Start up 3PL

Should a Startup Consider Using a 3PL?

Category:3PL

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.”  

On Tap Consulting Andre Neumann-Loreck, Founder

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.