Practice Management

Partnering With 3PLs Delivers Benefits—If Done Right

Written by Tim Grant

Small distributors and manufacturers frequently operate on or near shoestring budgets, prompting owners and managers to seek ways to cut costs wherever possible.3PLS

One attractive way to reduce costs is to transfer responsibility to third parties to take over some aspects of the business that are not within the company’s area of expertise.

Pros of Partnering

Third-party logistics companies (3PLs) are one of these services. Traditionally, a 3PL would take over the warehousing and the picking, packing, and shipping of orders. More and more, 3PLs are also completing tasks more usually left to the client, such as light assembly and procurement. Some of these third-party logistics companies provide everything end-to-end, after the client makes the sale and creates a sales order.

For companies tight on warehouse space or labor resources, the 3PL fills an important gap. They take responsibility for housing the goods and manage the people filling the orders. This saves the client warehouse costs, as well as personnel costs for workers who would have to be hired and trained. Owners and managers see not having to worry about either the delivery of their goods or the costs involved in the process as a great benefit. The client can stay focused on sales, a more beneficial activity in their minds.

While budgets or limited resources might be the major motivator for companies, they may also simply want to transfer the responsibilities for these actions to a third party. Any company that has ever promised an order, only to realize the product was not in stock, understands the repercussions of not having a tight fulfillment process.

Maintaining Control Is Critical

But along with giving up responsibility comes giving up control, and that’s where companies fall into trouble. Just because the goods are located somewhere else doesn’t relieve the company of responsibility for making sure the orders are being fulfilled. Having a trusted 3PL partner is crucial for maintaining the company’s customer service levels.

Third-party logistics companies vary greatly in their levels of service in both fulfilling orders and communicating back to their client regarding inventory levels and fulfillment targets.

Two 3PL Company Profiles

One example of a company providing exclusively 3PL services is ITS Logistics, out of Reno, Nevada. The company started in 2003 with just three partners, but has grown into a multi-million dollar transportation and fulfillment center serving many clients in the Western states, including Starbucks. ITS handles clients with as few as 10 orders a month, up to the large blanket and clothing company, Aden and Anais, with upwards of 6,000 orders per month, according to Amy Huffman, ITS warehouse customer service support representative.

The company’s massive 650,000-square-foot warehouse is tightly organized. According to one of the floor personnel, the company is already looking for an additional offsite location for overflow of client orders because of steady business. Warehouse workers use Radio Frequency devices for tracking goods coming and going, and for slotting pallets.

“Streamlining processes helps with efficiencies,” Huffman says. “We can process orders quickly with fewer people involved.”

She also pointed out how ITS’s emphasis on reports to and communications with clients is a key to staying ahead. The company provides an online portal for their clients to the warehouse management system that ITS uses. The client can download reports in Excel or PDF format. When ITS receives a shipment, an auto email notification is sent to the client when the receipts are posted. Huffman explains that a lot of their auto-generated reports go out daily, weekly, and monthly—including stock status reports. This is important information for the small distributor to use and update QuickBooks accordingly.

Another national 3PL is Shipwire, an Ingram Micro brand. This company also leverages cloud-based fulfillment technology to track movement of clients’ goods, pointing to its “Powerful fulfillment technology to connect supply to demand, globally.” One strong area of Shipwire’s expertise is in serving retail companies. On its website the 3PL encourages clients to “leverage technology that enables retailers to manage thousands of suppliers to a unified customer experience.”

While Shipwire does not connect to QuickBooks directly, reports can be exported in a spreadsheet format and then imported into QuickBooks as inventory adjustments and sales transactions.

 Shop ‘til You Dropship

Performing your due diligence on potential 3PL partners is critical. There are literally hundreds of third-party logistics companies out there, and service levels vary widely. Creating a relationship, moving (and tracking) all of your goods, and maintaining inventory visibility are all important and potentially expensive. What is involved in “unwinding” such a relationship should also be considered careful in advance.

ITS Logistics’ Huffman suggests asking a lot of questions of your provider beforehand, including: “How do we submit orders? How do we schedule inbounds? How are day-to-day operations communicated? What reports are provided? How will the invoicing look? What are the hours of operations?”

Checklist for 3PLshird party logistics companies

Also utilize the following due diligence checklist:

  • How long is their track record? How long have they been in business?
  • Do they serve your industry’s products?
  • What is the formal receiving process at their location? Are items scanned?
  • How many clients does the 3PL support? Are they near capacity?
  • What level of support do they provide?
    • Warehousing
    • Fulfillment
    • Assembly
  • How do they inform you when you’re out of stock?
  • Are they responsible for damage and/or theft, and at what level are you compensated?
  • If there are assembly or manufacturing processes, are there any outsourcing or other outside processes handled by another party involved?
  • Similarly, are any components purchased by the provider on the client’s behalf, or components received from third-party suppliers in the assembly process? If so, how are those components recorded and tracked for the client?
  • What condition is the warehouse(s) in? Is there security on the building?
  • Is the provider insured? How do you get compensated for product loss?
  • How frequently are reports generated? In what form and at what times do they come out?
  • How often is a cycle count taken?
  • What does the shipping process involve? Is it manual or automated? Who pays the shipper—or is that included in the service fee?
  • How is the client notified that products have been shipped to the customer?
  • Can they connect directly to QuickBooks? If not, how will their information transfer into QuickBooks? Via Excel or csv-file format? Some other way?
  • Who do you call if there is a problem?
  • What are their hours of operation?
  • What is their pricing, and how does it compare to that of others?
  • How would you “disconnect” from them if the service turns out to be inferior? Is the agreement long-term or month-to-month?

Takeaway

Employing a third-party logistics company can be a great aid to a small warehousing or manufacturing company. It can save space and money. When shopping for a provider, however, consider all the conditions involved in bringing in a third party. Like hiring a new employee, if due diligence is not performed it can end up costing you more than you save.


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About the author

Tim Grant

Tim Grant, MBA, is the President of Business Solution Providers in San Francisco, California. BSP specializes in third-party inventory and manufacturing software products that integrate with QuickBooks. The company provides Needs Assessments to businesses looking for an inventory or manufacturing software solution. Once a choice is made, the BSP team can provide setup, training and implementation services to sync the company’s goals with the capabilities of software.

Tim has practiced public and private accounting for over twenty years in the service and manufacturing industries. He is an advanced-certified QuickBooks Pro Advisor, and a member of the Institute of Management Accountants, the National Advisor Network and The Sleeter Group.

2 Comments

  • Great article Tim,

    The Sleeter Group has been very happy with our local 3PL partner for over 20 years. http://www.acutrack.com is a fantastic resource, located in Livermore, CA. They provide everything from printing to packaging to manufacturing services as well as warehousing, assembly and fulfillment. They also are tech smart and can directly integrate their systems with the customer’s shopping cart solutions.

    A great organization like this makes all the difference in the world for small businesses who don’t have the space or staff to handle all the logistics.

    I’ve always recommended that small business focus on their key strengths and partner or outsource the rest.

    • Thanks Doug. Yours was a good example of, ‘…If Done Right.’ I’ve seen a lot of those relationships fail because the business owner didn’t ask the right questions beforehand, and thought employing a 3PL would be the, ‘magic bullet’ for streamlining operations and cost savings. Some have turned into either nightmares or differing expectations. As you probably did, ask all of the right questions before going in, so you know what to expect even before that first package is sent off. If you do, then it can be an awarding, and profitable, relationship.

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