When it comes to small businesses and startups, one common question is why would they choose to pay to outsource their fulfillment to a third-party logistics provider (3PL) at such an early stage of their operations. Might it make more sense to try and handle fulfillment yourself and instead allocate that capital towards business growth, marketing or sales?
At first glance it might seem more cost effective to try to manage fulfillment yourself, yet once you analyze the many factors associated with fulfillment services, the choice might not be as obvious. Operating and managing a growing business involves wearing many hats—and sometimes success comes from offloading important responsibilities, even if the initial costs might seem onerous.
Partnering with a 3PL can be a great asset in helping startups manage order fulfillment and other facets of building a product company.
What is Third Party Logistics (3PL)?
A third party logistics company will take on the supply chain operations, and all the aspects of a product company that involve getting products to customers. At the most basic level this includes receiving, warehousing, picking, packing, and shipping services.
Some 3PL companies also provide other logistics services, referred to as value-added services, which might include inventory management, kitting and assembly, postponement packaging, and others. 3PLs are often experts at all-things logistics, because it is their singular industry to streamline the process, make it simpler, quicker, and more cost effective for their customers.
“Partnerships are paramount to the success for startups, and even though that’s what most startups would say, that’s not how they behave. They tend to default to relationships with 3PLs and supply chain partners that are ‘arm’s length’—they tend to view relationships as transactional.”
Why Logistics are Important to Startups
Most startups have their key personnel focused on product development, financing, marketing, and sales, as these are the major operations necessary for getting any startup off the ground. Few startups have personnel with logistics expertise, presenting a gap and a sizable risk. A 3PL can help small business fill that gap by acting as an extension of your team, giving a startup a leg-up to becoming an established business.
The most important thing for a startup to consider when outsourcing logistics to a 3PL is to find the right provider with services that specifically help their brand now and in the future. You want to stay with your 3PL for a long time, so a provider who can scale with you is imperative. Here is a comprehensive list of questions to take to your prospective 3PL.
Ways Working With a 3PL can Benefit Startups
Cost Savings
While it may not be apparent at first, a startup can recognize costs savings from outsourcing their fulfillment needs to a 3PL. It’s a common for a startup to management the fulfillment at the start to give them the opportunity to get a hands on approach of the fulfillment process as they can get a better idea on how to optimize it. From identifying the right packaging to getting direct feedback from customers by managing returns, it’s important a startup has an hands on approach at the beginning. However, as the startup scales and order volume goes up, it may make more sense to outsource their fulfillment needs to save time and money.
Here are some of the primary ways a startup will save money by outsourcing to a 3PL:
- Shipping discounts – by working with multiple sellers, a 3PL can leverage their buying power to get bulk discounts from shipping carriers. They then pass these saving onto their sellers.
- Warehouse and labor savings – managing a warehouse and a team can be extremely costly, especially if you don’t have predictable order volumes or space needs. A 3PL will only charge you for what you use and in the long run, this can save you a significant amount money.
- Materials – 3PLs tend to work with multiple vendors when sourcing their materials, including boxes and labels, and by having these vendors compete for their business, it drives the costs down which they will pass on those savings to their sellers.
- Expertise = limiting your mistakes – by hiring an experience 3PL, they can help guide you through the process to ensure you take the most efficient, cost effective route when managing your orders.
Inventory Management
As order volume increases you might find yourself struggling to keep track of all of the inventory that is coming and going. All successful startups face growing pains like this, and mistakes are bound to happen as you try and keep up. The reality is that while some customers might forgive a late order, a wrong item, or accidental mis-directed package, most will not. To prevent these errors from happening (and losing business) a 3PL can provide services to help manage the flow of your inventory. An experienced and reputable 3PL will have systems in place to track your inventory using barcodes and scanners, provide you with simple insights and a way to follow your orders from warehouse to customer. By minimizing errors, you will see a growth in customer satisfaction.
Customer Service
Managing their customer base is often one of the biggest struggles for startups. There are bound to be unhappy customers, and the ways you provide for them will either turn them off forever, or win them over to come back for more. A 3PL can provide reliable and organized services that will replenish stock, get deliveries out to the customers on time, and report real-time information to management. Plus they can help with return-logistics which is often the more difficult aspect of the supply chain. They can do all of this in a cost-effective manner, so you get the most out of your investment.
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Dedicated Account Managers
Many 3PLs have a team of dedicated account managers to help with any issues that might arise during the onboarding process as well as throughout the time that you work with them. Whether it’s troubleshooting IT issues, proactively identifying problems, or providing more streamlined systems, it’s key to have someone accountable for your business and a single point of contact. The responsibility of the account managers to help keep things in order, proactively communicate with you, tackle and fix problems on the fly, and most of all, keep your customers happy. Think of the customer service team as an extension of your own team and company.
Scalability
All startups share the common goal of growing in a way that they build a lasting business. A 3PL can help provide you with the ability to scale by providing flexibility that meets your business and operational needs. Because they have fulfillment centers that are capable of holding massive amounts of inventory they can allow you to expand without having to worry about managing and operating your own facility. Additionally they can maintain fulfillment of your products while you iterate and innovate new products and versions. An established 3PL will also help guide your startup into new sales channels, whether they be online platforms or brick-and-mortar stores, or even a broader customer base such as international shipping. A good 3PL will also help you whether seasonal demand much better than you are likely to on your own.
Technology and Metrics
Real-time access to order data is imperative for startups to stay relevant in their marketplace. Using advanced metrics provided by a 3PLs fulfillment software, you can help to eliminate guesswork when making future decisions for your startup. Customized metrics, such as revenue of orders shipped by day, sales by channel, peak fulfillment times, plus sales and quantity of orders, can help a startup make more informed decisions. Warehouse management systems (WMS) as well as transportation management systems (TMS) can be a great way to gather insights that boost growth and help set better benchmarks. Modern 3PLs should equip your startup with all the data and technology to get you to your next business goal.
Bottom Line
With the right 3PL, startups can provide their customers with the best-in-the-market ecommerce buying experience. Managing your day-to-day operations is a difficult enough task, especially as your business grows. Partnering with a 3PL provider can allow you to stay on top of your core business functions while at the same time allowing you to grow sales and cut costs in the long run.
Are you a startup looking for a 3PL to work with? 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.
