The demand for fast, free e-commerce deliveries has propelled retailers and brands to review their supply chains in earnest. In their efforts to gain control and visibility over their increasingly omnichannel businesses, we see retailers and brands investing increasingly larger amounts in improving their omnichannel fulfillment capabilities. From expanding their warehouse networks to investing in integrated order processing and fulfillment software to partnering with new-age last-mile carriers to expedite deliveries, the growing focus on omnichannel fulfillment as a competitive edge is unmistakable.
Let’s pause here for a moment. We now know that omnichannel fulfillment is way more complex than traditional bulk shipments between warehouses and stores. It’s commendable that retailers are finally giving omnichannel fulfillment the attention it deserves, but at what cost?
Typically, outbound logistics and distribution account for up to 10% of retailers’ annual revenues. For a fulfillment-driven retailer like Amazon, that figure is even higher; in Q3 of 2016, Amazon spent close to 15% of its revenues on fulfillment costs.
This may be a viable expense for a market leader like Amazon, but it could be prohibitively expensive for the average retailer that wants to match Amazon’s fulfillment benchmarks. Ditto, for any suppliers that provide direct-to-consumer drop ship fulfillment on behalf of retailers.
Enter 3PLs, short for Third-Party Logistics providers. These logistics specialists take on the operational hassles of direct-to-consumer fulfillment of retail orders, allowing retailers to focus on their core businesses. Typical services they provide include warehousing, picking, packing and shipping of packages. They may also offer value-added services such as returns processing, prepping incoming inventory for retail sale and inserting marketing materials in outbound packages.
But that’s not all they do. 3PLs can also help you cut costs, streamline your fulfillment processes and give your revenues a definitive shot in the arm.
Deliver Faster, Save on Shipping Costs, Improve Conversions
Retailers that sell online have caught on to customer demand for fast, cheap deliveries. With customers coming to expect e-commerce deliveries in two days or less, regardless of where they live, it is however a tall order for retailers to live up to.
Because transportation costs account for a significant proportion of fulfillment costs, rapid deliveries are least expensive when your products are close to your customers. But what happens when your customers are spread out across the country? To improve delivery speeds, many retailers have partnered with 3PL providers who have warehouses located throughout the country. By holding best-selling inventory in 3PL warehouses that are geographically dispersed, these retailers are able to fulfill customer orders more rapidly, without having to ship packages cross-country or expedite the shipping to meet their delivery promises. This in turn saves on shipping costs.
Another benefit of faster deliveries is higher sales. CommerceHub found that for every one-day reduction in the delivery promises made by retailers on our network, order conversion rates went up by about 4% per day. With a nationwide 3PL network, you can promise faster deliveries from coast-to-coast, in turn driving greater conversions.
Save on Operational Expenses with Economies of Scale
A typical 3PL provider services many retailers and brands for their varied order fulfillment needs. They have the pick, pack, and ship infrastructure, including the workforce and software designed to do one thing exceptionally well – fulfill retail orders. Given their deep specialization and the large volumes they handle, 3PL providers are often a lot more efficient at order processing than the average retailer. This efficiency translates into shorter order processing times, lower costs and faster deliveries.
Another big benefit they have going for them? More often than not, large volumes enable 3PL providers to negotiate for better shipping rates with carriers. When these discounted rates are passed on to you, your retail operations can realize some significant savings.
Manage Demand Surges Better
Seasonality in demand is a fact of life for many retailers. From specific product categories moving up and down the demand scales at different times of the year, to an overall surge in shopping volume during periods like the holiday season, managing demand surges can be complex and often expensive if not done right.
Partnering with a 3PL provider or a network of 3PL providers helps retailers meet demand fluctuations in a more consistent and efficient manner. Those retailers have the ability to rapidly respond to demand changes, helping them to net a larger share of the retail pie.
With their dedicated direct-to-consumer processes and infrastructure, 3PL providers enable retailers to capture more holiday and seasonal demand through the ability to offer a later order cutoff each day, as well as a later last order date leading up to major holidays. This way retailers are in a position to scoop up last-minute holiday sales that they might have missed out on if they had to depend on their own fulfillment operations. For example, being able to take orders up to 3PM and still ship the same day, or taking Christmas orders through December 23, can translate to increased holiday orders.
Similarly, a 3PL partnership helps retailers more easily reduce capacity during low demand periods, bringing down those all-important fulfillment costs.
Optimize Resources and Run a Tighter Ship
Order processing and fulfillment can be tricky, especially when you sell across multiple retail channels. Outsourcing your end-to-end order processing to a 3PL partner enables you to focus your resources on your core business instead, leaving the hassles of pick, pack, ship and more to the experts.
With a 3PL partnership in place, you no longer need to invest in setting up and maintaining a bunch of warehouses and the staff to operate them. You can avoid the massive incremental capital expenditure of leasing or owning and managing additional distribution centers, thus freeing up vital resources that can be plowed back into your core business, new strategic investments, or your bottom line.
With a Little Help from My Friends…
In today’s competitive retail landscape, every edge you have over competition can mean an extra sale (or a few thousand!). A 3PL partnership is an edge worth considering. Need help in getting started on your 3PL journey? Reach out to us and our order fulfillment experts will help you out.