3PL Benefits vs. Costs: Is it Worth it?

Here’s a conversation that, albeit overly simplistic, suggests the importance of using a 3PL service. “Hey boss, its Al… I’m here at the warehouse, and a potential customer asked me this morning, ‘Is it even worth it to hire a 3PL to fulfill my orders?’ And I said, ‘Uhhhhhhh… YAH!’” “Great job, Al. Did you tell him why?” Here’s what Al could have – and should have – conveyed. Once you can no longer easily fill orders yourself, it’s absolutely critical that you outsource this activity to a 3PL – it’s one of the best ways to grow your company. It’s exceedingly difficult for you, as a business owner, to scale your company if you have to fill orders yourself. Whether you have staff doing it or you’re doing it, at some point, it no longer makes sense for you to do all the things a 3PL company could simply do for you. By outsourcing these tasks, you can grow your company quickly knowing that the back end of your business is completely taken care of by your 3PL provider. In truth, 3PL benefits are many.

Here are some reasons why the pricing for a 3PL is fair and justified!

3PL Benefits – Services You’ll Receive

First, before you spend your hard-earned money on a 3PL, it is imperative you know the exact services you’ll receive and you are ready for a 3PL. At a minimum, a reputable third-party logistics company should provide:

• Inbound Receiving
• Picking and Packing
• Warehouse storage
• Inventory receipts
• Outbound Shipping

Some 3PL companies, (like Alpaka), provide additional value-add services like: kitting and assembly, printing services, etc.

The actual rates for each of these services will vary depending on a variety of circumstances, including order volume, size and weight of the shipments being handled, and any special services or requirements needed to fulfill the orders (like fragile wrapping, cold storage, large items, etc.).

What are Order Fulfillment Charges?

The primary service offered by most 3PLs is the order fulfillment. This is the cost of receiving your inventory, storing your products in the warehouse, and processing your orders using various shopping cart systems and warehouse management systems. Returns and packing can also be handled by the 3PL. Keep in mind that no two third party logistics providers are identical, and their pricing can be very different, so it’s important when you are evaluating them to consider everything. For example, a 3PL may charge you more for receiving but save you tons of money on your shipping. So, make sure you compare apples to apples… it can be confusing!

3PL Pricing Structure and Overall 3PL Benefits

While 3PL pricing models vary, the four most common are price by kit, project basis, bin, and flat-rate pricing:

• Third Party Logistics Price by Kit

This price structure is used for inventory which is stored within separate components but has to be merged once ordered by a customer. The logistics firm might charge separately for such a service, based on assembly complexity.

• Flat Rate Pricing for 3PLs

This form of pricing will charge monthly, by shipment, or by order. It may also incorporate contracted services like returns, fulfillment, kitting, and storage.

• 3PL Pricing by Bin

Many people think that the most cost-effective form of inventory warehousing is pricing by bin. Depending on each bin or pallet, you will be charged a cost on a monthly basis. Some providers will also let you to pay depending on cubic feet. People typically choose this pricing option when they want to keep small products in different spinners and have them ready for expedited delivery.

• Third Party Logistics Project Based Pricing

Some 3PLs collaborate with institutions initiating crowdfunding campaigns that must contract their services depending on a certain project.

Spending Money to Make Money

Do you have to spend lots and lots of money in order to make money? Depending on who you talk to, answers will vary. Ideally, whatever money you do spend should be used responsibly, appropriately, and intelligently. The costs you will incur by using 3PL services is money well spent. But, there is a collection of common expenses that equate to overspending where many businesses are concerned.

If you’re running a business, make sure the following doesn’t end up costing you more money than they were worth. If you do require some of the following services, make sure you get your money’s worth:

• Doing everything alone, by yourself. Learn how to delegate.
• Digital subscriptions.
• Physical office spaces.
• Outsourcing needlessly. This does not, of course, apply to outsourcing to a 3PL company. That is actually a smart investment that can benefit your company in numerous ways.
• Recruiting agencies
• Third-party “experts”
• Coaches
• Premature outreach
• Marketing techniques that would, by some, be considered antiquated.
• Marketing agencies
• Marketing that isn’t concentrated on lead conversion.
• Tracking “vanity” metrics
• Accounting/ERP software
• Manual audits

Smart Investments for Small Business Owners

We’ve already established that investing in a 3PL service is money well spent, no matter what size your business is. But there are other smart investments – or investment ideas – that small business owners can take advantage of, according to Forbes. Here are some of them:

• Plan for flexibility. As changes occur, it will be easier to adjust if you have business investments that are flexible.
• Streamline operations when and where possible.
• Incorporate extended return windows and ship-and-return programs on your website.
• Engage in social networking even if you have a brick-and-mortar location.
• Use Square Online and other tools to run an online store, offer online ordering via your website, etc.

Interesting fact: Monthly retail purchases are, today, done online by consumers in roughly 43% of cases. Approximately 66% of businesses that currently run brick-and-mortar locations say they will soon participate in online-only sales/orders.

Are 3PL pricing reasonable? Yes, as long as you choose a reliable one like Alpaka, that delivers the services your firm requires. When selecting a 3PL, consider the size and location of their warehouse, the weight and size of your product, the kitting or assembly needs you have, and the normal order volume your firm expects to have. In general, make sure you consider everything when making your decision: Receiving, put-away, storage, pick & pack fees, shipping costs, and add-ons when comparing!

If you need some support, give Alpaka a call! We’d be happy to assist in any way we can.

Best,

Al