Getting goods to a growing number of consumers in domestic and global markets has become an ever-increasing logistical challenge as manufacturing companies expand, and the e-commerce industry continues to gain momentum. Logistics is subject to fluctuations in demand and changing transportation regulations. Plus getting the most for your shipping dollars is not always easy when logistics is not your primary business focus. Besides having a great product, it’s also important to get it into the hands of your customers on time. Unfortunately, the logistics of doing so are not always straightforward.
If you are a growing manufacturer and need help with both domestic and international logistics, then you should hire a third-party logistics (3PL) firm. But before deciding, it’s important to understand the advantages and disadvantages of working with a 3PL. How can outsourcing your logistics operations improve your business? Is it able to save you money? Are there any pros and cons of third-party logistics partnerships? We’ll explore that in this article.
What is a 3PL?
There are three parties involved in the process of getting a product into the hands of a customer: the manufacturer, the shipper (3PL firm), and the recipient (customer). Third-party logistics firms are able to provide a wide range of services along the entire spectrum of logistics and fulfillment functions, including:
- Freight audit and consulting
- Transportation procurement
- Dedicated transportation contracting
- Inventory management
- Value-added services and reverse logistics (shipment returns)
- Shipment tracking and tracing
A 3PL company is an outsourced logistics firm that specializes in managing all aspects of shipping products from manufacturers/distributors to customers. As logistics pros, third-party logistics firms are different from a freight forwarder (a person or company that only arranges the transport but is not responsible for your shipment). It is a full-service shipping provider that takes care of shipping and fulfillment. You can benefit from reduced transaction costs, reduced liability, and lower costs that are related to workers’ comp insurance and taxes. Some third-party logistics providers may even cover the cargo insurance cost.
What are the Advantages of Hiring a Logistics Company?
From providing a better customer experience to saving money, hiring a 3PL can bring many benefits to your company. Some of the most common reasons companies choose to hire a logistics provider include:
Are you planning to expand your business into new areas and emerging markets? With a 3PL service, this whole process is made a lot easier. Your company can leverage its logistics network and supply chain, access new markets, and improve customer service to gain a competitive advantage. Warehouses and distribution centers from 3PL providers make such expansion more viable because they often build all compliance and security procedures into their service offerings.
Cost-Savings and Time-Savings
The higher the level of your business’s efficiency, the higher the chances of success. That is where a third-party logistics company can be an enormous help. The advantages of 3PL are often found in reaching economies of scale, such through warehousing, large truck fleets and more. As opposed to spending resources and money on building a warehouse, optimizing services, finding the best ways to transport goods, and obtaining new technologies to support your logistics system, With a 3PL, you avoid those costs and free up your key personnel to deal with your business’ core competencies. They allow you to direct more focus onto manufacturing, operational processes, strategic planning, and facilitating business growth.
Depending on what services are required, a logistics company can scale your transportation, labor, and space. Suppliers and manufacturers can grow in new territories more effectively and with fewer obstacles. If you don’t have an in-house logistics department to design and manage your supply chains, then logistics is an area where you have less internal expertise. A 3PL will be there to optimize your logistics functions and help you enhance business growth.
What are the Disadvantages of Hiring Third-Party Logistics Companies?
Besides the reasons for embracing third-party logistics, there is also a set of risks and disadvantages of a 3PL partnership.
When considering whether to hire a 3PL, doing so might make financial sense upfront. However, there are some external factors (e.g., weather, over-regulation, tariffs, etc.) that may lead to increased costs. 3PLs can save your business time and money, but if you failed to examine their business strategy to see if it aligns with yours, standard transaction costs might skyrocket as you start using more of their services. Eventually, their services can turn out to be more expensive than running an in-house logistics department.
Less Control on Your Side
In terms of product delivery, your company will give up a certain amount of control upon hiring a logistics provider. Once you decide to enter this partnership, you are entrusting them to perform functions that directly impact your customer satisfaction. That requires a major leap of faith on your side. Also, if one party is using subpar B2B integration software, the smooth exchange of EDI information can be put at risk. Furthermore, sharing sensitive information could leave your company vulnerable in the event of a data breach.
Companies that have specific needs (e.g., temperature-controlled delivery, cold storage, etc.) or operate in highly-regulated industries shouldn’t work with a run of the mill logistics provider, but a top 3PL company with expertise in their unique needs.
Some third-party logistics firms may have hundreds or thousands of customers, so they may not always be able to meet your specific delivery requirements. Some things to consider when selecting a provider: Are they fast in responding to your requests? Is it easy to contact them for support? Do they understand the nature of your business and your requirements? If you don’t hire a logistics company that understands your business goals and how their efficient distribution and logistics can enable those goals, they might provide subpar service and negatively impact customer experience and satisfaction.
When Should You Consider Hiring a Logistics Company?
Will a partnership with a 3PL streamline efficiency? Does it make financial sense? There are many variables at play when deciding whether you should hire a logistics company. Startups, manufacturers, and direct-to-consumer companies are enterprises that are all experiencing steady growth.
Often, their ability to produce and sell goods may outpace their ability to store and deliver them to their customers. In that case, hiring a 3PL is beneficial because they will provide logistics and warehouse capabilities, something that a larger enterprise would be able to manage in-house. Third-party logistics firms also provide substantial shipping discounts through economies of scale, which allow them to achieve lower operating costs per load.
If you need the advantage of the latest technology, 3PLs can bring those tech benefits to you so you won’t have to invest and learn them yourself. Other common reasons why companies choose to work with a logistics company are to avoid inventory inefficiencies, inaccuracies, and other mistakes. Thanks to the reliable inventory solutions 3PLs can bring, you can avoid unpredictable costs, inconsistent inventory capacity, and streamline the flow of goods for optimized delivery. Knowing all of this, ask yourself the question – is logistics something you should be managing in-house or that you should outsource to a third-party logistics provider?
Redbird Logistics Services will work with you, no matter your needs. This ultimate guide about your logistics strategy is only the start. Our logistics 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, while ensuring customer satisfaction. With our real-time technology, we will provide you with complete visibility into your products every step of the way.
If you’re looking for the best, Redbird Logistics Services can help!! Contact us today!