Often, people automatically think that controlling every area of their business is the best way to save money. If you want it done cost effectively you do it yourself, right? That’s not always true. In fact, by outsourcing your warehousing and shipping to a 3PL company, you can save a substantial amount of money. Where most companies make the mistake in the analysis is by failing to look at all of the costs and benefits – missing out on important considerations because they’re not on top of mind. But by factoring for every cost component, 3PL outsourcing really does provide an effective way to eliminate the headache of performing the storage and shipping while at the same time saving you money.
Expansion and Retraction of Warehouse Space
Many businesses often find that one part of the year business booms, then other times of the year orders just trickle in. If you invest in your own warehouse space, you may find that you have too little or too much warehouse, depending on the time of the year. Paying for a warehouse that doesn’t fit your needs year-round is a waste of money. 3PL providers can scale to meet your current needs. Furthermore, when you lease the warehouse yourself, your business (and most likely “you” as the small business owner through a “personal guarantee”) is on the hook for fulfilling the agreement. By outsourcing, this risk is avoided.
Warehouse Supplies Costs
Most frequently, when comparing the costs of outsourcing warehousing versus in house operations, companies do a fairly good job of anticipating hard costs associated with cartons and other packaging materials. However, frequently companies forget to consider other warehouse supplies costs that, when totaled over a year, can amount to a sizeable amount of money. For example, some of the more commonly forgotten supplies costs include: shrink wrapping, warehouse computers and other equipment, software programs, paper and labels, and many others. These costs can easily add up to $2,000 to $5,000 per year, and can cause faulty conclusions if unaccounted for in the analysis.
Terms Provided by 3PL Companies
When you run your own warehouse, you’re responsible for directly paying these costs. Some of these costs, such as labor for employees, has to be paid quite frequently – oftentimes every two weeks. However, many 3PL firms will grant you “terms”, oftentimes invoicing you monthly and giving you a certain period of time to pay your bill. These terms help improve your cash flow cycle, and by paying one company for all of the costs associated with warehousing, your payables management process is streamlined.
Opportunity Costs for Management
Of all of the costs in an in house versus outsourcing analysis, owner and management “time” related to warehouse and shipping management is typically the most under-represented. Usually, businesses forget to incorporate the time spent managing the process, or they simply under-estimate the total actual time spent. And this cost can be quite significant, considering that managers and owners are the highest paid members of the team most likely. So in order to make it a completely “fair” analysis, it’s important to get an accurate estimate for the amount of time that is spent by management on the warehouse function. Furthermore, figure out how much value could be derived if this time was spent on a more “value” producing activity, such as sales and marketing. This isn’t meant to minimize the importance of the shipping function, but it is a more easily outsourced function, which then allows management to spent time in other areas.
As you can see, there are many ways going with a 3PL provider can save you money, short-term and long-term. Before you sign a warehouse lease, make sure you’re not passing up a great opportunity by going with a 3PL provider instead.