Working with third-party logistics 3PL companies in North America can bring you plenty of benefits for eCommerce business. Not only are they experts in all the necessary operational tasks such as hiring, maintaining equipment, keeping track of pallets, etc., but they can also complete these tasks more quickly and more efficiently than you could. In fact, according to statistics, reliable 3PL companies can generate an average logistics and supply chain cost reduction of 9%, 5% in inventory management cost savings, and an average fixed logistics cost reduction of 15%.
This cost savings happen as a direct result of the synergy created between your eCommerce business and what the 3PL company brings to the table. They will address all storage, transport, and handling, sometimes using state-of-the-art software. With this technology, they can develop customized warehousing management, inbound freight management, and supply chain management plans that will best suit unique needs.
That said, the decision to outsource logistics in North America shouldn’t be taken lightly. Keep in mind that not all delivery companies out there are created equal, nor will they provide you with the same services. Some may be providing only the basics, while others may dedicate themselves to just a specific section of the supply chain.
Likewise, you should find a 3PL partner that will fit with your business operations, growth plans, and customer service culture. They should provide you with supply chain solutions and advice, thinking of creative ways on how to bring your products to market faster and cheaper. Last but not least, you will need someone you can trust and with whom you can form a long-term relationship.
To better understand what you are up against when choosing a top logistics company, this ultimate guide will highlight the advantages and possible disadvantages when you outsource logistics.
The Pros of Logistic Service Providers
- Scalability – Delivery companies in North America exist to enhance your own logistics capabilities. This may be an area where you don’t have enough knowledge, allowing you to scale it with significantly less difficulty. Also, you will be better equipped to expand your eCommerce business in other areas or focus more on your day-to-day activities without having to think so much about your own transportation management systems.
- Time and Cost-Efficiency – Instead of investing significant amounts of time and resources on in-house organization models, storage facility maintenance, rent, maximizing your shipping solution, etc., a reliable logistics company will do these things on your behalf. This will free up your staff members to invest their time in other areas of your business, and save time and money in the process.
- Growth Opportunities – 3PL providers can also help you grow and expand your eCommerce business in other national and international markets, facilitating importing from China and elsewhere. The 3PL warehouse space and distribution center from a third party logistics supplier will enable you to use new supply chains, accelerate your growth, as well as for supply network optimization.
The Cons of Logistic Service Providers
While there are definite advantages when working with a top logistics company, this doesn’t mean that all of them can provide the same number of benefits. Some may even come with certain pitfalls, which means that you need to pay close attention to which logistics provider you select. Among these disadvantages, we can include things like:
- Losing Control – Trust is a major component of any long-term relationship, and it’s no same thing here. When you select a 3PL company, you are letting go of your control in regard to shipping management. You are, in effect, trusting your logistics partner to uphold your agreed-upon SLAs.
If the third-party logistics provider is reliable, this will increase customer satisfaction. But if not, it can lead to a shrinking customer base. Furthermore, you will need to make sure that all sensitive data you share with your logistics partner will be in safe hands.
- Increased Expenses – Working with a third-party logistics provider in North America can be more cost-effective than doing everything in-house, it’s also important to remember that various outside elements like tariffs, over-regulation, weather conditions, etc., can sometimes result in higher charges. These expenses may also go up if you start using additional service offers.
- Lack of Synergy – We cannot stress enough the importance of choosing a top logistics provider that will be able to fit your needs. If you’re operating in an extremely controlled market or have distinct requirements like temperature-controlled transport, cold storage, etc., an ordinary logistics company with only basic capabilities may not be able to fulfill your long or even short-term needs. In other cases, they may have too many clients and may not be able to satisfy you.
The point is that your future logistics partner will have a complete comprehension of your company, your objectives, and how their logistics and distribution services will help facilitate those objectives. To that end, it’s also important to know that there are two main types of 3PL providers.
Two Types of Third Party Logistics Companies
To further simplify your decision-making process, you should also consider that some logistics companies will fall into one of two categories. These are as follows:
- Asset-Based 3PLs – These are companies that also provide warehousing services and their own private fleet.
- Non-Asset Based 3PLs – These companies will typically offer logistics and supply chain software in the form of Warehouse Management Systems (WMS) or Transportation Management Systems. They can work with companies directly, or work with other 3PLs to offer white label software. Aside from providing transportation management systems, some non-asset 3PLs may also provide integrated management services for administrative functions like accounting, claims, returns, customer service, etc.
They will act as freight brokers, usually holding strong relationships with LTL and Full Truckload Freight Carriers, specialize in partnering with Rail Freight Companies, and are focused on intermodal logistics solutions and Ocean Freight, among other such freight carriers.
So, how can you decide which third party logistics company you should hire? By following the checklist below, you will get closer to your answer.
One of the first telltale signs of a reliable logistics company is the pace at which it keeps up with technology. More sophisticated tools and software are entering the market regularly, which can help the 3PL’s logistics strategy and IT roadmap align with yours.
Take a look at how much the company invests in new technology solutions as a percentage of its net revenues. What you want to find out here is how much of its annual IT budget goes into innovation, such as implementing new applications or functionalities. These should focus predominantly on customer-facing solutions as one of its core values and less on maintaining legacy systems.
Make sure that their systems will also be able to integrate with yours in terms of automation requirements like storefront inventory management software, CRM requirements, accounting, order routing, etc.
Typically, a 3PL will have many clients with unique customer logistics scenarios. This can make it hard for them to enable a new process at a customer’s request. More sophisticated technology will allow them to streamline their operations and provide you with a better overall experience.
Flexibility and Scalability
Flexibility and scalability are critical to a long-term relationship in North America and elsewhere. As such, your top logistics provider will not only need to handle your current requirements but also those that will emerge as your ecommerce business grows. Ideally, you will want a 3PL that can take on extra inventory at a moment’s notice.
Likewise, if you wish to expand into new markets, your partner will have to be capable of doing the same. A logistics company will need to work closely with their clients to understand their plans and forecasting, so they can deliver both labor and support services that can match those expectations.
On a short-term perspective, they should also be able to manage any peak seasons without any interruptions so you can get your product on time. Also, when the peak season is over, they should be able to scale down the operation and not have any carrying costs in their supply chain management.
A third party logistics company is a capital-intensive business. Their financial stability will end up affecting your bottom line over the long-term. Those that are not financially stable will tend to focus more on their own situation than help you improve your efficiency. Financially stable partners, on the other hand, will be in a better position to invest in you and their own operational capabilities, thus providing the services that you need.
Their financial stability will also influence their processes in the event of significant disruptions. Likewise, they will be more inclined to invest their resources in innovations that can protect and advance your operation. Healthy and consistent cash flow is the most reliable indicator of financial stability.
Ask your 3PL candidate to provide you with their profit and loss data of the past several years as well as their relationship with banks and other financial institutions.
Going beyond their finances, what is their overall track record? How many long-term clients do they have, and what are their opinions of the logistics provider? In all new business arrangements, the relationship will be tested at some point or another. It’s during times like these that the true character and capabilities of the logistics company will be revealed.
Being in the service industry, the reputation of logistics companies will provide great insight into what you can expect in terms of their reliability and efficiency. Do your research into the service provider’s customer reviews and don’t wait to figure it out on your own.
Depending on your needs, you may also require “white glove” services. These will go beyond the standard “just leave on the porch” (JLOP) and pick and pack delivery model, eliminating the risk of loss or missed deliveries.
This service, provided only by top logistics providers will typically include first and final mile capabilities, such as product staging, in-room delivery, assembly or disassembly, removal of packing materials, etc. If you need these services, make sure that your 3PL partner provides them.
Safety and Disaster Preparedness
Unfortunately, many companies today, not just in the supply chain management business, are neglecting and underfunding their safety and disruption-mitigation planning. This is highly problematic, not only for them but for you as well.
Make sure you ask them about their disaster preparedness program and other unforeseen shortages, weather-related transportation disruptions, technology outages, and other such risks. Likewise, make sure to evaluate safety awareness, procedures, and employee training, as well as whether they keep in line with all local and national safety rules and regulations.
Business Intelligence and Logistics Solutions
Aside from their IT solutions, reliable 3PLs will also work to introduce their clients to related technology providers. They will also provide you with business intelligence in the form of insights into all sorts of industry trends and best practices. They will work on facilitating knowledge-exchange and networking opportunities within the industry community.
Your 3PL company will ideally conduct their own market research and share their findings with you regularly. They should organize occasional learning and networking events among their clients, partners, extended team members, and industry experts.
Everything that we’ve talked about up until this point is important in assessing your future logistics partner, but it will all fall short if what they provide doesn’t match the metrics that matter most to your business. You will need to be objective and ask them about their stock rotation management, product location identification procedures in the event of a recall, process improvements, order volume, origin/destination, and stocking levels, etc.
Likewise, make sure that they have the required experience and flexibility to accommodate and not interrupt your business requirements that are outside of your relationship. For instance, ensure that their data requirements and other processes will not prevent you from fulfilling orders through both this new 3PL and your other network of distributors.
Nothing can be more frustrating than coming to realize that your company’s automated and integrated processes will need to be completely redesigned to incorporate the requirements of your new partner. This will be even worse if you come to realize this after the fact.
Finding and working with a reliable logistics company can save time and money, allowing you to scale your business faster and easier than before. It will also give you a competitive advantage. That said, you shouldn’t commit to anything without doing proper research.
Redbird Logistics Services will work with you, no matter your needs. This ultimate guide about your logistics strategy is only the start. Our logistic services and supply chain solutions will be sure to cater to all of your requirements. We will work to implement the services you need, maximize the efficiency of your supply chain management and network optimization, and increase customer satisfaction. With our real-time technology, we will provide you with complete visibility of your products every step of the way.
If you’re looking for a top logistics company, Redbird Logistics Services can help!! Contact us today!