Growing a successful business is a dream for every entrepreneur. That being said, a growing business needs constant attention and support to ensure continued profitability and sustainability. A recurring question among many entrepreneurs, especially ecommerce business owners is whether to opt for a Third Party Logistics Provider (3PL) or fulfillment center to handle the warehousing and order fulfillment of their products. To answer this question, let’s take a look into the key factors to consider that will enable you to make the right decision
Spatial Constraints:
Every startup or small business begins their venture at home or in a small office. These spaces have physical limitations when it comes to storing large quantities of products or components. Whether it’s in your garage, attic, basement or bedroom, after a certain point there is no more room to increase your inventory, hence, the need for a 3PL or fulfillment center arises. Some of these logistics companies operate huge warehouses and can accommodate larger quantities of your goods.
Opportunity Cost:
When a business is receiving regular orders, a substantial amount of time and effort is required to efficiently ship out those products. This includes order processing, inventory management, packaging, labeling and finally driving to the post office or courier service and waiting in line to ship them out to the customer. Although necessary, these activities take away time from actual revenue generating practices such as marketing of your business to improve sales, research and development for producing a better newer product, or looking for ways to enhance customer service. To avoid stagnation, it becomes imperative that you let a third party, which specializes in processing orders and shipping, handle your products.
Service Promise:
One major focus of any business, small or large, is reliable and dependable customer service. This entails delivering your products to customers on time every time while maintaining quality standards. As a sole proprietor, you will have to be available day and night, weekday or weekend, through sickness and in health, to manage and deliver on all orders you receive, whether it is one small order on a Sunday, or a huge special order on a weekday you did not expect. Your ecommerce business won’t rest or sleep, and will require your best effort every time to efficiently fulfill on all the orders you receive. To ensure effective processing and delivery, it’s a good idea to employ a third-party fulfillment center that specializes in processing and sending out deliveries every day of the year. These centers have employees and equipment ready to work for you.
Economies of Scale:
When you buy in bulk, you pay less overall. Suppliers all over the world will offer you better rates if you buy more from them. Buying more means you must have the infrastructure in place to be capable of handling heavy loads of pallets and containers that you will receive from your suppliers. In today’s competitive environment, it’s crucial for small business owners to take advantage of any and all ways to reduce costs to increase net revenue. You cannot effectively handle bulk inventories at your home for several reasons. This can include lack of heavy equipment, spatial constraints, and more reasons that may compromise product integrity. You may also be faced with added costs such as residential surcharges. Fulfillment and logistics centers are equipped for proper handling and processing of bulk inventories.
Pass Through Savings:
3PLs and fulfillment centers also take advantage of economies of scale when it comes to bulk buying of shipping material including labels, stickers, packaging material etc. These third party service providers are able to pass on their cost savings to you, making the overall cost of delivery for your products cheaper. At times, cost savings due to bulk buying can be quite large, so this is not to be overlooked.
Value Added Service:
Third party fulfillment and distribution centers offer a variety of add on services that a small business on their own can’t often afford or provide. These can include logistical and service support, repackaging, kitting and bundling, automated shrink wrapping, returns management and photography services among others. Shrink wrapping in your living room won’t have the same quality of an expensive shrink-wrapping machine readily available at a 3PL, so why not take advantage!
Expert Advice:
As easy as it sounds, efficient and quality shipping isn’t just putting a product in a box and taping it up. You must pay attention to box size and fit, label design and placement, and freight booking and management. If you are selling to retail stores, especially the big box store i.e., Walmart or Target, you must make sure to meet their standard delivery requirements including pallet and carton sizes, labeling requirements, quantity per package limits and other retailor specific conditions. Handling all this correctly becomes very difficult while you are still trying to grow and manage your venture, so opting for a 3PL with experience and expertise in this arena can help you achieve scalability and ensure your product deliveries are always compliant.
Summary:
There are a lot of factors to consider when outsourcing certain operations of your business, especially shipping and inventory management, but making the right decision at the right time will aid your business growth and increase profitability. To check whether it is the right time for you, assess the different elements discussed above and how they relate to your business, and you should be able to make an informed decision!
