How Third-Party Logistics Can Help Your Business Thrive
The pandemic isn’t stopping anyone or any industry from going full swing. This is why you need a 3PL working for you. Moving goods in domestic and global markets have become an ever-increasing logistical challenge as manufacturing companies expand and the e-commerce industry gains momentum.
Logistics is subject to fluctuations in demand and changing transportation regulations. Plus, getting the most for your shipping dollars is not always easy when logistics is not your primary business focus. Besides having a great product, it’s also essential to get it into the hands of your customers on time. Unfortunately, the logistics of doing so are not always straightforward.
If you are a growing manufacturer and need help with both domestic and international logistics, you should hire a third-party logistics (3PL) firm. But before deciding, it’s essential to understand the advantages and disadvantages of working with a 3PL. How can outsourcing your logistics operations improve your business? Is it able to save you money? Are there any pros and cons of third-party logistics partnerships? We’ll explore that and more in this guide.
What is a 3PL?
There are three parties involved in the process of getting a product into the hands of a customer: the manufacturer, the shipper (3PL firm), and the recipient (customer).
Third-party logistics firms are able to provide a wide range of services along the entire spectrum of logistics and fulfillment functions, including:
- Freight audit and consulting
- Transportation procurement
- Dedicated transportation contracting
- Inventory management
- Shipment returns
- Shipment tracking and tracing
A 3PL company is an outsourced logistics firm that specializes in managing all aspects of shipping products from manufacturers/distributors to customers. As logistics pros, third-party logistics firms are different from freight forwarders (a person or company that only arranges the transport but is not responsible for your shipment). It is a full-service shipping provider that takes care of shipping and fulfillment. You can benefit from reduced transaction costs, reduced liability, and lower costs that are related to workers’ comp insurance and taxes. Some third-party logistics providers may even cover the cargo insurance cost.
Advantages of Working with A Logistics Company
From providing a better customer experience to saving money, hiring a 3PL can bring many benefits to your company such as what is outlined below:
Speed Up Expansion
Are you planning to expand your business into new areas and emerging markets? With a 3PL service, this whole process is made a lot easier. Your company can leverage its logistics network and supply chain, access new markets, and improve customer service to gain a competitive advantage. Warehouses and distribution centers from 3PL providers make such expansion more viable because they often build all compliance and security procedures into their service offerings.
Save on Costs
The higher the level of your business’s efficiency, the higher the chances of success. That is where a third-party logistics company can be an enormous help. The advantages of 3PL are often found in reaching economies of scale, such as warehousing, large truck fleets, and more. As opposed to spending resources and money on building a warehouse, optimizing services, finding the best ways to transport goods, and obtaining new technologies to support your logistics system, With a 3PL, you avoid those costs and free up your key personnel to deal with your business’s core competencies. They allow you to direct more focus onto manufacturing, operational processes, strategic planning, and facilitating business growth.
Depending on what services are required, a logistics company can scale your transportation, labor, and space. Suppliers and manufacturers can grow in new territories more effectively and with fewer obstacles. If you don’t have an in-house logistics department to design and manage your supply chains, then logistics is an area where you have less internal expertise. A 3PL will be there to optimize your logistics functions and help you enhance business growth.
Should You Partner Up with a 3PL?
Will a partnership with a 3PL streamline efficiency? Does it make financial sense? There are many variables at play when deciding whether you should hire a logistics company. Startups, manufacturers, and direct-to-consumer companies are enterprises that are all experiencing steady growth.
Often, their ability to produce and sell goods may outpace their ability to store and deliver them to their customers. In that case, hiring a 3PL is beneficial because they will provide logistics and warehouse capabilities, something that a larger enterprise can manage in-house. Third-party logistics firms also provide substantial shipping discounts through economies of scale, which allow them to achieve lower operating costs per load.
If you need the advantage of the latest technology, 3PLs can bring those tech benefits to you, so you won’t have to invest and learn them yourself. Other common reasons companies choose to work with a logistics company are to avoid inventory inefficiencies, inaccuracies, and other mistakes.
Thanks to the reliable inventory solutions 3PLs can bring, you can avoid unpredictable costs, inconsistent inventory capacity and streamline the flow of goods for optimized delivery.
Knowing all of this, ask yourself the question – is logistics something you should be managing in-house, or that should you outsource to a third-party logistics provider?
The third-party logistics (3PL) sector is increasingly sophisticated and diversified. The reason for this growth has been the need to meet the growing requirements of the e-commerce industry. As a result of this growth, the 3PL sector has recognized the need to develop more profound and strategic relationships.
However, 3PL providers can do more for a business than help reduce costs. Since 3PLs share shipment information, integrate business processes, invest in tech, divide supply chain accountability and responsibility with their 3PL providers, these partnerships are becoming long-term investments.
In today’s environment, both sides in the partnership must share common objectives while also ensuring that planning, management, and execution are appropriately coordinated to reflect these interests. Red Bird Logistics presents you with a complete how-to guide on working with a logistics company effectively.
Best Practices with 3PL
When it comes to logistics and working with a third party, your 3PL partner is there to help you create and maintain an effective and robust transportation management strategy. To engage in a successful and frictionless work relationship, it is crucial to view it as a partnership. Failing to maintain a mutually beneficial relationship with their 3PL provider is often the reason behind the failures of logistics and supply chain processes.
Set Clear Expectations
As a manufacturer or distributor, you expect to improve production/distribution, satisfy customers, and ultimately grow as a business. These are some general expectations that stand as catalysts for each of your business decisions. Therefore, what you expect from your 3PL partner should mirror the needs of your supply chain. An effective logistics strategy has to be guided by your company’s objectives.
Define the types of services you need or want. Explain your expectations for how their services will improve your business. Please describe your current processes and ask them to provide feedback.
Don’t withhold any information, but be completely honest in your expectations. Most 3PL companies ask their partners to sign an NDA (non-disclosure agreement) to keep all data safe and secure.
Set Realistic Expectations
What happens in case of a disaster? Does your logistics provider have a process in place to ensure the timely delivery of your goods? Risk management is an essential part of every effective transportation management strategy.
They should be willing to explore all potentially risky scenarios so that you can understand what they will do to protect your processes. If you feel like their logistics plan for addressing a specific issue doesn’t align with your company’s vision, you should communicate your concerns and discuss them. Your 3PL partner will respect your input when creating risk mitigation plans, which can continuously be improved and altered.
Open Communication Lines
Typically, business leaders communicate with a particular representative of the 3PL company. This is usually the person they had the initial interaction with. The value of communication is immeasurable in business, but some business owners still fail to recognize that.
With all the dashboards, technologies, and established KPIs that enable you to see all the information right away, communicating may feel less important. However, it is vital to improving your business processes continually.
Make sure you create a communication schedule with specified times for conference calls and meetings from the beginning of the partnership. Your MSA (Master Service Agreement) should contain the contact information of everyone vital for you to know within the 3PL.
Check Metrics, KPIs, and Benchmarks
What does success look like for your company? What does it look like to your 3PL partner? What are their KPIs, and are there ways to work with them to reach your benchmarks? Perhaps it is about processing a given number of orders per day or 100% customer satisfaction on fulfilled orders. Define the KPIs that your business uses to illustrate the success of its 3PL partner.
Communicate the KPIs to your 3PL partner and check in regularly to ensure they are meeting them. Making performance and quality standards a part of the contract with your logistics partner is easy to forget. KPIs and benchmarks and the ways of monitoring them are standards that must be discussed when formalizing the agreement and revisited regularly.
Defining KPIs and success metrics are significant first steps in maintaining an effective relationship with your 3PL partner. If they are meeting their milestones and deadlines, you can incentivize them to go even further.
First and foremost, you need to schedule regular check-ins. Just because you’re outsourcing your logistics process to an expert logistics firm doesn’t mean you shouldn’t be involved in the process. You cannot always see the complete picture just by looking at the data. On-site visits make it easier to measure performance and discuss potential changes that your company wants to make.
Schedule regular check-ins with your logistics provider to examine whether everyone is living up to their commitments and address any issues or challenges. You can do it monthly or quarterly, either over the phone or during on-site meetings. Regardless of the frequency or type of arrangement, be sure to check in with one another.
Is your logistics partner running into recovering issues? Are there any challenges you should deal with to improve a particular business process? This is a partnership, so you should work together to find the best solution.
Upon seeing that your 3PL provider is going above and beyond to provide the best service to your company, you can incentivize them. For example, you can offer a bonus whenever they meet or exceed your success metrics. If they perform better, it positively affects your business, so that this scenario will be a win-win for both parties.
Many companies decide to outsource functions, such as IT, human resources, and accounting. You’ve chosen to outsource your company’s supply chain processes to a third-party logistics company, but have you discussed that with your employees? They are the heart of your company and have spent many hours working to ensure that the company grows. Unfortunately, not all of them will be willing to trust your decision to outsource a critical part of your business operations.
That is where you should resort to change management. Change management refers to how management can affect the implementation of new company processes. It may include training sessions, webinars, seminars, and conference calls. If your team members don’t embrace the changes, you bring in, the partnership with a 3PL is tougher to handle.
You should explain why you decided to enact the change and how it will benefit the company overall. Successful entrepreneurs are leaders, and they stand as role models for their employees. If you seem to be under pressure or stressed by the 3PL partnership, your personnel will have a reason to doubt your decision. A 3PL partnership is there to make things easier, not more difficult.
Keep It Real
Trusting others with your business’ responsibilities, entering long-term contracts, and making purchases are often things that companies are hesitant to do. When it comes to collaborating with a 3PL, it is essential to understand what your 3PL partner can provide and that you may be required to adapt to specific changes. Working with a logistics provider will need your company to adjust to particular changes.
A 3PL partnership can reasonably improve a business. Still, many businesses fail to realize the limitations of a third-party logistics provider. For example, when it comes to customs processing, some of them can provide access to fast-track programs, but there will still be some delays. The crucial thing to taking full advantage of a 3PL is understanding what is reasonable and what isn’t. If you can see that, then your company is ready to start the process of finding and choosing a third-party logistics provider.
The third core concept involves how a 3PL can reasonably improve your operations. This seems redundant, but many companies fail to realize the limitations of a 3PL. 3PLs have limits, and while some may be able to provide access to fast-track programs for customs processing, there will still be some delays.
The key to truly taking advantage of a 3PL is knowing what is and is not reasonable, and if you can make this distinction, you can be ready to start looking for and selecting a 3PL to outsource logistics.
Use Advanced and Robust Technology
Freight processes can be more efficient when using the right technology. Your 3PL provider should understand that technology and data are at the core of any supply chain strategy. Data science, at its highest function, should help them integrate information between and within their systems.
For example, using cloud technology has proven to be an excellent way of helping shippers improve inventory management, increase visibility, and reduce costs. Shipping companies that can’t afford the technology they need to keep up with changing markets can also rely on 3PL to provide the latest tech.
Your company should offer data consolidation to help manage all aspects of your supply chain. It would help if you also had a way of tracking and analyzing data usability and consistency.
Developing a strategic plan that includes priorities related to the dissolution or termination of the partnership is one of the most valuable elements of a partnership with a 3PL. Both parties are organizations with their strategic direction and future. The time may come when the reasons for your existing collaboration are no longer relevant.
When this happens, it’s crucial to modify the partnership or even transform it to include a new logistics provider. Without dispute resolution processes and procedures for the eventual termination of the partnership, you might end up in court.
New Market Area
To enter a new market, your company needs to build a new supply chain network, which is time-consuming and expensive. Instead of doing that, you can benefit from your logistics provider that likely already has a logistics network in the market you want to penetrate.
That saves you the labor costs and time required to build a new supply chain and logistics system, allowing you to focus more on your core competencies. Also, it means you can go to market in that new area faster, which translates into a competitive advantage and increased profits.
Since a 3PL deals with transportation management processes, they can manage raw materials for your factories and finished products for your customers or warehouses. Also, they can deal with product storage, pick and pack, order fulfillment, and returns processing. Since they are responsible for material handling and delivering to your customers, it is essential to invest in building a good relationship with your 3PL.
No Way But UP!
A 3PL provider is there to help you improve your supply chain and create effective logistics processes. Learning to work with a logistics provider more effectively is just the beginning of your journey to improving your supply chain processes, which is not a journey without a risk.
With frequent communication to achieve common goals, your 3PL provider will become a valuable extension of your company’s team. Maintain a positive relationship with your logistics provider and stay engaged by following this how-to guide.
We understand and appreciate the power that new technology can and will deliver. However, in the search for one’s place in the market, it is still about relationships. We are committed to your success. It’s our ultimate goal, after all. Your company’s ability to develop a good logistics relationship is a prerequisite for its future success.
At Zip Logistics, we will work with you, no matter your needs. Our logistics services and supply chain solutions will be sure to cater to all of your requirements. We will work to implement the services you need and maximize your supply chain management and network optimization efficiency while ensuring customer satisfaction. With our real-time technology, we will provide you with complete visibility into your products every step of the way.