Why Companies are Outsourcing Warehousing Logistics to a 3PL
Why Companies are Outsourcing Warehousing Logistics to a 3PL
Companies outsource services to third-party logistics (3PL) providers for a host of reasons. Generally, this is done to reduce costs, increase efficiency, and improve customer service. But most importantly, companies do this so they can focus on their core competencies rather than the challenges associated with shipping their products.
Outsourcing shipping services to a 3PL provider enables businesses to stay competitive in their markets. By working with a 3PL, companies no longer need to handle complex logistics challenges and the expertise that comes with taking them on. 3PLs can also provide a smoother customer experience for the shipping and handling aspects of a business relationship. What’s more, they can provide greater flexibility and scale to businesses looking to increase their reach. 3PLs can even help companies unlock new markets based on trends and opportunities in their industry.
Finally, a 3PL provides businesses with shipping and logistics visibility that they may not otherwise have. Through expertise and key analytics, a 3PL can deliver the ability to not only track shipments but also monitor inventory levels and overall supply chain performance. Insights like these help companies make strategic decisions for future growth. They can also provide a competitive edge and help achieve specific targeted goals.
What is Warehouse Logistics?
Warehouse logistics is one link in the supply chain that involves the receiving, storage, and shipment of raw materials, components, or finished products. Essentially, warehouse logistics encompasses all processes that occur within the warehouse, from receiving dock door to shipping dock door. Warehouse logistics involves tasks like:
- Receiving goods
- Put-away, where received goods are placed in racks for storage
- Picking and packing, also known as order fulfillment
- Replenishment (moving goods from one part of the warehouse to another for order filling)
- Shipping, where goods are sorted and loaded onto trucks headed to their next destination
Some warehouses may handle additional tasks such as kitting, repackaging, or returns.
5 Challenges of In-House Warehousing
In-house warehousing can be challenging for a variety of reasons. The extent to which these challenges affect your specific business may help you determine whether outsourcing warehousing to a 3PL or in-house warehousing is right for your company.
Warehouse Logistics are Costly
The space, the staff, the technology, the equipment: the expenses add up quickly! There are some huge capital outlays involved in warehouse operations. Even unused space still costs money with in-house warehousing, but too little space would grind operations to a halt during busier seasons or growth periods.
A lot of technology and due diligence goes into maintaining full supply chain visibility in a warehouse. Lack of visibility leads to poor inventory management, which could then lead to over or under-stocking.
Keeping Fully Staffed is Tough in This Labor Market
Staffing is one of the most difficult parts of effective warehousing. Demand is high for warehouse labor thanks to the ecommerce boom, and, consequently, many warehouses struggle to meet their staffing demands. One survey showed that 73% of warehouse operators couldn’t find enough labor.
Lack of productivity can be a real issue in logistics warehousing. Productivity problems can be the result of several other issues including staffing issues (not being able to find the right workers for the job), poor planning (a warehouse that isn’t set up to be as productive as possible), and a lack of technologies like robotics or a labor management system (LMS).
Compliance is Complicated
There are all kinds of laws and regulations that must be considered in warehousing and distribution centers. Several government agencies have their own requirements. OSHA has specific requirements to ensure warehouse safety. The FDA has regulations to ensure food safety. DHS has its own anti-terrorism regulations. It’s a lot to take into consideration and failure to do so could cost warehouses in fines and time lost while violations are resolved.
Why Do Companies Outsource Warehouse Logistics?
Every company that chooses a 3PL warehouse has a slightly different reason for doing so depending on their needs and priorities. Some common reasons to utilize a warehousing 3PL include:
- Improved operational control
- Ideal location, add locations
- The 3PL’s rich expertise and vast experience
- Added technology without the struggle to implement or capital outlay
What are the Benefits of Outsourcing to a 3PL?
What exactly are companies getting out of utilizing a third party warehouse? Here are some of the benefits that outsourcing to a 3PL warehouse can offer.
Reduced Staffing and Management Costs
One of the biggest benefits of third party warehouse logistics is reduced costs. Thanks to economies of scale and industry expertise, 3PLs can conduct warehouse operations for less than the average company. They purchase supplies and equipment, recruit labor and management, make real estate investments, and ship on a larger scale since they’re helping multiple customers, allowing them to save money and, in turn, their customers save, too.
With vast knowledge of warehouse operations, 3PLs are often able to be more productive than in-house warehouses. They use a combination of warehouse management techniques, technology like software and robotics, and top-notch equipment to get the job done faster.
Flexibility and Scalability
Has your business ever experienced a lull where sales were slow and you had far more warehouse space than you needed for the stock necessary to service your customers? It happens. Working with a 3PL means you can use the space you need when you need it, which includes gaining access to more space during busy periods.
Freed Up Capital
A 3PL warehouse is kind of like a streaming subscription service. You pay for the package you need each billing period rather than making huge capital outlays for real estate, equipment, staffing, infrastructure, and repairs. This frees up capital for core business processes like R&D or procurement.
Improved Customer Satisfaction
Because 3PLs can do things cheaper, faster, and are often able to store products closer to end customers thanks to multiple locations, customer service often improves when companies opt to use a 3PL warehouse.
Who is 3PL Warehousing Ideal For?
Third party warehouses are utilized by lots of different kinds of businesses including:
- Ecommerce retailers
- Brick-and-mortar retailers
- B2B retailers
These types of businesses often turn to a 3PL during busy seasons, periods of rapid growth, when they’re running out of space in their in-house warehouse(s), or when they’re having a difficult time controlling their logistics spend.
How to Choose the Right 3PL Provider
Here are some tips to keep in mind to help you choose the right 3PL provider.
- Vet potential 3PLs thoroughly- Look into the services candidates provide, their processes, integrations, and their reputation.
- Seek out a partnership- Find a 3PL who cares about meeting your company’s and your customers’ needs and is willing to work with you toward your goals.
- Aim for flexibility and scalability- Choose a provider that allows you to add and drop services or space as needed to take full advantage of this 3PL benefit. Location is another key factor in this. Does the candidate have warehouses that get products closer to your customer?
- Seek out a provider with a plan for continuous improvement- Just like your company is always trying to improve, your 3PL should, too. Check with candidates to see if they have a plan to keep getting better.
- Ask about technology- One of the ways 3PLs provide value is cutting-edge technology, so don’t be afraid to ask candidates about their tech and how it serves their customers.
How Can SEKO Help?
SEKO Logistics, recently named a top 3PL in 2023 by Multichannel Merchant, offers 3PL warehouse services alongside a full complement of other 3PL services to help businesses thrive and grow. Connect with our team here to inquire about 3PL warehousing services.
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