Measuring the real cost of 3PL

At QuickBooks Commerce, we know companies of all shapes and sizes are turning to third party logistics (3PL) as a solution to assist them with scaling business growth. The great news for any business owner is that a reliable 3PL can not only take care of all your supply chain headaches, more importantly, it will provide a totally scalable and flexible option for your business.

From storage and distribution to collections and fulfilling on-time scheduled delivery windows, using a 3PL means that your business should only spend money on logistics when the goods are earning it back. An accurate third party logistics definition could be that someone else is taking responsibility for a huge chunk of your business activities. In the following article, we highlight some of the many ways that third party logistics companies can benefit your distribution business.

How expensive can 3PL be?

Before you rush off to the phone the realtor and ask him to put your warehouse on the market, you need may need to garner some detailed information concerning the real cost of your existing supply chain. Premises, transport, and distribution are all going to be expensive overheads if your business is to keep its logistics in-house. However, a good 3PL supplier won’t be cheap either.

That said, some of your overheads for in-house logistics will remain constant regardless of whether your product is on its way to the customer or sitting on the shelf at your premises. These costs may include:

• Warehousing
• Distribution operatives
• Transportation
• Packaging or machine based handling

Measuring the cost of third party logistics 

With 40% of respondents surveyed byscdigest.com claiming that they calculated the cost of their logistics as a fixed percentage of their sales, the argument for outsourcing through a 3PL provider remains highly convincing. Tomkins Associates provide a basic chart breaking down the individual supply chain costs for different business sectors showing them as a percentage of revenue. With figures ranging from as low as 2.0% right up to 10.8%, they serve to paint a picture of steadily rising costs over 4 specific financial quarters.

However, the fact still remains that even if 3PL is an expensive startup option, it is likely to provide major cost savings on a sliding scale as turnover increases, making the benefits of its scalability an attractive factor for any business.

How 3PL scales with you

Aero-engine systems specialists Woodward Governor wanted to add value to their supply chain and partnered with a 3PL who were able to release them to focus on what they did best. Woodrow’s sales and marketing teams had already identified the fact that logistics wasn’t one of their strengths and how that was more a role of third party logistics companies.

Apart from enjoying big savings on not having to employ 10 to 15 new logistics operations staff, they now only need to retain a small in-house logistics department. They openly admit that through specialization, their 3PL is far superior to their own efforts in managing inventory and logistical distribution.

Fine wine and spirits importer Palm Bay International have secured a reputation as one of their country’s most successful importers. Through partnering with Albatrans they were able to open their own 3PL company Alba Wine and Spirits Warehousing and Distribution, (LCC) in 2014.

They identified the need to separate the logistics from the main operations of the business and section them off to a “seasoned team” of professionals. They also used logistics companies that were already familiar with the unique handling requirements of their products.

Improving the efficiency of your businesses fulfillment process with 3PL

There is a lot more to partnering with the right 3PL than just effectively storing and distributing your inventory. Through transparent and well-communicated working practices, good third party logistics providers are able to feedback useful statistics and provide valuable suggestions to improve the value of your business.

Through their experience of handling your inventory, they are in effect placing themselves at the customer facing end of your business. This means that they are best placed to deal with the whole of the fulfillment process and able to react efficiently to the changing demands of your evolving and growing business.

Accessing new markets with a 3PL partner

One of the biggest obstacles faced by distribution companies that are looking to expand into new national and even global markets is their own physical location. The advantages of having forwarders, depots, and a network of supply chains are obvious, and those assets are typical of many third party logistics companies.

Unless you intend to make the main focus of your business picking and dispatching products to all four corners of the world, you need to onboard a team of specialists that they are likely to come in the form of a 3PL.

Integrating a 3PL into your current operation

The role of third party logistics companies in distribution businesses is crucial if owners are seeking to grow their market share in a scalable and controlled way. For some, however, concerns about integration may be a barrier to making the move.

Ensuring that your business already has an industry standard inventory management system in place will open the way to a smoother and less costly integration with your 3PL’s own systems. Faced with the costly alternatives, craft brewing company Honest Brew utilized QuickBooks Commerce’s inventory and order management system and were able to do exactly that when they integrated with Crossfire EDI.

Making the most of your move to a third party logistics provider

Once your business has determined and reconciled the cost of switching distribution to a 3PL and balanced that cost against carrying on with your in-house system, scalable growth can become a profitable reality.

Through taking advantage of selecting the right 3PL to partner with, accessing new national and international markets will also be much easier for your business. Integration and flexibility are both key factors in the cost burden and how smoothly any transition is likely to be.