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Third-Party Logistics Companies (3PLs) – Advantages and Disadvantages

When you think of your business’s logistics, you might say that it is a complex process that depends on your infrastructure and can take many business resources (cost, time, labor). This is one reason why Third-Party Logistic Companies (Commonly known as 3PLs) exist. When businesses are growing and the number of orders surpasses the ability to handle it in-house, they may look for outsourced logistics.   

3PLs are not a fit for all businesses, so here we show you the pros and cons to consider before deciding if it is a fit for your online store. Lastly, we talk about how we can help your business grow whether you work with a 3PL or not. 

Definition of 3PL   

A partner or service hired by a business to outsource its logistics. 3PLs offer e-commerce merchants full warehouse and supply chain management for inventory and order fulfillment.   

In simple terms, it supports some or all aspects of a business’s shipping operations, everything that has to do with moving goods from manufacturers and distributors to the end customer.   

These are more specific tasks that 3PL performs:  

  • Scheduling and executing the receiving of inventory to the warehouse  
  • Sorting, managing and accounting for all inventory 
  • Maintaining inventory in proper conditions  
  • Negotiating discounted shipping rates  
  • Picking, packing, and shipping products, kiting and assembling products if necessary  
  • Managing recurring subscription boxes (if applicable) 

 

Advantages  

Scalability: With the expertise and resources that 3PLs have, they can optimize the logistics needs of companies, for example, to grow in new areas with much less effort, clearing the path for enhanced business growth.   

Time and cost savings: Since 3PLs focus on everything included in logistics, they have the resources and time to continuously update and improve their services, such as software and specific training for their employees. These can be cheaper than a company that manages all the costs to keep up with the latest logistics. 3PLs can also free up key employees to focus on manufacturing, strategic planning and operational processes that enable business growth. 

Expansion: There are two ways of expanding, first within the country, like other states, for example, from the west coast to the east coast. This can be easier with a 3PL, as they tend to have distribution centers and warehouses closer to your end customers. And the other is to expand internationally, which can lead to many hurdles and additional costs if carried out alone. Most 3PLs have distribution centers and warehouses with accreditation to provide global services, making expansion more accessible. 

 

Disadvantages  

Loss of control: Working with 3PLs can be beneficial, as already mentioned, but at the end of the day, they are an outsider of your company, so you entrust control and responsibility to them. This is a disadvantage because your company has no last say in all matters. Sometimes it can be challenging to get the attention you seek, as your business is not the only one they work with. Decisions by 3PLs directly affect customer satisfaction, so brands need to ensure that the 3PL they choose is suitable for their business needs.   

Upfront costs: Yes, using a 3PL can save you costs in the long run, but you should be aware that there are considerable costs to start. For example, if you already have an internal logistics team, making the switch leads to upfront costs for your business. Make sure these costs do not limit your business. As if it did, it might be better to wait until you are financially more stable. Another aspect to remember is that your business has little or no influence on the partnership between 3PL and a courier. If this agreement is not cost-effective, it could impact your business. 

Transparency and communication: When working with a 3PL, you not only give out control of your logistics, but now you also have a middleman to deal with if you have problems and need to communicate to get the information you need. As a brand, you would have to make sure you work with a reliable company that has a simple communication process with brands. So, if any logistics problem arises, you do not have to wait for answers. Remember that poor communication can lead to obstacles to smooth supply chain operations.   

Syncing up systems with a 3PL provider: It is usual for two companies to work with different designs and have their way of working. Integration can initially seem complex, but if done correctly, this is just a short-term disadvantage. Before working with a 3PL, you should consider interoperable technology and even a person from your company who knows IT well to make this process smoother.  

 

As can be seen, working with a reliable 3PL company can bring your business benefits, which could be more time-consuming and expensive to do alone. On the other hand, there are also disadvantages when deciding if third-party logistics is suitable for your business.   

Now, when it comes to the international expansion of your brand, that is where BorderGuru comes in to assist your business in achieving its goals. Since Hermes Logistics powers us, we offer a cross-border solution that eliminates the disadvantages you may face selling internationally. Even if you work with a 3PL, we can integrate into their business model and become a strategic partner to your brand.    

Contact us now to help you achieve your international sales goals!

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