3PL what is it and is it right for your business?

What is 3PL?

At the most basic level Third Party Logistics Providers (3PL’s) will look after your stock, receive it, put it away, store it and when orders come in they pick, pack and dispatch on your behalf.

Until the mid 00’s 3PL was almost the exclusive realm of large corporate, as the 3PL’s investment in storage space and infrastructure meant unless you were Nike or Coke… you weren’t worth it. However recent advances in technology (particularly ecommerce) coupled with increasing price pressure from large corporate has made the small-to-medium client market more appealing to 3PL’s. Online ordering now makes receiving orders from small clients the same admin cost as large clients, except small clients are happy to pay a ‘premium’ in comparison to penny-pinching margin-squashing brethren , not that you would know it. After all – it’s still much cheaper than renting a warehouse, installing your own racking and inventory systems, hiring warehouse staff and hoping to goodness you can keep the shelves full (but not too full) and the stock moving.

3PL’s allow you to take more (or less) space that you can vary with seasonal or economic demand fluctuations. Read; no more wasted rent! Most 3PL’s charge very little for storage and mostly make their money on activity (put away and send out) allowing businesses to adjust their overheads with their sales. This helps cash flow and profitability.

Is it right for my business?
There are two parts for this question – the first is are you ready? This is an easy overheads calculation. If you have outgrown your current warehouse (or garage for that matter) and are looking to expand, contact a local 3PL and see what it would cost based on your projections to 3PL your stock instead. You may find that your profit per item reduces, but you won’t be left scrambling to make payroll on a bad month because (in theory) you are only paying logistics overheads on stock you have actually sold. Most business’ would rather be in the black every month than having ‘over’ and ‘under’ months hoping that the ‘under’ months don’t happen too many times in a row or worse, around tax time. 

The second part is what is your stock? I hate to say it; but if you sell anything fragile, anything that leaks, is flammable (or worse explosive), has a high theft rate (cigarettes, alcohol and anything made by Apple) or is of large dimensions (what 3PL’s call ‘ugly freight’) then it will be harder to find someone wanting to carry it.

If you are in the business of selling Jack Daniels filled porcelain missiles using iPhone guidance systems… you are probably out of luck. But if it’s any consolation; you are the kind of person I wouldn’t mind being stuck on a plane next to.

It is important to note that you must have some kind of automated link with your 3PL to realize full advantages. If there is none available (or offered) and you are manually emailing dispatch and receiving shipping advice, then they are not a 3PL, they are a ‘Warehouse Management and Distribution’ Partner  aka WMD  (you can see why this term has become unpopular). Using a WMD partner you may end up losing any efficiency gain running around finding lost orders and constantly checking inventory levels.

If you are lucky enough to have small to medium sized stock that is inert and stable; then take a look at 3PL – it could be the biggest benefit to your business since the internet. 

Brooke Anderson
MD - XM Developments
www.xmdevelopments.com