No one knows the business environment after COVID-19 or what the “new normal” will be. Considering the potential bankruptcies of large and small businesses, especially brick and mortar retail stores, we believe that businesses that emerge strong from COVID-19 will have a huge advantage in the typical fourth quarter peak of 2020 and beyond.
After the pandemic, what will be labor availability? Before COVID-19, labor was in short supply in many markets. Depending on what you read, COVID-19 may have a resurgence next fall and winter. Then there is a question of when the workforce will return to work and be stable. While short term, many hourly workers receiving unemployment and stimulus payments have higher “income” than before.
For many ecommerce businesses, having a profitable fourth quarter will make or break the year.
During the pandemic, many 3PL companies have remained open to serve their clients as an integral part of the Supply Chain. Yes, they have dealt with the labor challenges too, but they are operational and helping clients achieve their sales goals.
READ: Using 3PL Solutions for a Successful Peak Season
All this raises the question, “Should you continue internal fulfillment or move to 3PL fulfillment”? Using a 3PL isn’t for every company. Can 3PLs provide a better platform for your current order fulfillment and growth?
Here are seven major ways ecommerce and multichannel businesses benefit from using 3PL profitably:
A 3PL can provide a lower cost per order when compared to internally managed operations. This isn’t always true, but it is often true for small to moderate sized companies that don’t have four distinct selling seasons, such as apparel.
The larger order volume 3PL warehouse facilities can be more efficient. They often have the volumes to cost justify technology (e.g. voice picking, pick to light, robotics, WMS etc.), material handling equipment, sortation and conveyance systems to make them more efficient. Additionally, 3PLs may offer better shipping rates than individual businesses.
To get an accurate assessment, do a fully loaded cost comparison as part of your detail selection process.
READ: How to Save Money Using Third-Party Logistics
If you were planning a fulfillment center expansion or major investment, selecting the right 3PL partner may help you reduce or avoid capital outlays for new or upgraded warehouse facilities, WMS, material handling equipment and conveyance systems. Capital required to expand can be used for other critical projects.
READ: How to Compare Your Internal Fulfillment Costs to 3PL Proposed Costs
For internal fulfillment, more than 50% of the total costs of fulfillment is labor. Internal fulfillment requires fixed investment in facilities, material handling and conveyance, and IT systems irrespective of the transactions processed. In contrast, when you're using 3PL services, you can expect to see the cost of fulfillment rise and fall with volumes processed.
Customers’ purchase decisions are highly influenced by the delivery time and shipping cost. Would multiple fulfillment centers give your company more competitive delivery times and lower shipping costs?
READ: Assessing the Potential Expansion to Your Ecommerce Fulfillment Network
During the holiday season, some of our clients have 10:1 or higher order ratio when comparing peak weeks to average weeks. 3PL fulfillment can eliminate the time-consuming effort and expense of recruiting, hiring, training and managing hourly staff.
As businesses grow, 3PLs can scale up to increase staff and product storage capacity. Additionally, as you grow your internal fulfillment you have to be sure the managers are capable of managing the higher volume and you’ll have to pay more to retain them.
Third party logistics allows companies to concentrate management time on core competencies, such as marketing, merchandising, ecommerce analysis and developing new channels of selling. Coming out of COVID-19 this will give additional time which can be very important to getting back on your sales plan.
Here are three general categories where 3PLs have proven cost effective and lower costs to implement and maintain systems and processes:
Third-Party Logistics isn’t for every company. Considering the business disruption caused by COVID-19, moving to 3PL operations may be the best long-term tactic. Performing an objective, fully loaded cost/benefit study of potential 3PL partners versus internal fulfillment is with a 3PL consultant is critical.