One of the primary reasons that ecommerce businesses and other companies outsource their warehousing, inventory management, and order fulfillment to 3PLs is to reduce logistics costs. A 3PL can help you decrease inventory, storage, shipping, and other costs across your end-to-end supply chain by improving the efficiency of your logistics operations.
When looking into outsourcing your ecommerce fulfillment, you’ll find there are many costs to consider when evaluating a third-party logistics (3PL) provider. And if you don’t understand these charges and what they’re for, it can be easy to get scared away from committing to a solution. But that will only leave you exactly where you are, whether that’s picking and packing yourself or dealing with managing a warehouse.
What is Third-Party Logistics (3PL)?
Third party logistics is outsourcing the supply chain operations and logistics to get a company’s products to their customer. The logistics solutions that 3PLs offer include receiving, storing, packing, and shipping services. Some 3PL companies also provide other logistics services, referred to as value added services. These include inventory management, kitting and assembly, postponement packaging, and others.
Because 3PL service providers have been managing these kind of logistics for years or decades, they have the expertise and leverage to make the process simpler, quicker, and more cost effective for the seller. The market for 3PLs providers has grown exponentially with the exponential growth of ecommerce. Most Fortune 500 (86%) companies and 96% of the Fortune 100 use services like these. 3PLs have also bloomed thanks to tracking technology, such as radio frequency identification (RFID) and global positioning system (GPS), both of which offer extended supply chain visibility. Meanwhile, internet of things (IoT) technology has improved tracking metrics for trucking and other carriers.
What are Order Fulfillment Costs?
There are generally several factors involved in 3PL costs, all of which individually play a vital role in the process and affecting your margins. Common order fulfillment costs vary by provider, 3PL pricing models, and any additional services. Some ecommerce brands might need to reduce fulfillment costs in a softer market. So what exactly are these costs?
Onboarding Costs
Depending on who you choose, your 3PL may charge you a fee for onboarding.
This charge in the process relates to integrating your business with the fulfillment solutions operations, and generally means connecting your online shopping cart to their fulfillment center, but it can also relate to setting up accounts and access, updating systems with SKUs, or integration and order testing.
Receiving Costs
Before any orders can be fulfilled, you first need to get your inventory into the warehouse. You’ll need to find a way to transfer stock from your current location to your new 3PL – which could be another fee, but taking acceptance of goods, more commonly known as receiving, is something companies will charge for. The charges will vary for this, such as per hour, by unit, carton, or pallet, and depending on the fulfillment provider. If you’re looking for ways to bring this cost down, often receiving charges will be less when you send it in via a pallet. It’s more consistent and allows the company to simply scan one pallet in, adding the predetermined volume of SKUs inside into the system.
Pick and Pack Costs
Picking and packing refers to what happens after an order is placed. It’s pretty straight forward, but you’ll be charged for each pick from the shelves, and then pack. There may also be additional pick charges if multiple SKUs need to be added to the order. This charge can vary per item, per order, or sometimes both.
Inventory Storage Costs
Most 3PLs charge for the storage space your stock takes up in the warehouse. These charges can range from pallet storage to individual bins or shelf spaces, and can be flexible depending on the length of time your products need to be stored, or how fast your inventory moves in and out of their fulfillment center.
Kitting Costs
Order kitting refers to the assembly of individual items into a set or kit. If you offer a promo or special deal for example that requires putting together multiple SKUs, that would have an additional charge. Sometimes referred to additional picks. If you include inserts, a personal card, or require other packaging requirements, it’s not uncommon to have a charge associated with it.
Shipping Costs
With any online order, you have to pay for shipping and this is no different when outsourcing your fulfillment. However shipping rates through a 3PL can be far lower than what you would be paying on your own. Many 3PLs partner with shipping carriers since they send orders in such high volumes, giving them the ability to negotiate lower shipping rates. Which can also mean reduced shipping costs for you and your customers.
Bottom Line
Every 3PL will have different charges but hopefully now you have a better view of what charges to expect. When choosing a provider, remember it’s not necessarily about finding the cheapest option. You’ll need to consider how the fulfillment partner meets your business’ requirements for branding, delivery options, and support.
There are many benefits to working with a third-party logistics provider (3PL), if you are seeking logistics support we’d love to hear from you. Check out the many companies we work with to ensure great logistics support. Send us a note to connect about how we can help your company grow.
Tags: Fulfillment Costs
