One of the benefits of working with a 3PL is cost savings. This comes in many forms including better freight rates, lower facility and equipment costs, the benefit of having access to expensive technology and the efficiency that comes from working with a team of experts. As simple as this may seem, there are a lot of factors that contribute to savings in these areas. We’ve provided a more in depth look at areas of cost savings to help you understand if your 3PL partner is helping you save money.
Any company shipping products understands freight is expensive. Any 3PL you work with should be able to save you money in this area in a few different ways.
Buying Power – 3PL’s negotiate the freight rates they can offer their clients based on their total buying volume, which means you benefit from getting freight rates negotiated using some big multiple of your actual shipping volume.
Dimensional Weights – Freight carriers like UPS and FedEx use a “dimensional denominator” to determine the “minimum” weight of a box based on its dimensions. For example, a box size of 12” x 12” x 12” may be assigned a “dim weight” of 10 lbs. What happens if your product shape requires a box of this size but, it only weighs 3 lbs.? You get charged the 10 lb. “dim weight” instead of the actual 3 lb. weight, which means you will pay thousands more in freight cost than you need to. 3PL’s can negotiate a better “dimensional denominator” due to their shipment volume, therefore reducing the “dim weight” cost for their clients.
Cartonization – Closely connected to Dimensional Weights is cartonization strategy and technology. Top tier 3PL’s will capture the weights and dimensions of all of your products. That information is used as orders are processed to ensure the smallest possible box size is used to pack out each order, therefore lowering both your actual and “dim weight” cost so no matter which gets used you’re saving money.
Accessorial Charges – Like freight discounts and dimensional weights, accessorial charges that may include fuel surcharges and rural delivery fees are negotiable. 3PLs can often pass along lower accessorial charges to their customers because they have the negotiation leverage their higher aggregate shipment volume provides.
Facility and Equipment:
It is expensive to operate a distribution center! Pallet racking , forklifts, conveyor systems, pack stations, carts and much more require significant upfront and ongoing investment. A good 3PL partner eliminates this requirement.
Capital Requirements – Companies that warehouse and fulfill from their own facilities incur large expenses for both the facility itself and all of the equipment and infrastructure required to efficiently operate. This expense doesn’t “go away” after the initial purchase or lease. As you grow continual infrastructure investment is needed, equipment needs to be maintained, upgrades are required over time and the list goes on. A 3PL incurs these same expenses but is able to spread the cost across all clients, thus each client is “responsible” for only a small fraction of capital investment as opposed to absorbing it all by operating their own facility.
Warehouse Space Needs – How much warehouse space is the right amount of warehouse space? Every business is striving to grow and planning accordingly but what happens if growth plans are interrupted by unexpected events? Or, what happens if you experience rapid growth more quickly than anticipated? The simple answer is you may find yourself out of capacity and therefore absorbing a huge opportunity cost, or you may find yourself paying for a lot of capacity you don’t need.
Any reputable 3PL has a significant investment in their technology stack, probably seven figures or more that would be difficult for many companies to match. This is in part to ensure their own operational efficiency (leading to client savings) and to provide valuable benefits and insight to their clients regarding inventory, freight and other performance metrics.
Business Intelligence Tools – Every business wants to understand the details of their operation and make informed decisions as a result. Far fewer have the financial wherewithal to implement the systems to help them accomplish this. Working with a good 3PL partner gives you access to cutting edge business intelligence tools to help you access and analyze data and manage your business accordingly. This can include freight analysis and inventory management data that help identify more efficient and effective methods to manage those parts of your business.
Freight Rate Shopping – Sophisticated 3PL’s will have freight rate shopping software in place. This means for every order you receive your 3PL is able to determine which of its carriers provides the least expensive rate to ship your order. This means you and your customers are saving money.
Business leaders know labor is often the biggest expense a company has. Like the others areas noted, 3PL’s are able to spread their labor cost across multiple clients therefore saving each client money.
Overhead & Benefits – People need to be paid a fair wage for the work they do and they want a benefits package that includes health insurance, paid time off, a flexible work schedule and more. This is a significant expense for every company but, working with a good 3PL removes this burden from your operations. The ability to spread these costs across many clients is a benefit each client enjoys.
Seasonality – Most businesses have some seasonality to them, which means varying labor needs throughout the year. Nobody likes to downsize their workforce nor does anybody like being short-handed. A 3PL eliminates this burden by “flexing” its labor force across clients throughout the year, which means you always have (and only pay for) the correct amount of labor to satisfy your order fulfillment requirements.
The 3PL industry was born in part from the opportunity to centralize, simplify and cost effectively provide warehousing and order fulfillment services. The additional benefit of removing the burden of operations allows companies to focus on their growth strategy and magnifies the financial benefits of working with a good 3PL partner. Enlinx offers all of these benefits and more to its clients. Please contact us if you want to learn more.