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3PL: The cost of underestimating complexity

June 22, 2023 / 3 min read

Third-party logistics companies can save you time and money, but underestimating the complexity of a successful 3PL partnership could hinder the process.

There’s a growing need for third-party logistics (3PL) companies. Why? As companies — especially those in the middle market — outgrow their operational capabilities, infrastructure, and shipping technologies, and lack the internal resources to manage their transportation and warehouse operations properly, many business owners find it increasingly difficult to balance rapid industry change with the resources and strategy to succeed. A 3PL entity can help you streamline operations, manage the increases and fluctuations in customer demand, and achieve overall cost savings.

Do you think your company would benefit from engaging a 3PL for business? Here are some considerations to help you determine your next step — and how to prepare for a successful partnership.

3PL companies streamline operations and reduce costs

Reducing cost is one of the most attractive reasons to consider bringing on a 3PL. Third-party logistics companies can consolidate services your company might assign to three, four, or five different sectors within your organization, freeing up precious staff resources. 3PLs offer the scale and purchasing power for transportation and warehouse services most organizations can’t leverage with their own volume of spend. Resources can be allocated to more strategic, long-term company initiatives instead of the day-to-day operations such as identifying and purchasing transportation services to cover daily shipments.

What’s more, 3PLs can act as a cost-effective solution for space and resource constraints that some companies face during the preliminary phases of upsizing. Let’s say your company is growing and you’re encountering the need for new positions, but you lack the human capital to fill them. A 3PL could potentially fill the gaps and save you money. And, as the need for storage space becomes more pressing — whether it’s storing raw material or finished goods — partnering with a 3PL could be the most effective solution and help avoid the need to invest in a facility expansion or a new facility to store materials.

3PL companies enable growth

As a business owner, a significant indicator that your company could benefit from 3PL services isn’t whether you’re growing but looking to grow. Frequently, middle-market businesses are assessing growth-by-acquisition, as well as organic growth. By lowering costs, combining warehousing and logistics functions, exploring AI capabilities in distribution and integrating distribution networks, a 3PL company could expedite or improve either scenario.

However, rapid growth can prompt business owners to turn to third-party logistics companies as well — and for many of the same reasons. In that case, the right 3PL partnership could provide enough cost savings in your supply chain functions to facilitate the purchase of new manufacturing equipment or a more robust IT system.

Break barriers to opportunity and growth

Ready to engage a 3PL company? Here’s how

Once you’re ready to engage a 3PL, doing the appropriate research and due diligence is critical. Here are four points to think about during the process:

1. Conduct a self-evaluation — What processes can you outsource?

Isolate where you need help. Do you need production planning and purchasing support? IT assistance? Warehouse capabilities? Inventory and shipping? Or all of the above?

It’s essential to have a complete evaluation of your current functions to identify the proper 3PL companies and ensure their resources match your needs early on.

2. Align your supply chain strategy with your overall corporate strategy.

This may seem obvious, but you’d be surprised how often these are at odds.

3. Ensure you have accurate data.

Accurate data will reveal how much benefit a 3PL partnership can provide and help you measure the third-party logistics company’s performance as your partnership grows.

4. Conduct a risk assessment.

Make sure you’re well-positioned for unforeseen circumstances down the road. As we’ve learned over the last several years, having a robust and implementable risk management strategy for your supply chain is critical for your business’s survival.

Whether you’re in the early stages of self-evaluation or you’ve found a third-party logistics partner that’s a good fit for your organization, having an objective voice is vital to help guide the process. Finding the right 3PL partner is only half the battle; ensuring you create the right partnership that benefits both sides will be the key to realizing the benefits.

How often are you assessing your critical suppliers? Get started with our supplier risk assessment guide to reduce risk and identify opportunities.    

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