No one knows the business environment after COVID-19 or what the “new normal” will be. Considering the potential bankruptcies of large and small businesses, especially brick and mortar retail stores, we believe that businesses that emerge strong from COVID-19 will have a huge advantage in the typical fourth quarter peak of 2020 and beyond.
One thing is for sure - at the heart of ecommerce fulfillment is the reliance on labor. Even if your ecommerce business has remained open, chances are you are operating at a much higher cost and not providing the customer service – order turnaround - you wish. OSHA and CDC regulations, while imperative for employee safety, have forced changes in operations and decreased productivity to some extent.
After the pandemic, what will be labor availability? Before COVID-19, labor was in short supply in many markets. Depending on what you read, COVID-19 may have a resurgence next fall and winter. Then there is a question of when the workforce will return to work and be stable. While short term, many hourly workers receiving unemployment and stimulus payments have higher “income” than before.
For many ecommerce businesses, having a profitable fourth quarter will make or break the year.
During the pandemic, many 3PLs have remained open to serve their clients as an integral part of the Supply Chain. Yes, they have dealt with the labor challenges too, but they are operational and helping clients achieve their sales goals.
All this raises the question, “Should you continue internal fulfillment or move to 3PL fulfillment”? Using a 3PL isn’t for every company. Can 3PLs provide a better platform for your current order fulfillment and growth?
Here are seven major ways ecommerce and multichannel businesses benefit from using 3PL profitably:
1. Reduced cost per order
A 3PL can provide a lower cost per order when compared to internally managed operations. This isn’t always true, but it is often true for small to moderate sized companies that don’t have four distinct selling seasons, such as apparel.
The larger order volume 3PL facilities can be more efficient. They often have the volumes to cost justify technology (e.g. voice picking, pick to light, robotics, WMS etc.), material handling equipment, sortation and conveyance systems to make them more efficient. Additionally, 3PLs may offer better shipping rates than individual businesses.
To get an accurate assessment, do a fully loaded cost comparison as part of your detail selection process.
2. Lower capital investment
If you were planning a fulfillment center expansion or major investment, selecting the right 3PL partner may help you reduce or avoid capital outlays for new or upgraded warehouse facilities, WMS, material handling equipment and conveyance systems. Capital required to expand can be used for other critical projects.
3. Changes fixed costs to variable costs
For internal fulfillment, more than 50% of the total costs of fulfillment is labor. Internal fulfillment requires fixed investment in facilities, material handling and conveyance, and IT systems irrespective of the transactions processed. In contrast, when you're using 3PL services, you can expect to see the cost of fulfillment rise and fall with volumes processed.
4. Reduced time-to-customer and shipping costs
Customers’ purchase decisions are highly influenced by the delivery time and shipping cost. Would multiple fulfillment centers give your company more competitive delivery times and lower shipping costs?
5. Scalability for growth and peak volume
During the holiday season, some of our clients have 10:1 or higher order ratio when comparing peak weeks to average weeks. 3PL fulfillment can eliminate the time-consuming effort and expense of recruiting, hiring, training and managing hourly staff.
As businesses grow, 3PLs can scale up to increase staff and product storage capacity. Additionally, as you grow your internal fulfillment you have to be sure the managers are capable of managing the higher volume and you’ll have to pay more to retain them.
6. Focuses management time.
Third party logistics allows companies to concentrate management time on core competencies, such as marketing, merchandising, ecommerce analysis and developing new channels of selling. Coming out of COVID-19 this will give additional time which can be very important to getting back on your sales plan.
7. Using 3PL for more complex business processes
Here are three general categories where 3PLs have proven cost effective and lower costs to implement and maintain systems and processes:
- Implementing big box retailer, Amazon FBA, marketplace compliance policies. Many ecommerce companies have implemented channels selling product on Fulfillment By Amazon (FBA), other marketplaces such as Walmart, eBay or in big box retail stores. These companies all have stringent vendor compliance policies and IT requirements as a condition for doing business with them. Most small to mid-size companies looking to be multichannel have an elongated schedule and expensive implementation. Companies often choose to use 3PLs that already have this IT and process capability, rather than building out that expertise and implementing systems internally.
- International order fulfillment. Many multichannel companies use 3PL partners to ship customer orders world-wide, both inbound and outbound ecommerce and multichannel orders. Third party logistics that have this expertise can be more cost effective in document preparation and be more nimble in maintaining the ever changing international rates, duties and customs changes.
- Reverse logistics. Returns cost more than orders to process; you need to credit the customer, prepare the product for resale or dispose of the product. If your ecommerce business has abnormally high return rates such as technical products, apparel or shoes, using a 3PL provider can be a more cost-effective approach.
Third-Party Logistics isn’t for every company. Considering the business disruption caused by COVID-19, moving to 3PL operations may be the best long-term tactic. Performing an objective, fully loaded cost/benefit study of potential 3PL partners versus internal fulfillment is critical.