Running a business involves many moving parts, and shipping and logistics operations are just one piece of a larger puzzle. The role of shipping and logistics operations can remain relatively simple when a business is small in scope, but as it grows, these operations can become more and more complicated. Causing the in-house logistics personnel to feel overwhelmed with demand, and looking at third-party logistics.
If your business has grown past the reasonable ability of your previous shipping and logistics operations management, it may be time to consider hiring a third-party logistics company. Before you can weigh the pros and cons of third-party logistics, it’s important to understand exactly what this type of company can do for your business.
What is a third-party logistics company?
A third-party logistics company, or 3PL, oversees the successful movement of items along your business’s supply chain. This can include details like:
- Management of retail inventory
- Storage and warehousing
- Kitting and assembly
- Returns, i.e. reverse logistics
- Distribution and fulfillment
- Pick and pack services
- Expiring product services
- Transloading and cross docking product
- And more
According to a survey released in 2017, 90% of the United States’ Fortune 500 companies utilized a 3PL. Third-party logistics companies can take a great deal of pressure and work off of businesses so that they can focus on connecting with customers and creating exceptional products.
How do I know if a 3PL is right for my business?
On the surface, utilizing a third-party logistics company may seem like the obvious way to go for business efficiency and successful distribution of product. However, any major adjustment to your business’s operations will create a ripple effect throughout your business, so the pros and cons of incorporating a 3PL in your business model should be weighed heavily before a decision is made.
Advantages of third-party logistics:
- They will increase your business’s productivity and efficiency.
- They have extensive expertise on logistics strategy and the logistics industry of today.
- They save your business money in the long run by introducing more efficient processes.
- They have access to high-level warehouse and logistics technology, including computerized transportation management systems, warehouse robotics, and automatic guided vehicles or AGVs.
- They have the connections and expertise to extend your business output to new countries.
- They provide the necessary infrastructure to help your business grow over time.
Disadvantages of third-party logistics:
- As a business owner or manager, you relinquish control over the decision-making process relating to logistics, warehousing, and transport.
- A 3PL may have access to a specific set of networks, but they may not be the right networks for your business or products.
- They require hefty upfront costs for their services, often hindering the growth of businesses for a period of time due to lack of financial stability.
- It will be more difficult to communicate with the people actually doing the moving and shipping of your product as there will now be a middleman to contend with.
- Your 3PL will make the call on where product should be stored that is most efficient for their processes, which could make it less convenient for you as the owner or manager.