What Is A 3PL? And, More Importantly, Why Should I Care? John Edmonds
What Is A 3PL?
And Why Should I Care?
As e-commerce companies grow, they reach thresholds where something has to give if the business is to continue growing. Maybe that means a undergoing a steep learning curve about a particular business function, and/or buying automation software, and/or outsourcing functions that are not core to business growth. Skubana provides automation software (all-in-one ERP system with e-commerce marketplace integration) that enables growing businesses to outsource some non-core functions. In this guest article, the Skubana team start you off on a 3PL learning curve, and explore the benefits of outsourcing the picking, packing and distribution function.
If something was helpful to you, you should be able to tell by the name. Like, a Fire Service sounds useful if your warehouse is burning down. But what does “3PL” tell you? Does it make you think, “If I can’t tell what you do, then I probably don’t need it”? That’s a big shame, because 3PLs can be the difference between an online business or new e-commerce initiative either succeeding or failing.
“3PL” stands for “Third Party Logistics”. Simply stated, it is outsourcing your receiving, warehousing, picking, packing and shipping to a third-party business for a fee.
The Pros Of Using A 3PL
Warehousing can be expensive. Even setting up a small storage space or warehousing facility, can be a huge upfront cost. Why spend the money on your own warehousing efforts when other businesses are already set up with the infrastructure, permits, staffing and space?
Ongoing Costs For Utilities, Employees, Taxes, Etc
Ongoing costs can severely cut into your profits. Training employees to keep organized and productive can also require an astronomical effort and expense.
Channel Your Efforts On Growth
One of the strongest benefits of off-site picking, packing and distribution is getting out of the the day to day minutiae and grind of order fulfillment, so that you can concentrate on new product lines and growing your business.
Easier To Expand Into New Markets
Expanding distribution to another country, is often hardly worth the effort, once international shipping costs are factored in. So why not set up distribution with a 3PL company already located in the target country? Ultimately it will save you a fortune in shipping costs.
The Picking, Packing And Distribution function is the meat and potatoes of ecommerce fulfilment. Many entrepreneurs want to retain control of this function through line of control, however this comes at a cost of hiring, training and remuneration. But with automation, e,g, through Skubana, you can easily control of your inventory system across multiple channels, monitor product distribution, and run reports.
The Cons Of Using A 3PL
Upfront Tech Investment
Unfortunately not all computer systems play nicely together on the world wide playground. Most business partnerships bring together companies using different systems. This usually necessitates a sometimes sizeable investment in a software platform (usually referred to as “Dispatch Management”) along with an EDI (Electronic Data interchange) system, to help mitigate communication issues, and facilitate shipment receiving, tracking, and ultimately billing.
Loss Of Control
Whereas we listed the “picking, packing and distribution” of customer orders as a PRO, to be fair it is also CON. After all, it is unlikely that anyone else will monitor your customer base, individual shipments, product care, proper storage, customer services and followup as well as you do. You should ensure that the contract covers your requirements for every aspect of your business that they will be representing, including retaining your current level of scrutiny.
Making The Decision To Use A 3PL
The simple math of it is, whether the total cost of managing fulfilment in-house (including time, labor, projected expansion, utilities, materials, taxes, and legal/accounting fees) is higher or lower than the cost of using a 3PL company. Be sure to factor in variables like breakage, labor related losses like sick time, building maintenance, insurance, medical expenses, revenue from expanding your business, etc.
Remember too, that having a 3PL working your fulfillment is not a “fire and forget” scenario. Your management team (which may consist of yourself, alone) will still have to monitor inventory reporting, customer feedback, shipping records, profit and loss statements, and keep track of each product’s profit margin. There will always be work to be done.
Of course, selecting the right 3PL will take a lot of upfront time and effort – which company, in what location, at what price point. If this sounds daunting, there are actually companies that specialize in finding perfect 3PL matches. Either way, and despite it’s obtuse name, taking on a 3PL may be the right thing for you. Most businesses that take on a 3PL are glad that they did.
This guest post was contributed by the Skubana team. Skubana is an all-in-one ERP system that seamlessly integrates with most e-commerce marketplaces, 3PLs, warehouses; and provides state-of-the-art profitability and multi-channel inventory management. Skubana compiles all of your marketplaces on a single page to intuitively control and understand your entire business. Try Skubana free for 14 days, or feel free to contact them at firstname.lastname@example.org with any questions!
3PLs help your business grow.
So to does automating international freight rate quotes.