How to economically scale your company's distribution footprint.

Leveraging Third Party Logistics to Grow Your Company

As your business flourishes, you may be faced with a challenge that’s both welcome and daunting: Whether it’s to take on a standalone project or to accommodate your expanding clientele, you’ll eventually outgrow your original storage space and delivery capabilities.

Though finding and leasing a new warehouse may be your first inclination, we suggest taking a deep breath and reconsidering your options. A warehouse space and related expenses are considerable: They entail far more than a monthly lease payment. Consider the budget for staffing, utilities, security, insurance, equipment (such as racking and forklifts, which will also require training and certification for every driver). It’s a lot of expense, but will still leave you with the complexities of fulfilling your increasing volume of orders.

Third party logistics companies (3PLs) can be invaluable resources for both storage and fulfillment. They offer comprehensive services that facilitate growing your distribution footprint quickly and economically, providing reliable and responsive deliveries to your clients while giving you time to accurately gauge your needs. Let’s take a closer look at supply chain outsourcing and why it’s a solution worth your consideration.

What Do Third-Party Logistics Companies Do?

Let’s start with the basics. Third-party logistics companies offer warehousing and order fulfillment services including storage, picking, packing, transportation, and delivery. While they charge a fee and earn a profit, they provide far more than a convenience: These firms have invested in infrastructure and technology that offers economy of scale and have learned best practices the hard way – through experience. They have the expertise to quickly assess the needs of small or growing companies and offer comprehensive solutions on an as-needed basis, and are continually investing in new technologies to improve their own services. They’re usually experts in their field, and you can think of them as a fractional service very much like the fractional finance services offered by PPS Solutions.

At first glance, turning to a 3PL service may just look like an additional expense, but there are several very good reasons for choosing this option:

Minimize Overhead Costs

Businesses that turn to 3PL services for storage and fulfillment reap the benefit of all of the investments these companies have made on their own behalf. Their advantages go beyond expertise and a physical plant: they include innovative technology including GPS, barcoding, and Artificial Intelligence; warehouse workers and delivery drivers (and their health insurance and benefits); established transportation routes and networks; security; and insurance. Using their service not only eliminates the need to take on new expenses — it also slashes the time and expense you’ve been incurring all along, fulfilling orders on your own. You’ll be able to turn your attention and manpower to other areas.

Knowledge and Experience

When you first began your business, your order volume was probably manageable: You were able to receive and store your products and fulfill your orders with ease. But your business’s growth requires a new level of expertise and proficiency. Rather than learning as you go — making mistakes and incurring delays that may cost you clients — turning to a 3PL service leverages existing expertise and skill. Their experience allows them to make a quick assessment that responds to your unique needs and provides you with the most efficient, effective solutions.

Maintain Your Focus

No matter what service or product you sell, you did not get into business to become an expert in logistics. Relying on a professional fulfillment service allows you and your employees to continue focusing on what you do best instead of learning entirely new skills. It saves time and resources better applied in other areas while also eliminating the hours previously spent on the task, as well as the stress of tracking down missing orders, investigating claims, and managing fulfillment employees’ absences, illnesses, or injuries.

Expansion Potential

Third-party logistics companies facilitate your ability to expand beyond your local market. Their network of warehouses and delivery services allow you to push into new markets, significantly increasing your reach and potential for growth.

Avoiding Long Term Commitment

It’s easy to imagine a scenario in which big orders from a new client drives you to sign a one-year lease for a warehouse, then three months down the road finding that demand has dried up and you’re stuck paying for empty space for the rest of the year. Third-party logistics companies offer flexibility and scalability that is responsive to seasonal demands and downturns. Ramping up or down quickly is not a problem – in fact, it is part of the service.

Risk Management

As your business has grown, so too have your liabilities. Assigning warehousing, fulfillment and delivery tasks to a 3PL company also outsources your responsibilities for supply chain safety and standards. Successful logistics companies impose proprietary processes to ensure efficiency, quality, and safety on their own employees and eliminate this concern within your own operations.

Boost Customer Satisfaction

You know what your clients want: high quality products and services, reliability, and fast response times. They also want the ability to get quick answers about where their products are and when they can expect them. Third-party logistics companies deliver on these demands, reflecting well on your business and improving the customer satisfaction that inspires loyalty and referrals and allows your business to thrive. Outsourcing delivery to a third-party logistics company provides a high level of accountability without any effort on your part. In exchange for the fees you pay, you get the certainty and confidence that your clients’ needs and expectations will be met.

The financial decision to 3PL or to not 3PL

There are many potential benefits of using a third-party logistics company for your fulfillment needs, but that doesn’t necessarily mean that it is the best answer for you. Every situation requires careful analysis based on data, research, and financial expertise — the type of knowledge that a Controller provides to larger organizations and that a Fractional Finance Department can provide to you.

Rapid growth leading to fulfillment issues is just one catalyst that drives the need for careful assessment and expert financial reviews. For assistance in identifying the smartest solution for your business, a Fractional Finance team from PPS Solutions is the right place to start. Our recommendations have helped countless business owners and entrepreneurs to navigate their most challenging decisions, and have facilitated improved efficiency, greater internal controls, cost savings, and the elimination of unnecessary risk and loss.

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