Unlocking Business Growth: The Power of 3PL Logistics for Entrepreneurs
Published on December 06, 2023
Did you know that over 90% of Fortune 500 companies rely on third-party logistics (3PL) to streamline their operations?
This study by Armstrong & Associates highlights the fact that giant companies are entrusting 3PLs with their shipping operations.
And it’s working! But, would it also be worth exploring for smaller businesses? Maybe the ones like Melanie owns?
Wait. You might be wondering — Who’s Melanie? Is she using 3PL for her business? And how can her story inspire your business growth?
Ah, that and a whole lot more are exactly what you’ll find out in this article by Buster Fetcher®.
So buckle up! Today, we’ll explore the power of 3PL and how it can be a game-changer for small business owners like you!
Meet Melanie: The Visionary with Growing Pains
Are you ready? Now, I want you to meet Melanie — a successful entrepreneur who started her small business of eco-friendly diapers from home. Melanie got this brilliant idea when she was pregnant with her little girl.
And you know what? That idea literally changed her life. She had no clue that her garage would soon turn into a giant diaper warehouse!
At first, her business was booming. Melanie was receiving orders from everywhere as her customers increased. But as the orders started piling up, serious problems did as well.
Melanie’s garage is overflowing with diaper supplies. She lost control of her inventory and her customers’ orders. She committed more and more mistakes which led to low profit margins and customer satisfaction.
Simply put — Melanie was overwhelmed and at the same time, exhausted. She usually spends incredible hours in the garage preparing and shipping her orders!
Melanie’s problem is something that a lot of small business owners would relate to, especially startups! In fact, 50% of SMEs (Small and Medium-Sized Enterprises) fail in their first year, often due to logistical challenges.
But hey, don’t worry. You don’t have to become part of that sad statistic. There’s a solution, and it’s one that actually worked for Melanie! It’s called 3PL.
The 3PL Solution: From Chaos to Clarity
From our point of view, we can all agree that Melanie needed some help to fix her chaotic situation, right? Well, should she hire more employees? Buy the latest packaging equipment? Transfer to a larger facility to store her diaper supplies?
Those could work, but Melanie opted to use a far better and long-term solution for her diaper business. She chose to embrace 3PL.
The results? Outstanding. Her shipping process became more efficient, fewer mistakes were committed, and a remarkable jump in customer satisfaction was noticed! This only reflects the fact that 80% of shippers in 2023 found success with 3PL.
Stay tuned because this could also be the solution your business needs!
What is 3PL Anyway?
Alright. Now that we know what 3PL can bring to the table for small businesses, how does it work? How much does it cost? How do you choose the right 3PL partner? Let’s find out.
We’ll start by explaining what 3PL means — Third Party Logistics. Basically, it refers to companies that provide end-to-end logistics services including storage, order fulfillment, and delivery for other businesses. It's important to understand the distinctions between different storage and fulfillment facilities that 3PLs may utilize, such as warehouses versus dedicated fulfillment centers.
For Melanie’s case, a 3PL partner could help manage her diaper inventory better, prepare the orders for shipping, and handle the delivery of the products.
Hey, it feels like you could already hear a sigh of relief from Melanie, right?
Breaking it Down: 1PL, 2PL, and 3PL Explained
But to explain the concept behind 3PL even further, let’s break it down into even more detailed examples. The number 3 from 3PL represents the number of links in the supply chain.
So to fully understand, let’s start from the first and second links — 1PL and 2PL:
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1PL: It’s a self-reliant company that independently manages all of its logistics and shipping processes instead of outsourcing them. The company uses its own transport vehicles, warehouses, and packaging equipment to run the distribution of products.
A great example would be a catering business that personally delivers its products to customers. This means that the company handles the preparation, packaging, and delivery of the food.
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2PL: It’s a business that might own the goods, but hires or rents external logistics solutions, such as shipping carriers to deliver the products to customers.
If you think about it — Melanie’s situation before she upgraded to 3PL is a perfect example of a 2PL company. She does most of the tasks on her own!
She stores the diapers in her garage, processes the orders, and partners with carriers like Canada Post, FedEx, UPS, and Purolator to handle the delivery of the products.
And that’s why she was overwhelmed in the first place.
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3PL: A 3PL company hires a third link to handle the business’ logistics activities such as storage of merchandise, packaging of products, and delivery to shipping carriers.
If you’re Melanie, the only thing left for you to do would be to manufacture eco-friendly diapers and that’s about it. No need to worry about costly errors and unhappy customers anymore.
And the best part? Melanie now has more time and space in her garage!
Beyond the Third Party: Introducing 4PL
But hey, although 3PL seems to be an already formidable strategy for businesses out there, handling your logistics could go a step even further.
After all, speed and efficiency have now become more important than ever, especially since we’re all living in a fast-paced world!
Introducing — the fourth link. 4PL or Fourth-Party Logistics not only manages products but also delves into optimizing the entire supply chain network, from suppliers to end consumers.
A 4PL provider typically offers more strategic oversight and coordinates all the resources, capabilities, and technology of an organization's supply chain. Allowing you, and your business, to maximize your productivity and profitability.
Personally, I wouldn’t be surprised if the majority of businesses in the coming years will soon turn into partnering with 4PL companies!
What Are the Benefits of Collaborating with a 3PL?
We’ve seen from Melanie’s story that collaborating with a 3PL company indeed changed her business for the better. A lot of valuable benefits came into play, which helped her focus on another business factor that matters most — growth.
Here are four benefits of collaborating with a 3PL for your company:
1. Time-Saving: Redirecting Your Focus from Boxes Back to Business
Entrusting 3PLs with your logistics allows you to redirect your valuable time and energy to the core of your business — the products, the services, and the customers.
Handling and managing everything on your own usually eats up a huge chunk of your time. Time that you could’ve used to maintain the quality of your products, the reliability of your services, and the satisfaction of your customers.
With 3PL, you can now focus on not only maintaining these crucial factors for your business but also improving them for the overall performance of your business!
2. Cost-Efficiency: Transitioning from Static to Dynamic Costs
Partnering with 3PL also lets your business become more cost-efficient. How? By turning fixed costs into variable costs. What do I mean? I’ll give you an example.
Let’s go back to Melanie. We know that she was struggling to contain and manage all the diaper supplies within her garage, right? Let’s say that she decided to move to a much bigger warehouse to solve her problem.
This would also mean that Melanie has to pay much bigger fixed costs of electricity bills, heating, taxes, rent, and manpower every month! These are indeed a heavy burden on her shoulders on a regular basis.
But by utilizing 3PL, Mélanie would only need to pay for her business’s actual needs. Why? Because you only pay for the space you occupy and the number of orders you process.
If your sales are higher during the holiday season, then you would take up more space. But if your sales decrease, you may end up taking a little less space. As simple as that!
3. Competitive Edge: Rivaling the E-commerce Titans
With the help of 3PLs, SMEs can now easily compete with the bigger players in the world of e-commerce such as Amazon, Walmart, and Alibaba.
Why? Because 3PLs have partnerships with several carriers and businesses to streamline your overall logistics process. This means competitive shipping rates with fast and efficient delivery for your business!
3PLs leveled the playing field for e-commerce businesses all over the world. And it gave you and your business a chance to shine with the stars!
4. Flexibility and Scalability: Customization for Your Unique Business Demands
The best part about 3PL is it can seamlessly adapt to the course and flow of your business operations. This enables you to plan what strategies work best for upcoming events and circumstances!
Whether you're gearing up for a seasonal sales spike, managing returned products, or navigating a slow month, 3PLs can help you customize your system based on your business demands.
During these challenging times, 3PL can help your business minimize its losses and maximize its gains. And if you ask me — that’s something I wouldn’t miss out on!
How Much Does 3PL Cost? Exploring The Financial Landscape
Now that we’ve explored everything that 3PL has to offer for your business growth, the golden question still remains — how much does it cost?
Let’s face it. Partnering with a 3PL company definitely incurs expenses for your business, and these might even be bigger than you expect! But hey, utilizing 3PL can be a profitable investment for your business.
Just look back at all the benefits you can enjoy, it has the potential to allow your profits to multiply exponentially for years to come!
So instead of giving you actual numbers, I’d rather explain the factors that affect the expenses of working with a 3PL company. Let’s divide the overall cost into four main categories:
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Product Reception & Storage: Of course, you’ll pay for the space your products will occupy in the warehouse. As well as the 3PL employee needed to receive, store, and maintain these packages.
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Order Preparation & Execution: You’ll also need to pay for the 3PL employee needed to receive the orders, prepare the products, and ship the packages. On top of all these, that person will also ensure that everything is done properly and smoothly to ensure customer satisfaction.
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Mastery in Inventory Management: Someone who’s in charge of managing your inventory will also be needed. Ensuring that no product is ever out of stock or overstocked!
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Shipping & Delivery: Finally, the carrier who will handle the shipping and delivery of your products also needs to get paid. And how much that cost depends on the shipping volume and carrier you choose!
How to Choose the Perfect 3PL Partner for Your Business
Keep in mind that a 3PL provider that functions seamlessly with another company might not be the perfect choice for your business. At least not immediately because it doesn’t work that way!
Here are some key questions you can ask the 3PL provider to ensure you’re a perfect match:
- Do they have experience with your product type? A 3PL provider with a proven track record in managing clothing companies may not be as good at handling food, beverages, or electronics businesses.
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What inventory management systems are they using? Managing your inventory can be the most challenging task of your business — just look at what happened to Melanie! So it’s important to know what inventory management system they offer and how it minimizes errors as much as possible. Is it done manually? Or automated with the latest technology?
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Are they compatible with your e-commerce platform? Of course, it would be a huge plus if they support the e-commerce platform you’re using. Are they compatible with WooCommerce, Shopify, Magento, and such?
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Do they have acceptable error rates? Hey, you would only want what’s best for your business, right? So I encourage you to aim for a 3PL provider that offers less than 0.1% error rate!
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Do they have enough resources to support your growth? Your number one goal as an owner is business growth, right? So it’s only fitting to search for a 3PL provider to support you in the long term!
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Do they offer insurance? Is insurance coverage included within the package that the 3PL provider will offer you? This could be crucial especially if you have large shipping volumes and high-value products.
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Where is the warehouse located? If your business is located in Ontario, then it’s absolutely best to choose a 3PL provider with a warehouse in Ontario as well. Why? Simple. The closer your products are to your customers, the faster they will arrive!
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Which carrier will the 3PL provider use for delivery? For Canada, will it be Purolator or Canada Post? For the US, will it be USPS? Or for both, will it be FedEx or UPS? What are the delivery times, do they offer same-day or next-day deliveries? Does the carrier respect its guarantees?
When you consider all these key questions in finding a 3PL provider, there’s a high chance that you’ll be able to land a perfect match for your company!
Unlocking Business Growth with 3PL Logistics: Conclusion
So there you have it! We’ve explored everything there is to know and learn about 3PL. What do you think? Is it time for you to upgrade just like what Melanie did?
It’s important to understand that 3PL isn’t just a trend — it’s a strategic solution that allows Small and Medium-Sized Enterprises to play with e-commerce giants like Amazon, Shopify, and Alibaba.
And if your main goal is business growth, upgrading to 3PL could be the game-changer your company needs!
Oh, and here’s a bonus — if you’re a Canadian entrepreneur with an eye on European markets, I recommend that you try exploring Happy Colis. Just visit their website to learn more about how they bridge the gap in shipping between Europe and Canada.
Finally, to maximize your business growth and profitability through significant savings in shipping, Buster Fetcher® is always here to assist.
We’ve helped thousands of businesses across Canada and the US save hundreds of thousands of dollars in shipping costs. And you know what? You should be next! So make sure to get in touch by visiting BusterFetcher.com or contacting us directly at 1-844-311-3088.
With our proven track record and expertise in helping companies save money on shipping costs, winning the shipping game isn’t just a possibility. It’s a promise.
References
Global Third-Party Logistics Market Size & Share Report, 2030
Relationship Between Cost and Logistic Practices in Small and Medium Enterprises: A Case Study of Queretaro, Mexico
3PL Customer Satisfaction Levels Drop by 7%, Says Annual Report | CSCMP's Supply Chain Quarterly
https://www-statista-com.conestoga.idm.oclc.org/statistics/638368/us-third-party-logistics-market/
4PL Logistics Market Size Global Report, 2022 - 2030
How 3PL Can Help Your Business - Meteor Space
3PL Market - Third Party Logistics - Size & Industry Trends
Third-Party Logistics Study +
Happy Colis
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