Why e-commerce businesses should outsource their warehouse to a 3PL provider

20 points on why online businesses should utilise the strength of third-party logistics providers. Adding the points together results in motives to team-up and avoid stress-factors.

Newspaper roll eye

(picture credit: Jenny W.)

If the “why” should be explained by numbers then the global third-party logistics market size value is expected to reach USD 1.56 trillion by 2027 with an annual growth rate of 8,3%. The market size value for 2019 was estimated to be USD 830.99 billion. Grand View Research

The trend speaks for itself and more companies go online. Storage is still needed for products also when it comes to services, nonetheless, a warehouse is needed.

The main approaches to outsource a warehouse:

  • Considering outsourcing
  • Finding a new warehouse
  • Expanding to a new market
  • Changing warehouse

It might as well be a combination of the above reasons, nevertheless, they are the result of a decision-making process.

The premise is to focus on the core business rather than to take everything on oneself. We have been in the situation ourselves. From those experiences, we have gathered findings that we would like to share with our network. We have identified 20 issues for e-commerce companies operating their in-house warehouse.

Here are the negative effects we have identified of not using a 3PL:

  1. Time-consuming
    • The warehouse is a part of the supply chain including its sub-components. The sub-components: receiving, shelving, picking, packing, and shipping (returning) include variables that can affect each other in a negative scope if one of them is out of sync. This can be multiplied by those factors so an extra effort is needed to resolve occurring situations. This process does not automatically prevent future cases so the focus is at risk as well.
  2. Cost-consuming
    • Running a warehouse includes fixed and variable costs regardless of owning or renting. This will affect the balance sheet’s liabilities (equity, long term debt, and current liabilities) in financial reporting. Disposable financial funds should neither be used at once nor bond to one account.
  3. Inflexible
    • The low and high seasons have an impact on the running business and how to avoid unnecessary costs. Like having too little or too much storage space. The seasonal environment should always be taken into account, however, most depend on having a smooth transition between the periods.
  4. Unscalable
    • A fortune or a trend in the market might be a possibility to scale up the business as long as the storage and the resources connected to the warehouse can lift the tasks. Otherwise, another business most probably will take the opportunity to scale up by far less work.
  5. Lack-of-expertise
    • Holding onto more of the supply chain means the focus will be divided. It is by far the best practice that comes from the industry that works on creating knowledge based on experiences and research: advances reporting, inventory management, logistic process visibility and monitoring.
  6. Undersupplied-resource-network
    • If not continuously developing networks then it will result in not maximizing the resource outcome. Therefore the cost of the services being used will not follow the efficiency development in the market. This also means that getting access to otherwise inaccessible resources as volume discounts and faster expedition times.
  7. Lack-of-Optimisation
    • It doesn’t automatically mean having an in-house warehouse that there is encouragement to develop and make the proper adjustments to each circumstance. This will also affect the rest of the supply chain and the risk of missing out on synergy effects.
  8. Technologically-backwards
    • A change in technology will influence the process of analysing the ideal option for any operation. The technologies are evolving exponentially and it is getting more complex e.g. robotic and labour automation.
  9. Out-of-date security regulations
    • Security regulations are regularly changed and updated by law and this includes e.g. ISO, C-TPAT, Customs, and FTC. If this is not managed then the business will not be able to proceed.
  10. Quality issues
    • There is no service guarantee that the logistics will be delivered on a satisfying service level without a promise. Without the need for tying up unnecessary capital on costly service standards.
  11. Customer service difficulties
    • Having an inhouse warehouse also requires to provide customers with wider and deeper service. Keeping them satisfied throughout the whole customer journey also when it comes to handling returned products.
  12. Scattered vision and business
    • If the focus is constantly drawn away from pursuing the vision then the business is at danger. The key performance indicators might be a warning sign but are not the solution.
  13. Negotiating disadvantages
    • The fewer parcel and courier companies agreements the weaker is the negotiation position when it comes to prices, terms and conditions. It also takes a certain amount of volume to use as a trade-in.
  14. CSR matters
    • Both as a proof of quality and branding then Corporate Social Responsibility matters now more than ever e.g. fuel- and emissions-reduction. Since this area also includes plenty of aspects that are not covered by the law yet then it is good to be upfront.
  15. Courier complexity
    • Using different parcel and courier companies often means having different service level agreements. This also includes DOT safety rating and insurance. Then it comes down to who decides the terms and conditions.
  16. Illogical distributes
    • It is irrational to operate a stand-alone warehouse if the end-customers are spread out. If not using the distribution networks the products are denied to be closer to the end-customer.
  17. Crises
    • Customers demand and wishes are changing during a crisis. This is followed by uncertainty of how to proceed in the best possible way. The financial side also plays an essential role when operating a warehouse.
  18. Standardisation issues
    • Packing and orders don’t always fit perfectly and this can result using unideal packing sizes. Furthermore, this also affects the unutilised packing cost and the parcel and courier shipping rate.
  19. Staff issues
    • Operating a warehouse to a certain extent means staff responsibility and therefore HR matters. If this is not managed properly then external stakeholders will seek influence on how the business is controlled.
  20. Tracking issues
    • Tracking can be an issue and especially if you need to use multiple parcels and courier track & trace systems. The assistance might only be a general online service and no dedicated human contact channels.

Conclusion

These 20 issues equal a minimum of 20 reasons why e-commerce companies should team up with a 3PL provider in the year 2020. The right 3PL providers are interested in your success and no company is an island. Being a part of business partnerships creates value for all involved parties and this is basic nature for symbiotic relationships. Together we can find the right solution and welcome to our network-family.

Stay up-to-date and connect with us on LinkedIn. We are friendly Vikings both when it comes to formally and informally meetings. Hit the “Lets talk” button so we can start our journey together. Glory and honour await us! Friendly regards, the Viking Consulting team

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