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
- 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.