Should your small business use a 3PL Company?
Just because you run a small company doesn’t mean you shouldn’t go big. A small business that contracts with a 3PL company gains access to large-scale resources that it can‘t easily obtain on its own.
Cost of Doing it all on your own
Getting warehouses, staff, and information systems up and running requires a major investment. Most small businesses can’t afford all this entails. 3PL companies are able to do all of this for you. And because they are able to spread costs among all their clients, they are usually able to offer many time-saving and cost benefits to your business.
Too many Overhead costs?
Overhead costs take a big bite out of profits. “We were spending upwards of $10,000 a month for warehousing, transportation, and labor,” one of our past clients has said. “We were able to cut out many costs by using a 3PL company.”
Better Customer Service
Using a 3pl company that has good technology in place means your customers will get their products! Using local warehouses, customers get their products faster. And 3PL companies usually have support staff on hand that can not only answer your questions but also serve as a customer service support to your customers.
Find the Right Kind of 3PL Company for Your Start Up
But do keep in mind that not all 3PL companies specialize in helping start up and smaller companies. Be certain to search for 3PL’s with this type of focus, as many prefer to work with more established firms. Take time to explore different 3PL companies and see what cost savings they can pass on to you.
All too often, outsourcing with a 3PL doesn’t work out as expected. We see it all of the time – businesses looking for a more suitable logistics firm because their relationship with their current provider isn’t working. One of the most commonly overlooked mistakes that businesses make (aside from failing to use appropriate standards when choosing a fulfillment company in the first place) is to not have a full understanding of how to hold a 3PL accountable. We’ve put together a short list of things that you can do to make sure you are well able to manage your 3PL.
- Learn about the industry – Just because you’re using a 3PL doesn’t mean that you don’t have to know about warehousing and shipping. In fact, the less you know the more likely you are to experience a failure. Keep in mind that you have to know the job duties forwards and backwards to successfully manage any of your employees – so why would it be any different for a third party provider? And if you don’t know much about warehousing and fulfillment, search the web, talk to people in your network or check the resources on our site to learn more.
- Keep an open line of communication – You’ve heard it said before: communication is the key to any relationship. This is especially true in third party logistics. You’ve got to have regular meetings with your 3PL – and not just when there’s an issue. Meet with them at a specific time each month to go over the high level and strategy in the very least.
- Know what to look for – Make a list of the most important things that your 3PL must do successfully in order for the relationship to be functioning at the highest level. And then let them know that you’ll be meeting to discuss these metrics on a monthly, quarterly or yearly basis. The fact that you follow through on this will automatically hold your firm accountable. Here’s a few tips on what to measure:
- Response time to your requests
- Order error/success rate
- On time shipping percentage
- Inventory count accuracy
- Report accuracy and availability
By holding regular meetings to discuss these “high level” metrics and the overall strategy, you’ll see your 3PL relationship blossom.
Words of Advice for Finding a 3PL Provider From the President of a 3PL Company
We have the pleasure of working with hundreds of great 3PL organization throughout the US. These companies have a wealth of information to share about finding a 3pl provider and other industry information. Occasionally, we like to ask the President of one of our vendors to share some insights. This month, we have the pleasure of speaking with Sam Souvall, President of Anchor 3PL in Utah (www.anchor3pl.com). We posed the question, how does a 3PL company differentiate itself from all of the competition out there in the logistics world.
“Most 3PL companies out there will tell you that they offer the best 3PL services and the best pricing, so neither one of these two critical success factors can be the only determining factors when choosing a 3PL to service your needs. There are a lot of great firms out there that do a good job and many that offer very competitive terms. So at Anchor 3PL, we’ve found that there has to be something more than these factors in order to get the opportunity to work with a company. And the differentiating factor at Anchor 3PL can be simply described as “being a consultant.”
As a small to medium sized business owner, sometimes you find yourself alone without many options in terms of getting advice. So when a 3PL company can act as a consultant in other related areas of the business, there’s tremendous value that can help push the business forward to new heights. For example, at Anchor 3PL we have established contacts with overseas manufacturing sources so that we can help clients get products produced at much lower rates. The process of identifying and managing an overseas provider is very difficult and quite intimidating, so our pre-existing relationships allow our customers to walk into a friendly and painless scenario for their manufacturing. And our consultative approach doesn’t stop at manufacturing. We offer a number of different areas of expertise in running a small business.
And it gets very interesting when our customers can interface with us on the same basis, offering up new services and insights to us that we can use or offer to our customers. So really, I think it boils down to truly become a partner. This is what separates an average 3PL company from a stellar 3PL company.”
Small Business 3PL Services
We have quite a few small to mid sized businesses that hit our site each month. Occasionally, they wonder if they’re large enough to capitalize on outsourced 3PL services. Furthermore, they wonder if they can actually afford to use a 3PL provider. We believe there are a couple of important factors to consider.
Are You Severely Limited on Cash Flow
We fully understand that there are instances where there simply isn’t enough funding in the business to even pay a provider for their work. These are the rare cases where companies are literally living month to month and don’t have cash in the bank to pay a 3PL company. If this is the case, it might make sense to get to a financial point where you’re able to meet the financial ability to pay.
Can You Afford Not To Use 3PL Services?
If you’re not literally “out of money,” then we would tend to argue that perhaps you can’t afford not to use 3PL services. Here’s why we believe this so strongly.
- Unless shipping is your business, it’s not the most important thing that should be taking up your valuable time
- Every minute spent on shipping instead of other more important functions is lost momentum
- Sales and marketing, especially in these difficult times, is the lifeblood of your small business
Opportunity Cost of Shipping
If, as the manager or owner, you’re out shipping product, this is unbelievably valuable time that isn’t being spent on moving the business forward. Shipping is a part of the business that you can get a lower level worker to complete. And by not spending time on the shipping, you’ll be able to focus on more important things. You know what they say about sales…if your business isn’t growing, it’s shrinking. This couldn’t be more true when it comes to small business. In order to succeed, you have to focus an enormous amount of attention on growing your business. Any time spent doing tasks that can easily be outsourced is valuable time wasted, and therefore a huge opportunity cost.
Use as Much or as Little as You Need
Using an outsourced 3PL allows you to use as much or as little of their resources as you need. The challenge is on them to increase space if needed or hire additional staff. Similarly, in slower times, they’re required to let go of staff or re-negotiate leases. By outsourcing, you don’t have to think about these issues. For small business owners, cash is king. Outsourced 3PL’s allow you to hold on to more of your cash – and they oftentimes allow monthly payments which further helps with cash flow.