For most companies, experiencing growth can be an exciting time. You’re getting more customers, your business is generating more revenue, and profits are high.
However, properly managing business growth – especially the core infrastructure that supports it – can be challenging. In the context of handling logistics, this could mean hiring more employees, stocking more inventory, streamlining order fulfillment, and shifting your focus to what your business does best.
In these situations, many businesses fail to realize that they don’t have the capacity to manage logistics on their own and, as a result, take a significant hit. Savvy business owners understand that rapid growth means it’s time to outsource logistics-related activities.
In this post, we’ll share five telltale signs that your company is ready to outsource logistics and what a 3PL service provider can do for you.
When Is It Time to Hire a 3PL Service Provider?
While there isn’t a clear, set-in-stone sign that it’s time to shift from in-house operations to outsourcing, here are some common indications that you should consider enlisting a 3PL service provider.
#1: Increasing Costs
It’s not unusual for companies to experience unexpected sales growth or seasonal volume swings. While this is exciting for the business, your logistics network might struggle to keep up with rising demands. When your costs start to increase steadily, you should consider outsourcing logistics to a 3PL.
Many times when businesses experience rapid growth, they’re unable to realize the full impact increased order demands will have on their existing distribution network and supply chain. And, in a desperate effort to keep the business running smoothly, they often rush into recruiting new warehousing staff, purchasing specialized machinery and equipment, and procuring more storage space. These hasty decisions lead to increased costs which further cause a dent in the business’ bottom line.
One of the significant benefits of outsourcing warehousing activities to a 3PL service provider is that you can utilize their flexible, standardized systems to expand capacity and meet your business’ growing needs. 3PLs can help businesses grow their logistics solution in a scalable way. They’ll pick, pack, and ship your products and help you complete orders in a cost-effective and timely manner without requiring your involvement every step of the way to operate.
#2: Increase in Customer Complaints
Another telling sign that you’re unable to effectively handle your warehousing internally is a rise in the number of customer complaints you receive. For many companies, an increase in sales volume – whether it’s due to rapid growth or seasonal trends – leads to customer dissatisfaction.
In other words, when the number of customer orders exceeds the company’s ability to fulfill them efficiently, all kinds of mistakes and accidents start to happen. For example, customer orders might slip between the cracks, there might be unforeseen order delays, staff might make wrong shipments, and your warehouse might run into inventory stockouts.
To remedy this, companies need to consider whether they can meet the increased product orders either:
Internally by hiring new staff, purchasing more equipment, and acquiring more storage space, or
By outsourcing their warehousing and shipping operations to a third-party logistics provider.
With a 3PL service provider, you get access to their experienced (and trained) warehousing staff and dedicated supply chains. Using a 3PL service provider enables you to improve operational efficiency and order status visibility effectively. You’re able to use various tools to track orders in real-time and share this data with customers and customer service representatives to increase transparency.
#3: Overwhelmed Staff
When businesses expand into new markets or decide to offer new products, they soon realize that their existing staff finds it difficult to match the pace of their business growth.
Staff might feel overwhelmed due to several reasons. For example, seasonal volume swings and increasing product demands might make it difficult to process orders on time. Or, you might roll out more products only to find that your staff doesn’t have the expertise or capacity to handle more SKUs thereby hindering potential growth opportunities.
Searching for new staff, interviewing potential candidates, and training new employees in an already busy period can be challenging to say the least. Not to mention that during peak sales, your management department should focus on making sure operations run smoothly instead of worrying about staffing the warehouse.
By outsourcing warehousing operations to a 3PL service provider, you can rest assured that you’ll always have appropriate staff levels to meet your demands.
#4: Poor Inventory Management
If the carrying cost of inventory in your warehouse exceeds what you pay for space, you should consider enlisting a 3PL service provider. Typically, this includes:
Warehousing costs (such as utilities, salaries, and other administrative expenses).
Financial costs (like opportunity costs).
Inventory costs (such as insurance, leakage, and perishability).
In most cases, poor inventory visibility leads companies to increase safety stock. However, this can be a double-edged sword. The more safety stock you carry, the more likely you are to run into warehouse overcapacity which, of course, also causes expenses to pile up quickly.
When you outsource inventory management to a 3PL service provider, you’re able to tap into their warehousing management system (WMS) and industry best practices. A WMS enables you to keep track of orders, monitor inventory stocks, collect payments, and get feedback from customers.
Order fulfillment service providers have the tools to accurately predict order demands which in turn helps you optimize inventory levels. What’s more is that you can utilize its existing distribution network to position your inventory close to your suppliers and target market which will help you reduce transportation costs.
#5: Expanding Your Business
A lot of the time when businesses look to expand to new markets or offer new products to customers, they find that the transition can be difficult to execute. Whether you’re thinking about relocating to a new production facility to increase market reach or expand your current storage space to increase inventory capacity, there are certain aspects of which you need to be mindful.
For example, to target a new market, you’ll first need to grow your existing distribution network and set up a supply chain. This includes identifying transportation hubs, hiring new staff, and assigning additional tasks to existing staff. And if you’re looking to expand SKUs, you’ll also need to consider how you’ll pick, pack, and ship the new products and whether they have special storage and handling requirements.
A 3PL can help you smoothly transition from where you are to where you want to be. You can tap into the order fulfillment provider’s expertise in inventory management, shipping and handling, and delivery network to scale your business.
Before You Get in Touch With a 3PL Service Provider…
An order fulfillment service provider can help you meet business objectives by streamlining your warehousing and logistics operations. Here are a few things to keep in mind before getting in touch with a 3PL service provider.
Identify Your Pain Points
Before evaluating potential 3PL providers, you need to complete a needs assessment so that you’re able to communicate your pain points to them effectively. Doing so will help your shipping partner understand how they can help you solve these problems.
Here are some questions to ask yourself when identifying your pain points:
Are you missing out on growth opportunities?
Why is your staff making mistakes with customer orders and shipments?
Are you receiving negative reviews from customers? What are the most common issues they’re facing?
Does your managerial staff have to sort out warehousing issues instead of overseeing business operations?
Determine Your Expectations
You’ll also need to identify what you expect to achieve by outsourcing logistics operations to a 3PL service provider. To do this, you’ll need to identify and understand opportunities for improvement in your order fulfillment process.
Here are some questions to help you get started:
Are your in-house fulfillment costs higher than those charged by a 3PL service provider?
Do you have the logistics expertise to pick, pack, and ship your items efficiently or will an order fulfillment service be able to handle it better?
Can you optimize your storage space and inventory levels yourself or would outsourcing be the right decision?
Choosing to handle your warehousing in-house or outsourcing to a 3PL service provider requires quite a bit of research and assessment on your part. Determining how a 3PL service provider can address your pain points and meet expectations will give you a better understanding of what you can achieve by enlisting their services.
Do you see any of these red flags within your own business? If so, which ones? Let us know by commenting below.