Generally speaking, outsourcing is a prevalent and extensively used way to reduce costs and improve various company processes. Thanks to the collaboration with an external partner that’s specialized in a specific area, you can save lots of time, preserve your workforce, and save some money as well. Today, however, we are going to be more specific and examine logistics outsourcing. What is this business model all about? Which logistics services can be outsourced? And what are the pros and cons of working with a Third-Party Logistics (3PL) company? Let’s find out!
If you run an online store, you’ve got a lot on your plate. After all, you have to manage your entire supply chain, build lasting customer relationships, cooperate with diverse service providers (carriers, packaging suppliers, etc.), not to mention the entire back-office and management services. And, on top of all that, there are logistics services, which happen to be absolutely crucial in every e-commerce business.
Indeed, running an online store is no cakewalk! Customer expectations are growing every month (in 2019, 62% of customers in the US described express shipping as the main factor in a positive digital experience), the competition is at your heels, and online marketing is truly a never-ending story. That’s quite a lot to think about, right? And while we can’t help you with online marketing, at least for now, we can help you with outsourcing logistics services.
What is logistics outsourcing?
In general, opting for the logistics outsourcing business model is based on cooperation with a Third-Party Logistics (3PL) company. Such an external partner typically runs their own warehouse and provides all the relevant logistics services for their clients. That’s why these companies are frequently referred to as fulfillment centers or logistics centers. Omnipack is that kind of company. If you’d like to find out what our work looks like, we invite you to read this article about order fulfillment.
Logistics outsourcing is based on providing all the necessary logistics services for your online store, and this service typically consists of:
- Supply chain management
- Managing logistics-related service providers and suppliers
- Dealing with warehousing, organizing, picking, packing, and shipping products
- Tracking orders and their fulfillment
- Facilitating inventory management through the chosen Warehouse Management System (for example, at Omnipack, we use Logifact)
Pros of logistics outsourcing
When it comes to the pros of logistics outsourcing, there are several elements we’d like to turn your attention to:
COST AND TIME SAVINGS
For starters, you don’t have to run a warehouse! That’s a massive relief for your corporate bank account. With logistics outsourcing, it’s the fulfillment company that’s fully responsible for inventory management and storing products. But no worries! You can always quickly verify the status of inventory and the quantity of available stock. And we don’t have to tell you that logistics takes time. A lot of time. With us, it’s all off your shoulders so that you can focus on growing sales.
A COST-EFFECTIVE SOLUTION
When you decide to work with a 3PL company, you automatically turn all the fixed costs into variable costs. That’s because you don’t have to pay for unused space or services, hire warehouse workers, or even run a warehouse, for that matter. When working with Omnipack, there are no hidden costs. Every month, you receive a clear settlement comprising all the services you utilized in a given month. Cost-wise, it’s the most effective logistics strategy.
YOU CAN GO GLOBAL!
Thanks to logistics services outsourcing, you can easily scale your online business. For us, there’s no difference in fulfilling 1,000 or 10,000 parcels per month, and our warehouses are fully prepared to handle large volumes of parcels. Omnipack opens the way to cross-border shipping, even on a global scale.
UP AND RUNNING IN NO TIME
Perhaps you’re wondering how long it takes to get everything set up. In most instances, it takes less than a month. Thanks to the ready-made integration with almost every eCommerce platform, both Polish and international, our logistics centers can quickly start their work. Are you after sales on Amazon or Allegro? That’s perfect; we can integrate with these platforms as well.
FULL CONTROL OVER THE LOGISTICS OPERATIONS
Logistics outsourcing doesn’t mean that all these logistics services happen without your participation or that you can’t control what’s going on with your inventory and orders. We give you access to our WMS system so that you can easily keep track of all your orders and their processing. Moreover, products are packed and labeled according to your guidelines and requirements, for instance, with the use of custom branded cardboard boxes. You can manage subscriptions, share tracking information with your customers, and offer additional services, like express shipping.
Cons of logistics outsourcing
Naturally, logistics outsourcing is not a flawless solution. There are some cons of working with a 3PL company, and you ought to be aware of them before making a decision.
TRANSFER OF RESPONSIBILITY
You have to realize that there is some sort of responsibility transfer. When working with a 3PL company, you transfer a significant part of your customer relations and communication to that company. And if anything goes wrong, for example, an order mix-up, it’s your store that’s to be blamed, not your logistics partner. That’s why it’s so vital to make well-informed decisions and pick a reliable partner.
YOUR LOGISTICS ARE ONLY AS GOOD AS YOUR FULFILLMENT CENTER
This point is closely associated with the previous one. And yes, in the previous sections about pros, we told you that you maintain full control over the process, and that’s true. But the process itself can only be as good as your fulfillment company. If there’s a delay, you can’t do anything about it. Our advice? Verify the selected 3PL company’s error-free rate before you sign the dotted line. Bear in mind that our rate is currently 99.92% :-)
If so far you’ve managed all the logistics processes in-house, you will surely perceive logistics outsourcing as a cost generator. However, keep in mind that, at some point, dealing with logistics on your own becomes unbearable and time-consuming. That’s why we always say that logistics outsourcing is a solution for large and medium-sized stores that ship at least 1,000 parcels a month.
Who should opt for logistics outsourcing?
For obvious reasons, there is no closed list of online stores that should opt for logistics outsourcing. However, as our experience indicates, this solution is for you to consider when you simply can’t afford to deal with logistics in-house.
There is a specific breaking point for many companies: When they start shipping more than 1,000 parcels per month.
TWO EXAMPLES OF ONLINE STORES
In order to make this decision more straightforward, we decided to show you two examples of hypothetical online stores. One shouldn’t outsource logistics, at least at this point, and the other one definitely should. Take a look at these examples:
❌ Example 1
Imagine a small online store that a handmade jewelry blogger is running. Let’s say they make jewelry themselves, and each piece is unique–a typical handicraft. In their store, they usually have 20-100 different products simultaneously, and the number of orders fulfilled each month does not exceed 100. Furthermore, because each piece is handmade, there is a significant rotation of products in this store. In such a situation, logistics outsourcing is NOT a good option. Such a store owner can easily manage logistics internally and working with an external company will only create unnecessary costs and complications.
✅ Example 2
In our second example, we want to show you a toy store. This store has a wide range of products, and they usually don’t change over time, although, from time to time, some products are withdrawn from the offer, and new ones are introduced. Because this store has an effective marketing agency, they sell more products every month. Recently, they’ve passed the 1,000 parcels milestone, and the future forecasts are nothing but optimistic. This company should surely consider logistics outsourcing, simply because soon they won’t be able to handle all the logistics operations themselves. In such a situation, a Third-Party Logistics company is a necessity.
Choice of a service provider
As we already noted, the right choice of logistics service provider is critical in this entire endeavor. You have to find a reliable company that will be able to grow with you and support you, even if your logistics needs go up.
In order to find a reliable partner, follow our six-step process:
- Do thorough research
- Compare offers and read online reviews
- Ask other online business owners; they will indicate candidates worth considering
- Make a shortlist of three to five companies and talk to each one of them
- Ask them as many questions as you can, and assess the quality of the answers you get
- Compare the scope of the service and prices
If you run a dynamically growing online store, logistics outsourcing is for you. We do realize that this one article is not enough to make a decision, so we have more articles for you :-) Take a look at some of our logistics-related blog posts. After reading them, you’ll have a thorough understanding of the order fulfillment service:
- All about fulfillment centers
- Fulfillment, cross-dock, dropshipping
- Optimize your supply chain
- Cross-border strategy for eCommerce
And if you are looking for a logistics partner, we are happy to help! Drop us a line, and discover all the benefits of working with Omnipack.