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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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Supply Chain Outsourcing – Process & Expectations

Outsourcing logistics and supply chain services to a 3PL is a major decision, not to be taken lightly by any business. In this article, we’ll provide insights into the main processes, so that you have a better idea of what to expect, from making the decision through to services implementation.

If you’ve been considering outsourcing your supply chain services to a 3PL partner, your likely already aware of the benefits, including:

  • Increased reliability and/or scalability
  • Access to expert supply chain strategies & planning
  • Access to value-added logistics services (VAS)
  • Cost savings & continuous improvement

outsource inhouseWhen you are selecting a 3PL partner for your company, it is important to do extensive research. A few things to consider while evaluating potential service providers is who their current customers are, their expertise in servicing your business segment, and whether they are highly recommended by former/ or current clients or not. Explore their websites; ask your peers for opinions and recommendations to better evaluate your options.

Prepare to share information about the type of product, the number of SKUs, order volumes, the speed of delivery required, and other vital details. Explaining your business requirements in a comprehensive way will ensure that the supply chain providers will develop the best solution.

After contacting the narrowed list of 3PL companies, or issuing an RFP, allow adequate time for internal reviews of the proposals, including meeting with their business development and solutions teams, and touring the facilities.

Never make a decision based on price alone. There are multiple factors that make or break your supply chain, and sometimes the less expensive solution can wind up costing you much more in the medium to long run, such as not being able to support the growth of the business. The wrong decision can also impact customer experience, and even damage the reputation of your brand on the market – so be sure to look at all the aspects that will be directly and indirectly impacted.

Once you have chosen your 3PL partner, the first thing to be prepared for is a realistic timeline for the solution implementation. After holding the discovery sessions, defining the business requirements, and validating assumptions, the LOI and MSA’s are signed. Allow enough time for the 3PL company to lay out the facility design, install racking, automation, if any, find, hire and train talent, organize transportation, launch IT systems, establish processes, validate and test the IT systems and all the other elements that will be involved based on the project requirements.

Depending on the size of the logistics project, the solution implementation timeline can vary; however, it generally takes around 4 to 6 months to launch a new supply chain solution. During this time, it will be important to allocate plenty of time for on and offsite communications between your team and the 3PL partner. It helps to deal with a Canadian 3PL that has an agile and responsive team and can dedicate time for their executives to meet with your team in person. Frequent meetings in the beginning of the process are important to address any potential issues and mitigate any possible confusion along the way. During these initial meetings, the project team can also decide how they want to steer the project moving forward after all the critical points have been discussed.

expectations for outsourcingWhile your 3PL partner will take care of project management and provide experienced PM’s, expect your internal teams to be extensively engaged in the solution implementation. The 3PL company’s functional leads will work in close alliance with your internal teams, such as executive leadership or steering committees, the IT department, operations, and others as required.  For the project success, it is vital to engage an internal executive sponsor who will have the ability to re-prioritize other projects and get the cross-functional buy-in if any issues arise. This ensures that your internal resources are properly allocated to handle the changes. Changes in your existing supply chain will likely affect many areas of your business, and a proper change management process should be established and executed in order to ensure that all affected functions are fully aware of the changes and are ready and willing to accommodate the switch to outsourcing supply chain services.

Supply chain outsourcing must be thoroughly planned. It’s important not to plan implementation close to sales peaks, so be sure to navigate around key sales promotions and seasonality peaks. For example, if you are a toy or apparel retailer, some of the worst times to make the switch with your supply chain services would be: Black Friday, Cyber Monday, Christmas, and Boxing Week. If your company deals with school supplies, then the end of August and beginning of September should be avoided.

Ideally, the best time to choose for implementing any supply chain change would be the slowest period for your business. If your company has a steady flow of sales and no seasonality, then planning a strategic time of the year when your company does not have any other major projects going on would be a great choice for supply chain solution implementation.

If your company has planned to outsource the supply chain services to a trusted partner, and have taken into consideration everything in this article, you can expect a smooth integration, with fewer issues in the implementation process. Apply the 80/20 rule – 80% planning, 20% implementation and the outcome will be improved business results and more satisfied customers.

 

If you’re considering making the switch to outsource all or part of your supply chain,  contact the supply chain experts at SCI, and let’s see how you can benefit from partnering with us.

 

 

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