5 Ways 3PLs Can Save You Money

One of the biggest benefits of working with a 3PL? Cost savings.

Thanks to their economy of scale via shipping volumes and warehousing space - not to mention access to labor-saving fulfillment technologies - 3PLs are well-positioned to offer both large and medium-sized brands considerable cost savings across wholesale, retail, and e-commerce fulfillment.

But that's not all: These cost savings open the door to more effective scaling and enhanced growth opportunities for the brands that are willing and able to make this investment.

As simple as this may seem, there are a lot of factors that contribute to savings in these areas. In this blog, we've provided a more in-depth look at the five areas where a good 3PL partner can help you save money in order fulfillment.

1.Shipping and freight

Any experienced 3PL you work with should be able to save on freight and shipping costs in a few different ways:

Volume discounts

3PLs can negotiate discounted freight rates with major parcel carriers like USPS and FedEx due to their massive total buying volumes. This means that your business benefits from lower shipping costs that are calculated using a much bigger multiple than your actual shipping volume.

Moreover, shipping rates are often augmented with accessorial charges that may include fuel surcharges, peak season surcharges, and rural delivery fees. 3PLs can often pass along lower accessorial charges to their customers because they can leverage their higher aggregate shipment volumes.

Real-time rate comparisons

Sophisticated 3PLs will have freight rate shopping software in place that allows them to compare rates between multiple parcel carriers in real-time to find the best deal. This means that for every order you receive, your 3PL is able to determine which of its carriers provides the least expensive rate to ship your order.

Ryder E-commerce By Whiplash uses its in-house SmartRate Selection tool to compare rates between dozens of domestic and international carriers. By analyzing a brand's order history and customer information, Whiplash can design the optimum shipping strategy that balances cost and speed.

DIM Weight

All major parcel carriers use 'dimensional weight' as a pricing model to calculate the cost of freight. DIM weight determines the "minimum" weight of a box based on its dimensions. This ensures that lightweight but bulky packages are priced according to the space they take up, not by their actual weight.

DIM weight is calculated by multiplying the width, height, and length of a package and dividing this by the 'DIM factor' being used by the carrier i.e. the volume of a package allowed per unit of weight. 3PLs can negotiate a better "dimensional denominator" due to their shipment volume, therefore reducing the cost of DIM weight for their clients.

Cartonization

Closely connected to DIM weight is your brand's cartonization strategy. Top-tier 3PLs will use advanced technology to capture the weight and dimensions of all your products to determine the optimal packing strategy to minimize box size and weight.

For example, a box that is 12" x 12" x 12" may be assigned a DIM weight of 10 lbs. If a product requires a box of this size but only weighs 3 lbs, you still get charged for a 10 lb parcel. Multiply this by hundreds of parcels, and you end up paying thousands more in shipping costs than necessary.

When 3PLs use cartonization, information on product size/weight is used as orders are processed to ensure the smallest possible packaging is used for each order. This lowers both your actual and dimensional weight so that you're saving as much money on shipping as possible.

2.Fulfillment centers

Operating a fulfillment center is a costly undertaking; pallet racking, forklifts, conveyor systems, pack stations, warehouse labor, and more require a significant upfront - and ongoing - investment. A good 3PL partner eliminates this requirement by putting both physical and technological infrastructure at your disposal:

Infrastructure and equipment

Brands that store merchandise and fulfill orders from their own facilities incur large expenses, both from the facility itself and the equipment and utilities required to efficiently operate.

However, this expense doesn't go away after the initial purchase or lease of commercial real estate; as consumers look for ever-faster e-commerce delivery services, merchants need to continually invest in their infrastructure to keep up with customer expectations.

A 3PL incurs these same expenses but can spread the cost across all of its clients. This means you're only responsible for a small fraction of investment, as opposed to absorbing it all by operating your own facility.

Storage space

How much space is the right amount of space? Every business is striving to grow and plan for demand accordingly, but even the best growth plans can be delayed or accelerated by unexpected events.

The simple answer is that you may find yourself out of capacity and absorbing a huge amount of lost sales, or otherwise paying for a lot of capacity you don't need.

If your business is leasing storage space independently, you have far less flexibility over the amount of space you're paying for. Private facilities will often lock you into a fixed amount of space for a minimum period of time, meaning that your storage space cannot fluctuate with the natural rhythms of the sales cycle i.e. higher demand in the lead-up to the holiday season.

Because 3PLs operate both multi-client and single-client facilities, they have the ability to allocate additional space to merchants during peak season on an as-added basis, as well as to customize storage space extensively to fit the needs of individual brands. This keeps storage costs down and ensures that you're only paying for what you need.

Ryder E-commerce by Whiplash operates 24 state-of-the-art fulfillment centers across the United States, giving our customers choice and flexibility over where they fulfill their orders to lower their shipping and holding costs.

3.Technology

Today, a forward-thinking 3PL isn't simply a center for picking, packing, and shipping; it's a technology provider whose job is to streamline your overall business operation.

Any reputable 3PL has made a significant investment in its technology stack. This is in part to ensure their own operational efficiency (leading to client savings) and also to provide valuable insights to their clients regarding inventory, freight,, and other performance metrics.

Warehouse Management System (WMS)

A WMS is the nerve center of your fulfillment operation. It tells you how much inventory you make, how many orders are outstanding, and what packing orders are currently in place. In sum, without a WMS, your business has next to no visibility over what's happening at a given moment.

However, a WMS is a very expensive investment for medium-sized businesses and requires a significant onboarding process to use effectively. Partnering with a 3PL that can offer you their own WMS as a fulfillment service is much more convenient and takes the pressure of upkeep, software updates, and onboarding off your business.

Ryder E-commerce By Whiplash offers its customers the use of the Whiplash platform, an advanced fulfillment automation solution that brings together inventory management, order management, and shipping optimization into one intuitive interface. Monitor inventory levels, set custom packing rules for your orders, and track outbound shipments for a data-driven approach to fulfillment.

Software integrations

Every business wants to understand the details of its operation and make informed decisions as a result. However, far fewer have the in-house expertise to create and implement the systems to help accomplish this.

Working with a good 3PL partner gives you access to an ecosystem of cutting-edge, pre-built integrations with other business intelligence and operations management tools to help you analyze data and manage your business accordingly.

The Whiplash platform offers native technology integrations with some of the biggest e-commerce platforms in the market, including Shopify, Skubana, ChannelApe, and more to make e-commerce fulfillment as seamless as possible.

4.Labor

Any business knows that labor is one of the biggest expenses a company has. Similarly to fulfillment center and shipping costs, 3PLs can spread their labor costs across multiple clients, therefore creating significant cost savings for clients.

Overheads and benefits

People need to be paid a fair wage for the work they do, and they want a benefits package that includes (at minimum) health insurance, paid time off, a flexible work schedule…and more. This is a significant expense for every company but working with a good 3PL removes this burden from your operations. As industry experts, 3PLs know how to attract - and to retain - the best people. In period of record labor shortages for the logistics sector, labor is quite possibly one of the biggest cost savings that businesses will get out of 3PL partnerships.

Seasonality

Most businesses have an element of seasonality to them in terms of consumer demand, which means varying labor needs throughout the year. Nobody likes to downsize their workforce, nor does anybody like being short-handed. A 3PL eliminates this burden by "flexing" its labor force across clients throughout the year, which means you always have (and only pay for) the correct amount of labor to satisfy your order fulfillment requirements.

5.Avoiding opportunity costs

It's important to acknowledge that not all costs are strictly financial. In fact, it's often the investments thatdon't get made that end up costing more than those that do get made.

Opportunity costs may be less tangible than some of the expenses we listed above, but they can amount to some of the biggest cost savings that come from partnering with a 3PL.

Opportunity costs refer to the loss of a potential gain that comes from choosing a certain course of action. For example, the COVID-19 pandemic proved to be a period rife with opportunity costs. The brands and retailers who pivoted quickly in this landscape put themselves in a strong position to capitalize on changing consumer needs and habits. Those that didn't miss out on a once-in-a-generation growth opportunity.

In a retail setting, many of these opportunity costs are closely tied to fulfillment. Why? Because without the right support and resources, brands can't scale effectively.

Choosing to practice in-house fulfillment may appear more cost-effective than outsourcing, but self-fulfillment comes with a variety of opportunity costs that can hurt your business in the long run. Brands that don't have access to scalable labor and storage space, automation technologies, or discounted shipping face mounting fulfillment costs and time management issues as order volumes increase.

Remember: A business's bandwidth is finite. The more time and resources are taken up managing logistics, the less there is to go towards initiatives that boost sales or refine brand positioning. Ultimately, this results in brands stagnating and being unable to stay ahead of the competition.

Partnering with a 3PL is an investment not just in your fulfillment operation, but in your brand's future success. The 3PL industry was born in part from the opportunity to centralize, streamline, and provide cost-effective warehousing and order fulfillment services at a scale that brands struggle to achieve independently. Removing the burden of managing a fulfillment operation allows companies to focus on their growth strategy and magnifies the financial benefits of working with a good 3PL partner.