Blog Posts 5 Ways 3PLs Cut Retail Logistics Costs
While competition from Amazon and a shift in consumer spending habits have undoubtedly played a role in the current wave of retail bankruptcies, they are not the only factors. A recent Bloomberg article points out that many retailers borrowed heavily after the 2008 financial crisis and are now struggling to repay their debt. Ecommerce companies are also under pressure as venture capital funding has dropped – by 44 percent in the last year alone.
To survive in today’s marketplace, retailers and ecommerce companies must sharpen their pencils and find new ways to control logistics costs. Third-party logistics companies can be a valuable resource in this regard. In fact, 75 percent of shippers say that using a 3PL helps reduce overall logistics costs.
Reduce Retail Overhead
3PLs offer financial flexibility and give companies the resources to retain supply chain strategies that might be difficult to handle internally. 3PLs can help to drive out costs in five critical areas of retail operations:
3PLs typically offer a choice of dedicated or shared-space facilities. A shared-space environment balances the needs of multiple customers so that they can meet peak requirements without having to invest in permanent space and equipment. It also offers the scalability to expand or shrink operations to accommodate business needs.
Having access to a 3PL’s established network of facilities is particularly valuable in today’s omnichannel marketplace. Successful retailers are strategically expanding their number of distribution centers – establishing more regional locations, opening smaller facilities like mixing centers and cross-docks, etc. The goal is to get closer to the end customer, move products through the supply chain faster and minimize transportation costs.
With strategically located DCs, 3PLs can help retailers to reach more than 98 percent of the U.S. within two business days via ground service. This allows them to achieve competitive customer service using economy shipping options.
3PLs’ established carrier networks give retailers the flexibility to choose the optimal mode/level of service for each shipment at the best price. 3PLs also can help retailers to pool parcel packages and take advantage of postal work-share options such as presorting and drop-shipping to help reduce costs.
Staffing multiple facilities while meeting escalating expectations for order accuracy, quality and timeliness put additional pressures on today’s retailers. Finding, hiring, and training reliable, qualified employees can be time-consuming and costly. Often, dramatic fluctuations in sales volume make the workload inconsistent. Such peaks and valleys can be hard to plan for.
An established 3PL will have a scalable pool of reliable, experienced workers at the ready. They provide the training, handle scheduling, and assume the overhead investment.
3PLs allow retailers to access an array of sophisticated technology solutions without the associated overhead investment. Order management systems (OMS), warehouse management systems (WMS), and transportation management systems (TMS) can help to increase efficiencies and reduce costs.
An effective order management system, for example, allows retailers to better allocate their inventory across multiple locations, so they don’t need to replicate every SKU in each location. Retailers can draw inventory from the optimal location to ensure the fastest and most affordable service.
5. Inventory Management
An experienced 3PL can also help retailers to take advantage of postponement strategies to optimize inventory. Value-added services like building gift baskets, inserting coupons, and assembling store displays can help to delay product configuration until the last possible minute to meet current demand. Building to order instead of to stock allows them to reduce production and inventory carrying costs. Moving product customization closer to the end customer also can help to shorten the cash-to-cash cycle.
The bottom line? 3PLs are well positioned to help retailers create efficiencies, streamline the supply chain and control logistics costs. Want to keep your business in the black? Talk to your third-party partner today.