Your business is growing faster than you can keep up. With rushes of orders come rushes of adrenaline, and you find yourself glad to be where you are. Yet with new success comes a problem: keeping old promises. If this sounds like you, then a third-party logistics company would be of tremendous service.
Third-party logistics (3PL) sounds complicated, but the core concepts are pretty simple. Companies in the third-party logistics industry provide distribution, warehousing, and order fulfillment services. Many mom-and-pop shops manufacture or receive their goods, store them in their garage, and pack their own items into USPS mailers. For a while, that approach works beautifully, but it simply doesn’t scale. This is a problem that third-party logistics companies, like Fulfillrite, seek to address.
Let’s be honest with each other: Running a business is hard, and you have to keep costs under control to survive. Outsourcing can save you time and streamline your operations. It may even save you money in the long-run. Nevertheless, you never want to haphazardly step into an ongoing business relationship. For that reason, we will be covering the 6 signs that tell you when your business may need to outsource to a third-party logistics company.
1. Your customer base is growing faster than you can keep up
Starting a business is notoriously difficult. Yet the effort involved in scaling a business is often underestimated. Having a crowd of adoring customers can be a wonderful development for your business. Truly, it is what all growth-minded entrepreneurs seek! As the din of the crowd raises from a whisper to a roar, though, you may find yourself unable to satisfy demand.
It happens all the time. At Fulfillrite, our clients so often experience rapid growth and need a helping hand. It’s easy to ship a handful of products every day, especially if your business is small. When you start sending 10, 20, 50 or more orders per day, the demands on your time caused by order fulfillment will become immense.
At this point, a third-party logistics company can completely take that off your hands. In fact, if you send enough orders, not only will the additional cost over the price of postage be minimal, it might even be cheaper!
2. Order fulfillment is becoming slow or inaccurate
Sometimes we are fortunate enough to see waves of customers coming before they crash upon the shores of our business. Sometimes we aren’t. If you find yourself with sporadic bursts of orders that you are not able to fulfill in a timely manner, it will start to cause problems.
Customers may complain about long shipping times, and others might try to withdraw their purchases entirely. Slow shipping weakens customers’ perception of your quality. This will affect the number of repeat customers you get, which are critical to your business’s success. Worse still, you might end up sending a disproportionately high number of packages to the wrong places! Once you see your quality of order fulfillment drop to this point, third-party logistics is not a “nice to have” anymore. It is a need.
3. Your employees are working too much
The simplest route to dealing with a lot of work is to work more. You may ask your employees to work overtime in order to ship packages. Perhaps you feel a bit bad about it, but what are the alternatives?
Working employees for long stretches of time to fill orders is a bad idea. If they’re working hourly, the costs are enormous. Even if they’re salaried, it’s not tenable in the long run because employee burnout will destroy your company.
If you’ve reached this point, it’s time to call in the cavalry.
4. Your business is becoming really complex
Let’s say you are able to meet customers’ demands, provide a work-life balance for your employees, and ship every order correctly and on-time. Your business can still stumble if processes are becoming too complex. All too often, a business will grow quickly and adopt various messy but effective processes to handle day-to-day tasks. If you feel like you’re running an airline with 15 employees, it’s time to look into third-party logistics. Outsourcing cannot fix all your problems, but it can make life a little more manageable. Good outsourcing practices can help our finite minds to cope with the complexities of running a business.
If your brain fills full, then complex business operations are taking their toll. Consider a third-party logistics company when you reach this point. Often the best way to compete is to focus on what your business is really good at!
5. Shipping is chipping away at your profits
When you hire another company to take care of business functions for you, the general expectation is that costs will go up. The hope, when outsourcing, is that the business will reallocate resources and generate more revenue to offset the cost. Did you know that hiring a third-party logistics company can actually reduce costs?
Third-party logistics companies have two advantages not available to most companies. First, they are often able to negotiate lower rates with carriers like UPS, USPS, FedEx, and DHL. Second, their entire operation is optimized to ship products effectively. Accounting for postage and materials alone, you may already save money. Once you add in labor, you almost certainly will.
There is only one caveat: you need to be sending orders fairly often. Once you start sending 100 or more orders per month, you can really see the cost benefits. Order fulfillment quickly becomes more cost-effective under these circumstances. The same principle applies for crowdfunding campaigns like Kickstarter or IndieGoGo, which result in a massive surge of packages to be sent.
6. You have run out of space
Last but not least, real estate is expensive. Storing goods takes space, whether you want it to or not. If you house your own inventory, you will eventually either run out of space or have to find a place to store them.
Whether you rent a new building or even a simple storage unit, it raises costs. It also increases complexity. To move your inventory, your employees will need to walk, drive, or otherwise commute to your other location. This drives up labor costs, too.
A far simpler and more elegant solution to running out of space is to send your inventory to a different company. No longer do you have to handle and store products. You can simply focus on creating and selling them!
Final Thoughts
Hiring a third-party logistics (3PL) company is an excellent way to address common business problems. Rapid growth and increasing complexity can hinder your ability to provide great service. Employees may be talented, but their energy is finite. The costs associated with handling inventory and order fulfillment may become excessive, or you may simply run out of space. Your business might be growing faster than you can handle. Alternatively, you might be planning for the future. No matter what, third-party logistics should be on your radar. Even if you don’t need it today, you may need it tomorrow!
Brandon Rollins is a Marketing Consultant at Fulfillrite. His main areas of expertise are online marketing and supply chain management. He also runs Pangea Marketing Agency and Pangea Games.