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The Different Reasons Small, Medium and Large Businesses Outsource to 3PLs

When people hear the word “outsource”, they tend to have a stereotypical image that pops in to their head of gigantic corporations hiring massive workforces in foreign countries. However, the reality is that outsourcing can be done by businesses of all sizes for a wide variety of reasons, especially in the world of logistics, in order to achieve an equally wide variety of benefits. In this article, we’ll take a look at some of the common challenges that businesses face at different stages of their evolution, and how leveraging an outsourced 3PL logistics provider can help solve the problems and set the stage for further success and growth.

Logistics Challenges Change as a Business Grows

Regardless of the nature of the product or service, small businesses often face common challenges when it comes to logistics. Since they are often dealing with a proportionally smaller customer base or volume of orders, they may not necessarily need their transportation resources to be constantly available. Some small businesses may only need to physically move product or supplies in stages, and not all day, every day. Warehousing and storage capacity are also common issues, with limited funds available with which to purchase or lease space. This limited space often translates in to great urgency when stock is depleted and rush shipments are required to replenish it.

In addition, small businesses often rely on members of their team to fill multiple roles depending on the needs of the business at any given time. It’s not unusual for some employees to be serving customers on a showroom floor at one moment, and the next be packing product and loading a truck for an urgent shipment. While the team member may be doing a fine job of both tasks, more often than not they are not as efficient as a trained specialist would be in one of those roles.

When a company is successful enough to grow to what is considered a medium-sized business, they usually reach a point where some of the usual challenges faced by small businesses are no longer a concern. However, they typically have been replaced by a new set of logistics issues to deal with. For mid-sized businesses, these challenges commonly include warehousing, which is a balancing act to avoid the opposing problems of under-capacity and over-capacity.

Mid-size businesses can also face challenges when seasonal changes in business cause order volumes to fluctuate between full truckload shipments and less-than-truckload shipments (LTL). This presents the problem of inconsistent transportation costs and can add a great deal of unpredictability, especially as the business may choose to expand to serve new markets or geographical areas.

Large companies, such as corporate franchises and enterprise-level organizations, are still not immune to some of the challenges faced by small and mid-size businesses, but also must be wary of many other factors that can impact the success of their logistics efforts. Cost savings is a major concern to businesses of all sizes, but when you begin dealing with multiple international markets, dozens of physical locations, massive warehousing requirements, and round-the-clock transportation of goods, this factor takes on a whole new level of impact. Logistics costs for some large corporations can hit a high percent of their overhead, so any opportunity to achieve greater efficiency is worth seriously considering.

Another major logistics factor that has substantial effects on large businesses is the consistency and reliability of their logistics operations. When dealing with large volumes of products, it’s absolutely critical that each and every shipment is delivered in the same manner, with the same level of care and attention in order to ensure the most consistent end-user experience regardless of where the final sale is made. Logistics has a much bigger impact on customer satisfaction than many people realize, and because of this it is often one of the most underestimated facets of many businesses. On the plus side, this also means it is one of the biggest opportunities, if your company is willing to invest in the right things to take advantage of it.

No matter the size or scope of your business, there are many advantages to be gained by partnering with a third-party logistics (3PL) service provider. These advantages may differ based on the nature of your industry and the type of products or services you provide, but in the end, they are too valuable to ignore.

Small Business Benefits from Outsourcing Logistics

There are many benefits that small businesses can realize through 3PL logistics. A few of the more notable benefits include ability to leverage flexible on-demand storage and warehousing, alleviating the pressure of having limited storage space in your facility. 3PL companies also enable same-day shipping, as well as fulfilment and inventory management for e-commerce businesses.

Mid-size Business Benefits from Outsourcing Logistics

In addition to all the benefits that small businesses can realize with 3PL services, mid-size companies also have the ability to utilize warehousing resources in distant locations in order to better serve growth segments or emerging markets. E-commerce companies are particularly fortunate when it comes to leveraging 3PL services to handle packing, shipping, and even returns in a scalable and flexible way that works with the ebb and flow in your seasonal business cycle.

Large Business Benefits from Outsourcing Logistics

For large businesses, the benefits of 3PL service have never been clearer to see than they are today. Warehousing, transportation, and human resources all carry substantial costs with them, and 3PL providers offer greater efficiency, reliability, and flexibility to meet the varying needs of large businesses. Providing a consistent customer experience through all stages of distribution, including final mile delivery, has never been more important, and choosing the right partners can make a big difference.

Conclusion

While the reasons for choosing to outsource some or all of your logistics and distribution processes may vary from those of other businesses, it is clear that the benefits are substantial and that they can have a serious impact on the success of your business as it grows and evolves. However, just as there are many reasons to choose a 3PL service provider to help your business on its path, there are also many things to look for in a trusted 3PL partner.

The team at SCI is comprised of experienced professionals with the knowledge and expertise it takes to help your business make smart decisions for your logistics needs and help you achieve your short-term and long-term goals.

Contact us today to speak with one of our logistics experts and get started with a free consultation on how we can work together for the future success of your business.

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The Right Time to Outsource to a 3PL

When do Companies Start Thinking About Outsourcing?

As all companies grow, they must continue to evolve their business processes in order to stay successful. For many, this means focusing on manufacturing efficiency, for others it means improving the customer experience, and others may need to invest heavily in product development. Each company faces a unique set of challenges that are determined by many factors:

  • Company size
  • Market conditions
  • Technology
  • Customer needs.  

Because of this, each company will also reach different goals and achieve different benefits through outsourcing their supply chain or distribution services to a 3PL.

Understanding how your company stands to benefit from outsourcing, as well as identifying which specific tasks or functions make the most sense to outsource, will determine whether now is the right time or not.

Let’s now take a quick look at the different benefits that companies can achieve through outsourcing to a 3PL.

Benefits of Outsourcing to a 3PL

Of the numerous benefits that companies aim to achieve through outsourcing to a 3PL, the most common is cost savings. Outsourcing can allow companies to significantly reduce many types of costs, including labour, materials, overhead, transportation, and more. The scale of these savings varies depending on many aspects of the business, but for many companies that engage internationally, the savings from outsourcing to a 3pPLcan have a big impact on the bottom line.

Other companies obtain benefits from the ability to refocus efforts and resources on core values and activities. This is done by shifting internal resources away from functions that can easily be outsourced, such as warehousing or transportation, and reinvesting these resources in areas of the business that can have a much more significant impact on customer experience, product development, and other aspects that directly drive the growth of the business.

Seasonal industries that see dramatic surges in business are able to achieve much greater flexibility in meeting the demands of these cycles by bringing in additional resources through outsourcing to help manage the peaks. Once the surges have subsided, the temporary additional resources can then be released until the next surge when they are needed again.

Key Signs It’s Time to Outsource to a 3PL

While each company will have a different set of circumstances that prompts them to consider outsourcing, there are many common factors that these companies will see as outsourcing becomes an increasingly viable option for them.

Maintaining profit margins is a challenge for any business, but even more critical for businesses in fiercely competitive markets, or products that have notoriously thin margins. A common sign that a company may benefit from outsourcing to a 3PL is the continual erosion of profit margins and increasing costs. For companies that have tight budgets, outsourcing could be the right way to manage profit margins, as supply chain processes and distribution, when done in-house, contribute to a large portion of the overhead.

In markets where the workforce is not as plentiful as the company requires, outsourcing may be the only way to acquire the talent needed to drive the company forward. If a company is struggling to attract talent from the local area, it may be time to consider expansion through outsourcing to a 3PL that has established relationships with employment agencies and a greater volume of talent available to draw from.

Another potential sign that outsourcing could be a good move is if overtime is increasing in your facility beyond what should reasonably be expected. Outsourcing could provide a fast and effective way to reduce the load without adding excessive overhead or additional labour costs.

While this is not an exhaustive list of the factors that cause companies to consider outsourcing to a 3PL, it should give you a general idea of the typical warning signs to look for.

What can be Outsourced to a 3PL?

One of the most common ways that companies choose to improve their supply chain or distribution efficiency, and one of the easiest for many companies to implement, is outsourcing a variety of logistics services and tasks to a third-party logistics provider (3PL).

Shipping, warehousing, order fulfilment, packaging, and return logistics are all functions that can be managed through outsourcing. In addition, since many third-party logistics providers have resources in locations across the country or even globally, they can open up new markets that may have previously been unattainable.  Leveraging the resources of a third-party logistics provider can be a major benefit to companies that are struggling to achieve growth.

Decision to Outsource to a 3PL

The decision to outsource is not one that should be taken lightly, but at the same time it should not be shunned or discounted. If your company recognizes one, or several, of the warning signs we described then it may very well be time to consider outsourcing. It’s best to look at the trends your company has been experiencing, both internally and externally, in order to determine if now is the right time to make a shift.

By looking internally at factors such as profit margins and worker capacity, and overlaying these with trends in the market and competitive environment, it often becomes clear how things will keep going if nothing changes. Integrating some level of outsourcing can help companies reverse downward trends and improve their market position by helping to alleviate the pain points that are causing problems.

If your company recognizes these warning signs and pain points, contact SCI today and let our logistics experts help you with an in-depth analysis of whether outsourcing is the right move.

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