Third-party logistics (3PL) providers have become increasingly popular over the years, as companies look to outsource logistics operations to improve efficiency and reduce costs. The return on investment (ROI) is an important aspect of any business decision, and it is especially important when considering the use of a 3PL partner.
Using a 3PL can be an effective way to improve operational efficiency, reduce costs, and increase customer satisfaction. However, it is important to measure if the type of 3PL you choose is the right fit, to ensure that the costs associated with the service outweigh the benefits.
By learning how to calculate the ROI you can better gauge the potential benefits of working with a 3PL. Below are nine metrics that you can use to measure if working with a 3PL is helping your bottom line.
Cost Savings
One of the most important metrics when measuring the ROI of using a 3PL is cost savings. Companies typically outsource logistics operations to reduce costs, and measuring the actual savings achieved is crucial. For example, a 3PL can help a company streamline its supply chain by consolidating shipments, reducing transportation costs, and increasing supply chain visibility. Additionally, a 3PL can leverage its established relationships with shipping carriers to secure lower rates and provide more efficient delivery times. Ultimately, these savings can be passed on to the customer, resulting in cost savings for the company.
Companies need to compare the costs of using a 3PL with the costs of in-house logistics operations. These costs can include transportation costs, warehousing costs, labor costs, and inventory carrying costs. By comparing the two, companies can determine the actual cost savings achieved by using a 3PL.
Time Savings
Another important metric to consider when measuring the ROI of using a 3PL is time savings. Managing logistics can be time-consuming and require significant resources, including personnel and technology. By outsourcing logistics operations to a 3PL, companies can free up resources and focus on other core business activities. A 3PL can help save time in logistics by providing a comprehensive range of services, such as freight forwarding, warehousing, and more. By outsourcing these services to a 3PL, companies can reduce the time and resources they have to invest in logistics operations, allowing them to focus more on their core business activities.
To measure time savings, companies need to compare the time spent on logistics operations before and after outsourcing to a 3PL. This can include time spent on order fulfillment, inventory management, and transportation management.
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Service Levels
Companies typically outsource logistics operations to improve service levels, whether it is faster delivery times, improved order accuracy, or better customer service. One way a 3PL can help improve service levels is by streamlining the order fulfillment process. The 3PL can provide dedicated personnel to manage the entire process, from order entry to shipment tracking, which can help reduce the amount of time it takes to get orders to customers.
Additionally, a 3PL can provide customized solutions that can be tailored to meet specific customer needs, such as same–day delivery services or customized packing and shipping options. This can help improve customer satisfaction by providing faster and more reliable order fulfillment.
To track service levels, companies need to establish key performance indicators (KPIs) that are relevant to their business. For example, a company may measure order accuracy, on-time delivery rates, or customer satisfaction levels. By tracking these KPIs, companies can determine whether the 3PL is meeting their service level requirements.
Inventory Accuracy
Inventory accuracy is a crucial metric to consider when measuring the ROI of using a 3PL, particularly for companies that rely heavily on inventory management. By outsourcing warehousing and inventory management to a 3PL, companies can improve inventory accuracy and reduce the risk of stockouts or overstocks.
One example of how a 3PL can improve inventory accuracy is through the implementation of RFID tracking technology. RFID (radio–frequency identification) is a tracking system that uses radio waves to identify and track tags that are attached to items. By using RFID technology, 3PLs can accurately monitor the location and quantity of inventory within the warehouse. This can help to reduce the number of lost or misplaced items, as well as improve inventory accuracy by providing real–time visibility into the exact inventory levels. This can also help to reduce the amount of time spent manually counting items or doing physical inventory checks, as the RFID technology can provide an automatic record of inventory.
Companies need to compare their inventory accuracy levels before and after outsourcing to a 3PL. This can include measuring cycle counting accuracy, inventory shrinkage, and inventory carrying costs.
Flexibility & Scalability
Companies need to be able to adapt to changing market conditions and scale their operations to meet growing demand. By outsourcing logistics operations to a 3PL, companies can benefit from the flexibility and scalability offered by the 3PL’s infrastructure and resources.
A 3PL can improve flexibility and scalability by allowing businesses to outsource their supply chain and warehousing needs. For example, a company that sells a product online may find it difficult to keep up with fluctuating demand and handle peak order periods. By outsourcing to a 3PL, they can easily scale up their inventory and warehouse operations to meet these demands. The 3PL can also provide a flexible and cost–effective solution for the company’s shipping and logistics needs.
Businesses need to assess their ability to respond to changing market conditions and measure the scalability of their logistics operations.
Sustainability
Consumers are becoming more environmentally conscious, and companies need to be able to demonstrate their commitment to sustainability. By outsourcing logistics operations to a 3PL, companies can benefit from the 3PL’s sustainability initiatives and reduce their environmental impact.
Monitoring the 3PL’s sustainability initiatives and assess the impact on their own sustainability metrics is important to measure sustainability. This can include recycling programs, incentives to use sustainable packaging, using solar energy, and working with shipping partners who emphasize green transportation methods.
Increased Efficiency
By leveraging the expertise of a 3PL, businesses can increase their efficiency and productivity in managing their logistics and supply chain operations.
A 3PL can improve efficiency for a consumer goods company by helping them manage their inventory levels more effectively. The 3PL can provide the company with access to a larger network of warehouses and distribution centers, reducing the need to maintain their own. Additionally, they can help the company manage their inventory more efficiently by providing more advanced tracking and reporting capabilities, allowing them to accurately predict demand and adjust inventory levels accordingly. This improved efficiency can help the company reduce costs and improve their customer service levels.
This can be measured by comparing the amount of time and resources spent on logistics and supply chain tasks before and after outsourcing to a 3PL.
Improved Customer Service
Businesses should consider the impact that a 3PL can have on their customer service. By providing better customer service and faster delivery times, businesses can improve their customer satisfaction and loyalty.
A 3PL could offer a customer inventory planning services that would help the customer meet customer demands quickly and accurately. The 3PL could also provide customer support services such as 24/7 customer service, order tracking, and returns processing. This would help customers get the products they need quickly and with a higher degree of customer service.
The impact of a 3PL on customer service can be evaluated by comparing customer satisfaction ratings before and after outsourcing to a 3PL.
Brand Reputation
Businesses should also consider the impact of a 3PL on their brand reputation. This includes analyzing the 3PL’s customer service, the accuracy of their shipments, and the speed of their deliveries. By leveraging a 3PL‘s expertise in inventory management, a brand can better forecast customer demand, reduce stockouts, and reduce the number of customer returns. This in turn can help improve customer satisfaction, leading to higher customer loyalty and a stronger brand reputation. Looking at these metrics, businesses can determine if the 3PL is having a positive impact on their brand reputation.
Bottom Line
Measuring the return on investment of a 3PL is an important part of making an informed decision about whether or not to outsource certain logistics and supply chain tasks. By looking at the cost savings, time savings, increased efficiency and productivity, and improved customer service that a 3PL can provide, businesses can make an informed decision about whether or not to outsource their logistics and supply chain operations.
Ultimately, each business should take the time to analyze the cost savings and customer service associated with a 3PL, as well as their overall impact on efficiency and brand reputation. By taking the time to measure the ROI of a 3PL, businesses can ensure that they are making the best decision for their organization.
If you are looking for a 3PL partner to work with we would love to hear from you. You can read DCL’s list of services to learn more, or 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, Sustainability
