Published March 29, 2023
The third-party logistics (3PL) industry has grown significantly over the last decade, as ongoing space and labor shortages and e-commerce growth continue to challenge supply chain operations. Retailers such as Gap Inc. and American Eagle Outfitters Inc. have even ventured into the 3PL market, leveraging their extensive networks to provide logistics services to other companies.
While there are some scenarios that may benefit from the use of a 3PL provider, such as startup companies that want to minimize risk or retailers looking for support with seasonal demand spikes, many businesses may be able to gain more value by investing in their own logistics network. Here are a few key considerations to help you determine which strategy is best for your business.
As mentioned above, while certain circumstances may warrant outsourcing fulfillment, significant growth is one telltale sign that it may be time to bring your logistics operations in-house. The higher the volume, the more cost effective it becomes to build your own warehouse. Typically, operations with over $100 million in sales will find that investing in running their own logistics operations makes financial sense.
Inventory and Order Profiles
In general, inventory and order profiles with higher labor and space requirements will likely cost more through a 3PL. Depending on the pricing structure, many 3PLs will charge fees for each SKU stored as well as each individual item per order, with some providers charging additional fees for larger pieces. Therefore, companies with high SKU counts and piece-picking orders should look into self-fulfillment.
Technology and Automation
By servicing multiple clients, 3PLs are often able to invest in more warehouse automation and technology than a single company could do on their own. While this may be attractive to companies with little or no automation internally, it is important to review your long-term strategy to determine if the additional labor and overhead expenses with a 3PL are more cost effective than investing in your own equipment and operations.
Current Network and Operations
Before considering outsourcing logistics, companies should evaluate their existing network to see if there are any ways to optimize their current operations. A warehouse assessment and network analysis can help companies identify opportunities to increase efficiency and capacity. Additionally, retailers with a brick-and-mortar infrastructure can leverage their physical stores to reduce delivery times and costs.
As customer expectations and the complexity of supply chains continue to rise, having the right logistics strategy is critical to increase resilience and ensure long-term business success. Contact us today to learn how to optimize your logistics operations to reduce costs, increase service levels and overcome disruptions.