To stay competitive in the ever-evolving world of eCommerce means constantly optimizing your business processes and allocation of time. One critical area where you can achieve significant cost savings is by reducing overhead costs associated with warehousing and fulfillment. Third-Party Logistics (3PL) warehouse services have emerged as a game-changer for eCommerce businesses looking to streamline operations and minimize expenses. In this blog post, we’ll explore how eCommerce businesses can leverage 3PL warehouse services to reduce overhead costs effectively.
One of the most important considerations is to understand and evaluate your current business situation and then forecast your business growth for the next three to five years. The first side of the equation we should consider are the hard costs:
Eliminating the Cost of Warehousing
One of the most substantial cost-saving advantages of partnering with a 3PL provider is the elimination of the need to invest in and maintain physical warehousing facilities. Traditional warehousing requires capital investments in infrastructure, leasing costs, insurance, property maintenance and utilities to name a few. By outsourcing your warehousing needs to a 3PL provider, you can redirect these funds towards growing your core eCommerce operations.
Reduced Labor Costs
Managing an in-house warehouse involves management salaries, hiring, training, and paying staff to handle various tasks such as order picking, packing, and shipping. These labor costs can quickly add up, especially during peak seasons. Managing the human resource costs will either take time away from you or require outsourcing the function or hiring internal staff. Seasoned 3PL providers have highly efficient, experienced staff trained to handle fulfillment operations, which can lead to cost savings through economies of scale.
Optimized Inventory Management
Overstocking or understocking inventory can lead to significant overhead costs in terms of storage, insurance, and obsolescence. A well-managed 3PL warehouse service can help you optimize your inventory levels through advanced demand forecasting and inventory management techniques. This can lead to reduced storage costs and minimized capital tied up in unsold stock.
Access to Advanced Technology
The cost of managing your own software can be quite expensive. 3PL providers typically invest in state-of-the-art warehouse management systems (WMS) and technology solutions that can enhance efficiency and reduce costs. By leveraging their technology infrastructure, you can benefit from improved order accuracy, faster order processing, and reduced shipping errors – all of which can contribute to cost savings.
Economies of Scale
3PL providers often serve multiple clients, allowing them to benefit from economies of scale. These cost advantages can be passed on to eCommerce businesses in the form of lower shipping rates, reduced packaging costs, and discounted shipping supplies. Leveraging these advantages can lead to substantial cost reductions for your eCommerce business.
3PL providers often have multiple warehouse locations strategically placed across the country or globally. This enables your eCommerce business to store inventory closer to your customers, reducing shipping costs and transit times. Moreover, it allows you to scale your operations without incurring significant costs associated with expanding your physical footprint.
Improved Customer Satisfaction
With the right 3PL, customer satisfaction scores go up significantly. Choosing a 3PL that integrates with your ecommerce cart platform and understands your technology is key (hint: make sure they are a 3PL for Shopify, 3PL for BigCommerce, 3PL for Magento, 3PL for WooCommerce or other cart platforms) so that order status and shipping data seamlessly communicates with your shopping cart in real-time. With reduced transit times, consistent execution of order output and improved inventory accuracy your customers will be more satisfied and more likely to return for additional purchases, provide positive reviews and have lower return rate.
Many eCommerce businesses experience seasonal fluctuations in demand. Maintaining a large warehouse year-round to accommodate peak seasons can be costly and inefficient. A 3PL warehouse service can offer the flexibility to scale up or down as needed, ensuring you’re not burdened with unnecessary overhead during slow periods. In other words, pay only for the space you need, when you need it.
The second side of the equation are the soft costs:
Focus on Core Competencies
Soft costs are more difficult to quantify in dollars and cents but are equally important. Soft costs aren’t as obvious; however, they consume your time and take away from doing other work. This is typically referred to as opportunity costs. Simply put, the opportunity cost is what you must forgo in order to do something else. By outsourcing your warehousing and fulfillment to a 3PL provider, you free up valuable time and resources to focus on your core competencies – marketing, product development, and customer service. This can lead to increased revenue and growth opportunities for your eCommerce business.
In the highly competitive eCommerce landscape, reducing overhead costs is essential for long-term success. Partnering with a 3PL warehouse service can be a strategic move to achieve this goal. By eliminating the need for physical warehousing, reducing labor costs, optimizing inventory management, accessing advanced technology, benefiting from economies of scale, optimizing location, and gaining seasonal flexibility, eCommerce businesses can achieve substantial cost savings and remain agile in a rapidly changing market. Embracing 3PL services not only reduces overhead costs but also enhances customer satisfaction through faster and more accurate order fulfillment – a win-win for any eCommerce business.
A final word of caution as you deliberate your forward plan. When evaluating moving to a 3PL provider, cost savings should be a given, but moving to the lowest cost provider can also create new problems that should be considered. Do your due diligence and consider the length of business of the 3PL, its reputation, their financial capabilities, and the structure of the ownership.
Download our cost-benefit calculator below to make it easy to determine if there is a benefit to using a 3PL.