Businesses that ship products to customers face challenges in today’s competitive e-commerce industry.
Shipping expectations set by some of the world’s largest companies, such as Amazon and Walmart, can create a near-impossible situation for smaller businesses operating on limited resources while trying to maintain a profit.
Nearly half of online shoppers say they usually receive packages within 2-3 days and are unlikely to continue ordering from a company that doesn’t deliver on time.
Outside services, called “third-party logistics providers (3PLs),” can help manage, or fully manage, a company’s storage, distribution, and customer service.
Thanks to the rise of e-commerce, the 3PL industry has experienced massive growth in the U.S. since the introduction of the internet and the rise of e-commerce.
Now a $213.5 billion-dollar-industry, 3PLs make it possible for small and medium-sized businesses to compete against large retailers in today’s e-commerce landscape.
How Third-Party Logistics Providers Can Help Your Small Business
In this article, we answer the following questions:
- What are third-party logistics providers?
- What are the advantages of 3PLs for small businesses?
- How do you know when it’s time to hire a 3PL for your business?
You can use the information in this article to understand what options are available to businesses that ship products to customers and when to get serious about hiring a 3PL contractor.
What is a Third-Party Logistics Provider?
A third-party logistics provider (3PL) is a supply chain outsourcing service that helps businesses primarily by managing one or more of the following responsibilities:
3PLs can offer services related to branding, customer service, and more.
Competing 3PLs provide different levels of service, so before choosing a provider, you’ll research options that match your needs.
Using a 3PL often means your business takes the orders, and your 3PL manages storage, shipping, and often certain customer service functions, for you.
Today, nearly 90% of domestic Fortune 500 companies use 3PLs, according to a 2017 report by Armstrong & Associates.
For example, FBA (Fulfillment by Amazon), the world’s largest 3PL, provides businesses with a way to take advantage of Amazon’s infrastructure to more quickly distribute products to customers.
Source: Fulfillment by Amazon
By shipping your inventory to Amazon, you avoid having to manage the storage, packing, shipping, and customer service required to sell and ship your products.
Unfortunately, Amazon’s massive overhead and continual shipping-related losses create extra, often unreasonable, expenses for small businesses.
For example, FBA raised its storage prices last year, implemented a higher storage rate for lower-performing businesses, and tripled its standard storage prices during the 2018 holiday season.
Due to Amazon’s unpredictable pricing structure, many companies opt for other top-performing 3PLs that provide more consistent and considerate pricing.
For example, companies such as Lightspeed Automation, Lightweight Manufacturing, and DHL Global Forwarding are among some of the top-rated 3PLs of 2019.
Third-party logistics providers can store, ship, and manage product delivery for businesses, allowing brands to focus their efforts on marketing and selling their products.
Advantages of 3PLs for Smaller Businesses
Trying to compete with the 2-3 day shipping options that large businesses such as Walmart and Amazon provide can pose a significant challenge for small businesses.
Customers are accustomed to fast shipping, yet small businesses often lack the resources to ship products quickly while maintaining a profit.
3PLs can help companies deliver goods faster while providing several other significant advantages:
- Shared cost of supply chains
- Access to advanced technologies
- Greater knowledge of supply chain best practices
Nearly 90% of shippers using 3PLs say that 3PLs have improved services to their customers, and over 70% say it has helped to reduce their overall logistics expenses.
Businesses whose product demands fluctuate throughout the year gain an extra advantage, since they don’t need to invest in year-round warehouses or assets that aren’t required during their off-seasons.
How to Know When It's Time to Hire a 3PL
Consider exploring the 3PL option if:
- Your warehouse team is overwhelmed with demand.
- Your inventory is burdened with obsolete items.
- Your inventory is inaccurate and disorganized.
- Your shipping costs are mounting.
Companies providing direct shipping frequently overstock their warehouses to ensure they can meet customer demands.
Overstocked warehouses often result in facilities that are filled with low-demand or obsolete products. The additional inventory can create physical safety issues and a higher rate of damaged inventory.
When expenses, overwhelmed employees, frustrated customers, and warehouse management issues become a challenge, it may be time to consider a 3PL.
3PLs Can Save Small Businesses Time and Expenses
Small businesses may need help competing against e-commerce giants while maintaining fast shipping speeds. 3PLs can provide these businesses with cost-saving economies of scale and expertise that can improve e-commerce shipping speeds, safety, and the overall customer experience.
Riley Panko is a Senior Content Developer for Clutch, the leading platform for B2B services and solutions research, ratings, and reviews.