When a company struggles with the logistics of making sure a shipment gets from Point A to Point B or with any part of that journey, a third-party logistics provider (3PL) can come in and provide the solution. With expertise, experience, and a host of connections, the 3PL provider can take over any logistics concerns and ensure they reach their fruition. They can relieve the headaches of logistics management — but equally important, they often can do it for less money by streamlining processes and having a greater ability to find a less expensive way to move the shipment. This makes the return on investment a worthy option.
Over the rest of this blog, we will examine how a 3PL provider can save you money, how much does a 3PL cost, and how to make working with them a profitable choice. Additionally, there will be guidance on calculating the potential cost savings and ROI of using a 3PL.
Leveraging Economies of Scale
When talking about economies of scale for a business, it usually refers to the fact that average costs per unit decrease with a rise in the quantity of the product being produced. When a company brings on a 3PL provider rather than using internally managed operations, there is the ability to create savings and lower costs without having to alter production. 3PLs specialize in logistics and thus have a more extensive transportation infrastructure as well as exclusive relationships.
With that greater influence and the potential for larger volume with it representing multiple clients, a 3PL can have more of an upper hand in negotiating lower costs with carriers and suppliers. This means potential cost savings through bulk purchasing and volume discounts. If it is a high-volume 3PL, it could also cost-justify the implementation of warehouse management systems, voice picking, automated picking solutions, automated sortation, and conveyance systems. With all of its connections, a 3PL is also likely to be able to help with improving order fulfillment time. More connections mean multiple possible paths a product can take to reach the final destination quicker. All of these potential streams of cost savings make a strong case for adding a 3PL provider as a partner.
Avoiding Capital Investment in Logistics Assets
We have just shown a few ways that a 3PL provider can use its connections to lower prices for your company, but that’s not the only area where it can help your bottom line. With a 3PL provider in charge, you can steer clear of capital investment costs. You no longer have to spend money on so many resources because those procedures have been turned over to the 3PL provider. New or upgraded warehouse facilities or warehouse management systems and automated fulfillment solutions are now in the hands of the 3PL. Also, the material handling, sorting and conveyance systems, and data collection systems are no longer draining dollars from your operations budget.
Once you have started working with a 3PL provider, these capital investment savings will manifest almost immediately. However, there are also further-down-the-road savings on other resources that can be had as well. A 3PL provider can also help with longer-term projects that often prevent management from servicing the customer and controlling costs. These include adding fulfillment centers, upping product storage capacity, and increasing order throughput.
Increasing Efficiency and Minimizing Waste
A 3PL provider can also increase efficiency and contain the misuse of resources. Let’s examine some cases where a 3PL provider’s expertise and network clout can assist big, medium, and small businesses:
- Expand the distribution network – Larger 3PLs often have anywhere from a handful of locations to hundreds of sites across the country. While multilocation requires more inventory, it also dramatically shortens shipment time to the customer.
- Specialized e-commerce order fulfillment – Depending on the size of your business, a 3PL provider can make fulfilling orders easier. In off-peak times, a small-midsize business can benefit from a 3PL because it can lower its cost per order. Larger brick-and-mortar retailers can occasionally contract with a 3PL to ship direct orders rather than bringing small-order concerns into their distribution centers.
- Reverse logistics – Especially with high-return categories, such as apparel and electronics, several large 3PL providers specialize in reverse logistics and returns processing. Reverse logistics can include credit/refunds, testing, refurbishment, repackaging, and bagging for resale, which means the product will not go to waste.
- International order fulfillment – Larger 3PLs often have international document preparation and shipping systems that stay up-to-date with global rate changes, tariffs, customs, and exclusions.
- Compliance implementation – Many e-commerce companies sell through marketplaces and major retailers. They have vendor compliance policies and IT requirements that can be severely regulated. 3PLs often have these IT capabilities, cutting down on time and increasing efficiency — two things that are concerns with internal systems.
Calculating the Potential Cost Savings and ROI of Using a 3PL
How much does a 3PL cost? The course of action to calculate potential cost savings and return on investment is certainly not an exact science. But there are certain ways to go about determining whether using a 3PL is the right route for your business.
To start with, ROI can be found in the form of reduced/avoided costs or increased revenue. You can calculate both of those in a relatively accurate way. As we have mentioned, there is a long list of ways you could save with a 3PL — from not having to put money into certain resources to using the 3PL’s clout for lower costs to being able to adjust your operation for market fluctuations without wasting money or time. The less-than-easily-calculated impact of new capabilities and opportunities joins those figures. It’s quite possible that a 3PL partner can open up doors into new markets or allow you to compete on the same level as competitors with more resources, both of which would not have been there without the help of a 3PL provider.
On the other hand, you have to determine the cost — also known as the “investment” part of the return on investment. First, start with the shipping costs negotiated with the 3PL. Then add in the expenses that came with the process of finding the 3PL that best suited your needs. Fortunately, most of the investments you make with a 3PL are much less costly than the ones you would have needed to make if you were doing the whole logistics process alone.
What 3PL is Right for You?
There are many 3PL providers out there and many ways a 3PL provider can help you. So it would help to consider several things before choosing the one that suits you.
First, you need to know what type of services you need from your 3PL provider. Do you want a 3PL to handle all aspects of the process or just one stage? Another determining factor should be whether you are considering expansion at any point. If you do have an eye on getting bigger in the future, it’s prudent to search for a 3PL that will be able to handle your growth.
Next, you need to do your homework. Find out not only if a 3PL provider has an excellent reputation but that it also has the expertise and experience in the area that matters most to your business. Make sure that the resources they use and connections they have are on point for what you will expect of them. It’s also vital that they use the most up-to-date equipment, processes, and technology.
Last but certainly not least, the 3PL provider you choose must be approachable and easy to work with. From your initial negotiations with them to their accessibility to discuss a concern when something pops up, they need to be a willing partner in the relationship. Remember, this is a relationship that benefits both sides and is one that hopefully will be full of prosperity for both parties now and in the future.
Is a 3PL Partnership With Port Jersey Logistics in Your Future?
When you realize you could use a helping hand with logistics, a 3PL provider is an excellent source that you can turn to. Whether you want to outsource just a portion of your logistics operations or turn over the whole kit and caboodle to a partner, 3PLs can relieve your headaches and likely find you numerous cost-saving features now and in the future.
This blog has addressed how much a 3PL costs and, more importantly, how much it is worth. 3PLs can provide the experience, expertise, and networking that are vital to helping you stay on a successful path. With nearly seven decades of experience in logistics, Port Jersey Logistics is waiting to provide you with the services you need and the friendly experts that can help take your company to the next stage. Visit our website to learn more about our services, and contact us to start a deeper conversation.