You may have heard of the many benefits that a 3PL can provide to your business. But when should your business use a 3PL? That will depend on your ecommerce business’s situation.
Generally, you should start using a 3PL when in-house fulfilment is becoming too much for you. Or, when you want to proceed to the next step of your business’s growth.
Here are some signs of when your business should start using a 3PL.
Your warehouse is going whack
There are so many different tasks to complete in an ecommerce business. All of them are important and you can’t miss out on any one of them. However, when your business gets too busy, things can get out of balance. These are the most common signs to when your business should use a 3PL.
Fulfilment overwhelms your team
The most common problem many ecommerce businesses go through is order fulfilment problems. Especially, when your business is rapidly growing from something small. This will eventually lead to a traffic jam in your supply chain.
The process will look something like this.
More orders are starting to come in. Your business is seeing significant expansion. You and your staff are now rushing in order to keep up with the orders. There are times when orders fluctuate as well, specifically referring to the busy retail periods.
You also might be rolling out more products for your business’s growth. This means an expanded SKU catalogue for your staff to handle. If your staff doesn’t have enough expertise, the increased SKU might be too much for them.
Now, you might start thinking about hiring more people. But it’s highly likely that you won’t have the time to do so. After all, the reason behind this thought is because you and your staff have too many tasks.
Recruitment itself is also a long process. You have to search for candidates, conduct an interview, then onboard the new logistics staff. If the person is new to the industry, it’ll take even more time to teach them.
As a result, your team might end up working overtime in order to fulfil orders. If this continues long, it could lead to employee burnout. You do not want this to happen.
A 3PL can be your team's saviour
3PLs are experts at the order fulfilment process.
They’ll always ensure appropriate staff levels, therefore, can also handle large volumes of orders and SKUs. You won’t have to be worried about your customers not getting their orders during the holiday shopping spree.
When you leave it to the professionals, your team will have the time to do core tasks while enjoying their coffee break. Plus, you don’t have to search for more people and worry about their expertise level.
Go on and spread the word about your fabulous brand! Manage your business’s finance! Get those new customers while keeping your existing ones! Your ecommerce business will be on the road to grow and thrive.
Inventory management is out of control
When you are in-housing, you might start out by using Excel for your inventory management. As your business grows, you might start using third-party management software. However, handling inventory can still be complicated.
As your number of products increases, your inventory can get all over the place. You might not be able to tell immediately where a certain item is stored. Maybe the information on your software is mistaken. Your item is stored in a different place or the amount you have left is not accurate.
Inventory awareness takes a long time to achieve. You have to find and take out the storage, count it from scratch, and re-input it on your management record. This is another reason why in-house order fulfilment can take more time.
Low inventory accuracy, poor visibility and operational inefficiencies. This can lead to out-stocks, which is where you don’t have any stocks of products left to sell. Most of the time, businesses tend to increase safety stock in response to these issues.
However, this can be a double-edged sword. This is because more safety stock increases the possibility of warehouse overcapacity. How? Because safety stocks could become obsolete stocks.
Warehouse overcapacity is where you have too many inventories in your warehouse.
This can cause two main problems. First, it causes extra expense to borrow space for storing old products that won’t sell. Second, it can increase product damage and cause safety issues within the warehouse. Overall, it hinders productivity.
If your product also has specific needs for storage (such as temperature adjustment), it’s going to cost even more.
3PLs provide WMS to help easily organise your inventory
3PLs use a software application called WMS (Warehouse Management System). It provides visibility and analytics to help you and the 3PL to make decisions on inventory management.
Because the process is automatic, you and your 3PL won’t have to access Excel files each time the inventory moves. You just have to check the numbers to see when you need to re-stock or not. No need to worry about out-stocks or warehouse overcapacity.
Additionally, most 3PLs provide API integration. It automatically adjusts the number of stock that is shown on each ecommerce platform, through its connection with WMS. You won’t have to manually change it, and customers won’t have to be confused.
Customer service complaints are increasing
When there are too many orders to fulfil, the process can start to get sloppy. You might send the order to the wrong address. It might take too much time sending the order. What’s even worse? You might’ve not realised that the product was damaged.
Even if your business gets too hectic for your team to handle, your customers won’t care.
Customers are sensitive to these mistakes. These can lead to bad customer experience and lower perception in your business’s quality.
The misfortune doesn’t end. Your team is already exhausted with sending orders out. But now, they have to process an increasing amount of returns. This can be really tough unless your business has a well-structured return procedure.
What’s even worse, your customer may try to withdraw their purchases. The main reason behind this is the long shipping times. As returns and withdraws increases, it’s likely that your existing customers will leave your brand.
Repeating customers are the main source of income for many ecommerce businesses. Therefore, it’s a necessity that your fulfilment process is fixed so that these mistakes won’t occur again.
Using a 3PL will lead to excellent customer service
Leaving your orders to a 3PL does not only mean your team’s burden gets lifted. It also means that your customers can expect a brilliant ecommerce experience.
As mentioned before, 3PLs are professionals at order fulfilment. They will make sure your products are safely stored and correctly shipped. Through their partnership, they also provide access to fast and cheap shipping. This will reduce the number of returns.
A 3PL can also handle returns in an efficient way that reduces your part of the job. It makes the process easier for the customers as well. A great returning experience is also a part of a brilliant ecommerce experience.
It’s good to use a 3PL if you want to appeal your brand or add a little fun through personalised material too. 3PLs will pack your material together as long as you provide those materials. Some 3PLs will even produce them on your behalf, as long as you send them the designs.
So, if you start using a 3PL, your brand will be able to provide great customer service.
Your costs are increasing steadily
We have briefly mentioned about costs in the inventory management section earlier. But that’s not the end of it. There are two main sources of expense in running an ecommerce business.
1. Order fulfilment
It costs a lot to achieve order fulfilment in-house.
You have to pay rent for your warehouse.
You need to buy the equipment.
Your staff needs their wages.
It costs to buy packaging and wrapping materials.
Shipping costs are expensive.
2. Liabilities
There are many liabilities which come with substantial financial risks. It may not occur frequently compared to fulfilment costs. But when it does, it can be one huge blow.
Examples of liabilities can include workers compensation, environmental risks (such as mishandled products and unsafe inventory arrangement), product damage, information data leakage, and so on.
If you look at these examples, you may be able to recognise some of the problems we went through in the earlier section. It’s good to remember that your warehouse situation can lead to these costs.
Using a 3PL provides access to cheaper costs
3PLs provide a much cheaper solution to order fulfilment compared to in-house.
A 3PL usually charges based on four factors. Pick-and-packing, storage, integration and shipping. There are other factors that 3PLs charge, but it still costs cheaper.
The biggest reason why 3PLs are cheap is that you won’t have to pay for certain factors. You don’t have to pay the rent for a warehouse. There’s no need to buy any material handling equipment. 3PLs will get their own packaging materials.
But the main characteristic of a 3PL is its courier partnership. Their partnership allows them to have volume discounts and shipping optimisation. Therefore, the more orders to ship, the cheaper it is to do. Hurrah for cheaper shipping!
Your business is moving to a new stage
Up until now, we’ve gone through the negative signs of when your business should use a 3PL. Now, let’s start looking at a more positive sign.
Congratulations! Your business is steadily growing into something bigger. You think it is the time to take it one step ahead. But that one step can be a very long one.
First, whether you’re thinking of expansion or just an upgrade, there’s the problem of acquiring equipment. It’s not easy to find a budget-friendly forklift or the latest logistics technology. The trends rapidly change in the logistics industry, so it’s more so.
For expansion, you’ll need to find a great location with a warehouse facility in the size of your preference. While you are looking for a great warehouse, you’ll also need to figure out the stocking layout for each warehouse. If you’re aiming for international expansion, this process is going to take longer.
Another problem with this process is, how do you know if you’re making the right choices for your ecommerce business?
3PLs can help set up your new stage
3PLs can help make your transition into a smooth one. You can expect great advice from a 3PL, as they want the best for your business.
For starters, they can help set up your new warehouse and move your products in. If it’s in a new area, they can also put you in touch with local resources. That way, you won’t lose time having to search and make new connections.
3PLs can also help with international expansion. In this case, it is good to choose a 3PL with high experience in international logistics. They can help you with tariff and quarantine laws, as well as international shipping. Again, this saves your time to research.
Now, you can get your new warehouse started for business.
Bonus: Your business is doing too well
This is a bonus element to take as a sign of when your business should use a 3PL.
Your ecommerce business is growing more than you’ve expected. Money flows in and orders are increasing. Your team is handling it well. You’re starting to worry if you’ll be able to ensure product supply in order to meet demands.
An excellent stage for your business to be in.
Here, it is recommended that you start early in using a 3PL. Why? So you can maximise the benefits you are having at this moment and raise money for the brand’s future potential.
You can be smart and be proactive in finding a 3PL partner (like KeepSpace) before you end up in a chaotic state (as mentioned in the first section of the blog).
Conclusion/Review
We have gone through some signs that answers, “When should your business use a 3PL?”
- Your warehouse is going whack
- Team is overwhelmed
- Inventory management is out of control
- Customer complaints are increasing
- Your costs are increasing steadily
- Order fulfilment costs
- Liabilities
- Your business is moving to a new stage
- Bonus: Your business is doing too well
Further readings
Are you’re still confused about choosing a 3PL? Try out our other blogs below and see if they can answer your questions.
