To 3PL or Not to 3PL?

Retailers may face significant challenges when expanding further into the online/e-commerce business. Some challenges may involve supply chain management issues.

One of the largest obstacles is developing an effective fulfillment strategy. When it comes to making this decision, it is advisable to review the possible benefits of using a third-party logistics (3PL) provider.

Self-performing fulfillment can be expensive and take time to develop. A professional 3PL fulfillment company can probably do the work better, faster, cheaper, more predictably, and safer than most retailers venturing into this new arena for the first time. 3PLs benefit from experience, economies of scale, and having a logistics network already in place. Of course, cost reduction is not guaranteed, and may not be realized. Every situation is unique.

Probably the biggest upside to utilizing a 3PL is that retailers don’t have to make a capital investment in real estate, material handling equipment, or transportation, and won’t have to commit to labor. This allows retailers to deploy capital elsewhere, and to keep a distance from labor, HR, and other risk-related issues. 3PLs also have the ability to get a fulfillment operation up and running in less time, whereas self-performing fulfillment takes time and capital to execute.

3PLs offer retailers the ability to scale fulfillment services up or down as needed, which is especially important for the holiday shopping season. Many retailers require a higher volume during certain times of the year. If a retailer self-performed its fulfillment, the low volume times of the selling season could lead to empty warehouse space, which is detrimental to the bottom line.

Using a 3PL also typically provides retailers with vital performance metrics, making it easy to track efficiencies and make improvements and changes as necessary.

Many major 3PL providers have developed the requisite skills to support e-commerce fulfillment. For some providers, e-commerce is their core business, sometimes amounting to upwards of 70 percent of gross revenue.

So, for retailers in need of improved fulfillment logistics, it’s worth it to weigh the pros and cons of self-performing versus hiring a 3PL. Modeling and expected cost differences, and understanding each 3PL’s capabilities and experience, are key to a successful outsourcing experience.

—Rich Hamilton is managing director and lead for
Cushman & Wakefield’s 3PL Specialty Advisory Group