Not all ecommerce businesses need a third-party logistics (3PL) provider. But many do and they ignore the telltale signs. How do you know which category your business falls into? Contrary to what other logistics providers may preach, we advise keeping fulfillment in-house as long as you can afford it. (You read that right.) There are countless benefits to the direct-to-consumer (DTC) fulfillment relationship. These include staying close to your customers, receiving real feedback, testing promotions, and understanding the complexity of fulfillment from packaging to shipping speeds to returns. No one knows your brand and customer relationship better than you do. But when managing those critical relationships begins to strain key parts of your business, it’s time to consider the real cost of keeping fulfillment in-house — to your customer relationships, human resources, operating efficiency and bottom line.
When to Consider a 3PL for Your Company Health
When revenue increases exponentially, every business should outsource to a 3PL, right? Not so fast. Some logistics providers may tell you that hockey-stick sales growth is the sign that you need their services. Don’t fall for it. For example, some small businesses can handle that revenue jump if their products are small and lightweight. They don’t necessarily need the full services of a 3PL warehouse, packaging, shipping, etc., nor would they extract the most value from that partnership.
How do you identify your tipping point? Two interconnected factors indicate a 3PL is in your best interest. When the number of units moved combined with the complexity of moving them becomes problematic for your business, it’s time to seek help. Here’s another way to recognize the signs. If you answer yes to any of these five questions, then you’re ready for an experienced logistics partner:
Have you outgrown your current product storage and fulfillment space, e.g., 30,000 square foot warehouse, your garage, basement, etc.?
Are you losing money on transactions due to rising shipping or supply costs?
Do supplies eat up a higher percentage of the total shipment cost than expected?
Do you plan to expand to more markets?
Are you considering adding brick and mortar to your digital strategy or the reverse?
Consider a 3PL when the number of units moved and the complexity of moving them to the end consumer becomes a strain on your business.
7 Reasons Why Your Ecommerce Business Needs a 3PL
If you’ve managed fulfillment up to this point, you have firsthand knowledge of what you’ll need a 3PL to do and the general costs. The number-one reason to work with a 3PL is shipping, which we’ll explain below. However, working with the right fulfillment and logistics partner has other important and often overlooked benefits.
Shipping Costs: Rising shipping costs often trigger an ecommerce business to seek a 3PL. In fact, shipping makes up the highest percentage of any fulfillment cost. Companies of all sizes feel the pain of rising shipping costs to varying degrees. For example, as gas prices rise, shipping companies increase fuel surcharges. In June 2021, FedEx surcharges accounted for increases of 6.25%-9.25% when gas prices ranged from $1.36-$2.01. A year later, FedEx surcharges rose to 15.5%-27.5% with gas prices at $2.51-$4.96. 3PLs are in the enviable position to negotiate better carrier contracts with lower rates and faster shipping speeds than any single business can.
Partnership: A 3PL should act as a natural extension of your team. The right partner amplifies your team’s efforts rather than detracts from focus or time. A transparent partner frees you to concentrate on the customer experience, and in turn, isn’t myopically focused on transactions but rather on growing your business in brand-safe and smart ways. Be wary of 3PL partners who tell you only what you want to hear versus reality. Strategic partners provide direction, opinions (even if contrary to yours), and industry trends to help inform your business on how best to navigate the complex ecommerce environment.
Shipping efficiencies are the number-one reason to outsource fulfillment to a 3PL.
Specialized Expertise: As your business grows, the need for specialized expertise also does. Understanding Amazon’s offerings, for example, is complex and complicated. The right 3PL draws on its experience working across popular channels like Amazon, Walmart and Target to help you develop the right strategy. They’ll provide guidance and best practices on where to place your product, how much, and how to get it there efficiently and effectively. You’ll draw on their experience to develop an omnichannel sales strategy, understand the pros and cons of dropshipping, decide to sell at Walmart or on Walmart, and more.
Hiring: Finding people to train and fulfill your sales is hard, especially in a competitive labor market. If your sales are seasonal, hiring may prove even more challenging. With a 3PL, you outsource this responsibility and the pains that accompany it.
Capital: Eliminate the costs of storage, packaging and logistics operators from your bottom line. Without these on your balance sheet, your profit goes back into developing great products and hiring people focused on your customer experience.
A 3PL can scale your sales across channels and markets faster and with less friction.
Scale: You’ve made the decision to add new sales channels; now what? With a 3PL, you can be up and running on any number of marketplaces and channels much faster and with less friction than doing it yourself. As you grow, a 3PL can also get your products to consumers faster with inventory pooling in strategic locations close to where people are buying.
Data: How can you tell which channels work best for your brand? Or where your best customers live? Data! Tech-savvy 3PLs automate and consolidate your sales channel data for easy and transparent access. They track transactions and what was delivered (and what wasn’t), when, and which carrier damaged your product. In addition, a 3PL should ensure you’ll never be out of stock with alerts of when product is low and the agility to move product from one location to another to fulfill demand quickly.
How to Find and Vet a 3rd Party Logistics Provider
Once you’ve made the decision to seek out a 3PL, finding the right one is the next challenge. Ask colleagues across ecommerce for recommendations. Put together your must-have and wish list before you start talking to potential partners. For example, if Amazon selling is a top priority for your business, request case studies. Don’t hesitate to ask questions based on your experience with carriers, customers and rising costs. Any 3PL worth its salt won’t hesitate to address your concerns, provide best practices, and detail their channel experience with data and referrals.
Not all 3PLs are created equal as you’ll soon discover. Modern commerce partners like Whitebox help brands maximize sales and reduce costs. We operate a high-volume, low-defect network with strategically placed, nationwide fulfillment centers to reach your customers where they shop. Would you benefit from both fulfillment and advertising support? Whitebox unites advertising and promotion of your products with best-in-class fulfillment for a holistic view of what’s selling, where and to whom. As an Amazon Advertising Partner, we offer a full-service agency model on Amazon with audience targeting, campaign management and reporting, detail page setup, inventory management, measurement and attribution. Get in touch for a free consultation to discuss your fulfillment needs and more.