Article written by Brian Barry
No one knows what the business environment will look like after the coronavirus subsides, or what the “new normal” will look like. Considering the potential bankruptcies of large and small businesses, especially brick-and-mortar retailers, we believe businesses that emerge strong will have a huge advantage during the 2020 holiday season and beyond.
One thing for sure, at the heart of ecommerce fulfillment is the reliance on labor. Even if your ecommerce business has remained open, chances are you’re operating at a much higher cost and not providing the order turnaround time customers desire. OSHA and CDC regulations, while imperative for employee safety, have forced changes in operations and decreased productivity.
After the pandemic, what will labor availability be like? Labor had already been in short supply in many markets. Depending on what you read, COVID-19 may have a resurgence this fall and winter. Then there is a question of when the workforce will return and be stable. For now, many hourly workers receiving unemployment and stimulus payments have higher “income” than before.
For many ecommerce businesses, even absent the pandemic, a profitable Christmas season makes or breaks the year.
During the shutdowns, many 3PLs have remained open, serving clients as an integral part of their supply chain, even amid the labor challenges. Should you continue internal fulfillment or move to a 3PL? Can they provide a better platform for your current order fulfillment and growth?
Here are 7 major ways you can benefit from using a 3PL for your ecommerce fulfillment:
Reduced Cost Per Order
A 3PL can provide a lower cost per order when compared to internally managed operations. This isn’t always true, but often works for SMBs that don’t have four season businesses.
The larger order volume 3PL facilities can be more efficient. They often have the volume to cost justify technology such as voice picking, WMS, material handling equipment, sortation and conveyance systems to increase efficiency. Additionally, 3PLs can often get better shipping rates through volume discounts with carriers.
A Fully Loaded Cost Comparison
Lower capital investment: If you were planning fulfillment center expansion or major investments, selecting the right 3PL partner may help you reduce or avoid capital outlays for new or upgraded facilities and systems, saving it for other critical projects.
Changes fixed costs to variable costs: For internal fulfillment, more than 50% of the total costs is labor. It requires fixed investment in facilities, equipment and IT systems irrespective of the transactions processed. Using a 3PL, the cost of fulfillment rises and falls based on order volume processed.
Reduced time to customer and shipping costs: Customer purchase decisions are highly influenced by the delivery time and shipping cost. Would multiple fulfillment centers give your company more competitive delivery times and lower shipping costs? You can learn more here about ways to evaluate expansion of your ecommerce fulfillment network.
Scalability for Growth and Peak Volume
During the holiday season, some of our clients have a 10:1 or higher order ratio compared to off-peak. 3PL fulfillment can eliminate the time-consuming effort and expense of recruiting, hiring, training and managing hourly seasonal staff.
As your ecommerce fulfillment business grows, a 3PL can scale up to increase staff and product storage capacity. Additionally, you have to be sure your managers can handle higher volumes and often need to pay more to retain them.
Focusing Management Time, Priorities
A 3PL allows companies to concentrate management time on marketing, merchandising, ecommerce analysis and developing new channels. Coming out of the coronavirus this will help you get back on your sales plan.
Here are three ways 3PLs have proven cost effective to implement and maintain complex systems and processes:
Big Box, Marketplace Compliance Policies
Companies like Amazon, Best Buy, Target, eBay, Walmart, Rakuten and others have stringent vendor compliance policies and IT requirements. Most SMBs looking to be multichannel have an elongated schedule and expensive implementation. Companies often choose a 3PL that already has these IT and process capabilities, rather than building the expertise and implementing systems internally.
Many multichannel companies use a 3PL partner to ship orders worldwide, both inbound and outbound ecommerce and multichannel orders. A 3PL with this expertise can be more cost effective in document preparation, and nimbler in keeping on top of ever-changing international rates, duties and customs.
Returns cost more than orders to process, issue credit and prepare the product for resale or disposal. If your ecommerce fullfillment operations have a normally high return rate, for categories like electronics or apparel, a 3PL can be a more cost-effective approach.
To learn more about determining your 3PL requirements read our blog.
A 3PL isn’t for every company. Considering the business disruption caused by coronavirus, it may be your best long-term tactic. Performing an objective, fully loaded cost/benefit analysis is critical. It is our prayer that your business, employees and family come through this crisis stronger.
Brian Barry is President of F. Curtis Barry & Company