Will a Third Party Logistics (3PL) Company Increase Profitability and Supply Chain Efficiency?
Are you considering outsourcing your freight logistics to a Third Party Logistics (3PL) Company? Not sure if it will make a difference to your bottom line? If logistics are not one of your company’s core competencies, then the answer is yes.
In this article we will discuss the four ways a 3PL can increase your profitability and supply chain proficiency:
• Reduce freight cost• Reduce labor cost
• Increase efficiency
• Improve supply chain
Reduce Freight Cost with a 3PL
A 3PL brings with it an existing network of valuable carrier relationships, which can save you an extra 10-25% off already discounted freight costs. The 3PL analyzes your current freight shipments and rates, and bids out the work to multiple freight carriers. An established 3PL will be able to negotiate much higher discounts than the manufacturer alone.
Think of this as if you were grocery shopping. You get a better price shopping in bulk at Costco than at your local Publix store.
In addition to these contract negotiation savings, a 3PL will catch cost saving errors freight audit and payment. In this process, the 3PL examines, adjusts and verifies your invoices for accuracy. They then issue the payment to the carrier on your behalf.
The best part is, there is no out-of-pocket cost to you. The 3PL is paid a pre-negotiated percentage of the savings. Your savings come from the increased discount from carriers, eliminating freight bill errors, and reducing your in-house payroll.
How a Third Party Logistics Company can Reduce Labor Cost
The other place you will notice a cost savings is on your payroll line. These savings typically come from the 3PL’s customer service team and technology capabilities.
The 3PL’s customer service team becomes a direct extension of your team. They take over the responsibilities of claims management, track and trace, expediting, data procurement, reporting, invoicing, and auditing.
All of these tasks alone consume hours of labor cost. The average cost of labor to verify, process and pay an internal freight invoice is $11. But, with a 3PL, this activity is only approximately 5% of that internal cost. Those activities alone save your company $10.45 per invoice.
Most importantly, outsourcing these tasks to a 3PL allows you to reallocate your resources and concentrate on what your company is best at: providing services and generating products.
Increasing Efficiency with 3PL Technology
One major advantage to working with a 3PL is their transportation management software (TMS). A solid TMS can save you time and money.
If your staff is currently pulling quotes from multiple carrier sites individually and then manually following up to place the pickup order, you’re wasting your resources. A TMS can instantly pull quotes from all of the national carriers, allowing you to know for certain that you are getting the best price possible. Once you select the carrier that works best for you, it automatically schedules that pick up for you.
Technology Capabilities to Improve Supply Chain
The technology that accompanies at 3PL can significantly improve a manufacturers supply chain in places other than just labor costs. If you find the right 3PL, they will have business intelligence systems that can output data to help identify inefficiencies in your supply chain.
For example, if your company’s shipments are sent directly from retail locations, your personalized dashboard can help you identify which location has errors which result in a loss. This information can be used to target specific retail locations that may need additional training or resources to rectify the problem and increase your bottom line.
Another example is top of the line track and trace capabilities. This software provides real-time updates on all shipments regardless of the carrier. With real-time updates, you can make decisions proactively based on where your freight is located.
Partnering with the right 3PL can free up your time and resources to focus on other important aspects of your business such as sales, marketing, and product development. If after reading this article you feel like a 3PL is right for you and your company and you’d like to reach out to us, click the “Contact Us” button below!
To learn more about how choosing a 3PL company can benefit your business, check out the answers to some of your most pressing questions on our blog.