One of the benefits of working with a third-party logistics (3PL) provider is cost savings. This comes in many forms, including:
- Better freight rates
- Lower facility and equipment costs
- Potential for multi-node order distribution
- Having access to expensive and sophisticated technology
- Efficiency that comes from working with a team of experts
As simple as this may seem, there are a lot of factors that contribute to savings in these areas. We’ve provided a more in-depth look at cost savings your 3PL can provide for your brand.
Freight
Any company shipping products understands freight is expensive. Hard cost is only a part of the problem. Consumer expectations for quicker delivery times continue to put pressure on ecommerce companies and 3PLs alike. Any 3PL you work with should be able to save you money and reduce delivery times.
Buying Power
3PLs negotiate the freight rates they can offer their clients based on their total buying volume, which means you benefit from getting freight rates negotiated using a big multiple of your actual shipping volume.
Dimensional Weights
Freight carriers like UPS and FedEx use a dimensional denominator to determine the minimum weight of a box based on its dimensions. For example, a box size of 12” x 12” x 12” may be assigned a “dim weight” of 10 lbs. What happens if your product shape requires a box of this size but it only weighs 3 lbs.? You get charged the 10 lb. “dim weight” instead of the actual 3 lb. weight, which means you will pay thousands more in freight cost than you need to. 3PLs can negotiate a better dimensional denominator due to their shipment volume, therefore reducing the “dim weight” cost for their clients.
Cartonization
Closely connected to dimensional weights is cartonization strategy and technology. Top tier 3PLs will capture the weights and dimensions of all your products. That information is used as orders are processed to ensure the smallest possible box size is used to pack out each order, therefore lowering both your actual and “dim weight” cost so that no matter which gets used, you’re saving money.
Accessorial Charges
Like freight discounts and dimensional weights, accessorial charges that may include fuel surcharges and rural delivery fees are negotiable. 3PLs can often pass along lower accessorial charges to their customers because they have the negotiation leverage their higher aggregate shipment volume provides.
Multi-node Distribution and Fourth-Party Logistics (4PL)
Some 3PLs are large and have locations spread out across the country and world. They are often more expensive and rigid in their requirements, making it potentially more difficult for younger and/or smaller companies to partner with them. This provides an opportunity for independent local and regional 3PLs to partner with each other to create 4PL networks to better service their customers by providing multi-node distribution that reduces delivery times and freight costs. Extensiv Network Manager facilitates this model for its 3PL clients, their customers, and ultimately consumers.
Facility and Equipment
It is expensive to operate a distribution center! Pallet racking, forklifts, conveyor systems, pack stations, pick carts, and much more require significant upfront and ongoing investment. A good 3PL partner eliminates this requirement for its customers.
Capital Requirements
Companies that warehouse and fulfill from their own facilities incur large expenses for both the facility itself and all the equipment and infrastructure required to operate efficiently. This expense doesn’t “go away” after the initial purchase or lease. As your business grows, continual infrastructure investment is needed, equipment needs to be maintained, upgrades are required over time, and the list goes on. A 3PL incurs these same expenses but can spread the cost across all clients, thus each client is responsible for only a small fraction of capital investment as opposed to absorbing it all by operating their own facility.
Warehouse Space Needs
How much warehouse space is the right amount of warehouse space? Every business is striving to grow and planning accordingly, but what happens if growth plans are interrupted by unexpected events? Or, what happens if you experience rapid growth more quickly than anticipated? The simple answer is you may quickly find yourself with too much or too little capacity. Using a 3PL can help you “flex” as your business grows, work through seasonal volume increases and decreases, and manage macro-economic factors that impact the business in a negative way.
Technology
Any reputable 3PL has a significant investment in their technology stack, probably seven figures or more that would be difficult for many companies to match. Systems range from warehouse and transportation management systems to business analytics and performance management technology. This significant investment in technology is in part to ensure their own operational efficiency (leading to client savings) and to provide valuable benefits and insight to their clients regarding inventory, freight management, and other performance metrics.
Warehouse Management System (WMS)
A WMS is the backbone of any tech stack implemented by a 3PL, acting as the hub for managing all day-to-day operations within the warehouse including receipts and location management; picking, packing, and shipping of orders; inventory management; and integrations with any other system the 3PL or you may be using. For example, Extensiv 3PL Warehouse Manager is an industry-leading, cloud-based order and warehouse management software created by 3PLs for 3PLs, with built-in functionality specifically designed for third-party logistics workflows such as automated customer billing—making the billing process from your 3PL more streamlined and transparent. And, Extensiv 3PL Warehouse Manager seamlessly integrates with your order management system (OMS) software, making it the ideal software solution for 3PLs you want to partner with.
Business Intelligence Tools
Every business wants to understand the details of their operation and make informed decisions as a result. Far fewer have the financial wherewithal to implement the systems to help them accomplish this. Working with a good 3PL partner gives you access to cutting edge business intelligence tools to help you access and analyze data and manage your business accordingly. This can include freight analysis and inventory management data that help identify more efficient and effective methods to manage those parts of your business.
Freight Rate Shopping
Sophisticated 3PLs will have freight rate shopping software in place. This means for every order you receive, your 3PL can determine which of its carriers provides the least expensive rate to ship your order relative to the delivery time you want to provide your consumers. This means you and your customers are saving money!
Labor
Business leaders know labor is often the biggest expense a company has. Like the other areas noted, 3PLs can spread their labor cost across multiple clients, thereby saving each client money.
Overhead & Benefits
People need to be paid a fair wage for the work they do, and they want a benefits package that includes health insurance, paid time off, a flexible work schedule, and more. This is a significant expense for every company, but working with a good 3PL removes this burden from your operations. The ability to spread these costs across many clients is a benefit each client enjoys.
Seasonality
Most businesses have some seasonality to them, which means varying labor needs throughout the year. Nobody likes to downsize their workforce, nor does anybody like being short-handed. A 3PL eliminates this burden by “flexing” its labor force across clients throughout the year, which means you always have (and only pay for) the correct amount of labor to satisfy your order fulfillment requirements.
Summary
The 3PL industry was born in part from the opportunity to centralize, simplify, and cost effectively provide warehousing and order fulfillment services. The additional benefit of removing the burden of operations allows companies to focus on their growth strategy and magnifies the financial benefits of working with a good 3PL partner. To learn more about Extensiv’s technology platform, schedule a demo today!
Alternatively, to get started working with one of the 3PLs in our partner network, check out Fulfillment Marketplace, the go-to directory of 3PLs in North America and key international locations.
