from a single warehouse, regardless of who operates it? Will a 3PL provider make it easier to fulfill shipment with multiple warehouse locations and cross-dropping?
3. Can you live without 3PL when expanding to new markets?
Are you winning customers overseas or even in farflung regions of your own country? Is it getting too expensive to fulfill overseas orders from your country? Do you need a landing pad for your products in your new foreign markets? Will you need expertise in overseas trading?
The post 3 More Things to Think About in Weighing 3PL appeared first on Cin7.