Contracting a third-party provider to look after logistics can be a saviour for businesses involved in importing and distributing. But there are some things to be aware of before you commit.
Those new to importing and distributing should be aware that they can outsource their warehousing and other logistical needs to third-party logistics providers (3PLs) – companies that specialise in the management of other organisations’ logistical requirements. Some of the duties that 3PLs commonly perform for smaller businesses include freight forwarding, warehousing, picking and packing of orders, organising delivery of orders to clients (freight management), and inventory management.
Here are some of the key pros and cons of outsourcing your logistics to a 3PL:
- Flexibility. Since you only pay for what you use and can walk away whenever you want, 3PLs are ideal for businesses that aren’t yet ready for the commitment of leasing a warehouse and hiring staff.
- Convenience. Outsourcing your logistics leaves you to focus on other important aspects of your business. You simply send your customers’ orders to your 3PL and the 3PL despatches them for you. At the end of the billing period, you receive one consolidated invoice for the services used, which usually comprises a “rent” that is based upon the volume of space you are occupying; plus a fee for each order processed; plus a fee for freight management.
- Expertise. From simple things such as labelling and barcoding your products through to trading electronically with larger retailers, your 3PL’s experience and access to the latest business technologies mean they’ll be more organised and better at it than you.
- Better transport rates. As they organise deliveries for all their clients, your 3PL is in a position to get volume discounts from freight carriers, which may be passed on to you.
- Professional example. Working closely with a 3PL enables you to learn the basics of warehousing and distribution management, which can be extremely useful should you decide to set up your own warehouse in future.
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- Cost. Convenience comes at a price; the overall cost of using a 3PL is far greater than if you managed your logistics yourself.
- Loss of direct control. You are relying on the competency, reliability and honesty of the 3PL and its staff, and must assume that they know what they are doing and are always acting in your best interests.
- Distance. You may be several hundred kilometres away from your warehouse and merchandise, which can be a serious problem if, for example, there are quality problems with a batch of your product. Furthermore, if you have any concerns or complaints about service, you are limited to communication by phone and email.
- Potential loss of reputation. The 3PL is responsible for one of the most critical functions of your business. Their mistakes reflect directly on you and your customer will not accept you passing the buck on to your subcontractor.
Third-party logistics providers can be very useful to the small business operator, particularly those who are home-based and/or just starting out. A common approach is to use a 3PL in the early stages of the business, before moving on to establish a warehouse once the additional responsibility of doing so is justified by the reduced operational costs to your business.
Do you use a 3PL for your business importing and distributing? What are the pros and cons you’ve experienced?