How Outsourcing Your Supply Chain Can Save Your Online Retail Business
In 2000, Toys “R” Us signed what seemed like a lucrative deal. The toy giant would have exclusive rights to sell toys on the growing e-commerce site Amazon for a 10-year period.
Just 17 years later, Toys “R” Us went bankrupt, while Amazon has flourished into one of the largest companies in the world.
What Toys “R” Us hadn’t foreseen at the time was the future of sales. In the first quarter of 2000, e-commerce sales totaled $5.72 billion. In the first quarter of 2019, e-commerce has accounted for $137.75 billion in sales. E-commerce sales have consistently grown by more than 10% year over year.
Instead of seeing the potential growth of e-commerce, Toys “R” Us lazily stuck to brick-and-mortar sales, letting Amazon scoop up the online traffic. Ignoring the importance of e-commerce killed the toy giant.
Today, e-commerce makes up over 10% of all sales in the United States. But having an online presence isn’t enough. Logistics has increased the efficiency of supply chains to new levels, and businesses are seeing more efficient shipping than ever.
Had Toys “R” Us chosen to adopt a better supply chain model and hired the right third-party logistics provider (3PL), they might still be the toy leader in the U.S.; or, at the very least, they might have avoided bankruptcy.
Why Outsource?
Businesses, especially scrappy startups in the e-commerce space, pride themselves on being able to do everything. So, the idea of outsourcing supply chain functions can be a point of contention.
But outsourced supply chains can aid your business in numerous ways, from cutting costs to making customers happier. What’s more, 91% of businesses that outsourced their supply chain reported a positive and successful relationship.
So, the question might not be “why outsource?,” but “how can I find a successful supply chain partner?”
How Outsourcing Logistics Improves Your Business
Any business that has a supply chain, or even sells products online, can benefit from outsourcing. Odds are that your business doesn’t employ leaders in supply chain management and theory, nor does your business have strong connections with suppliers, its own warehouses, its own distribution fleet, or all the equipment and personnel required to keep an entire supply chain running and scalable.
Efficiency is why businesses outsource to a 3PL. Here are some of the ways outsourcing logistics can improve, and potentially save, your business.
[Related: Infographic: An Essential Guide to Order Fulfillment]
Increased Delivery Speed
Consumers are expecting goods to be delivered faster than ever. The increasing efficiency of supply chains has only fueled the increased expectations.
But offering just-in-time (JIT) delivery can be costly for businesses that choose to run their own supply chains. Outsourced logistics can keep e-commerce businesses competitive without stretching their finances too thin.
3PL partners also open up other shipping and delivery services, such as kitting, and can use their network of warehouses to facilitate two-day shipping.
Reduced Costs and Boosted Profits
It may seem counterintuitive, but outsourcing your supply chain can actually reduce your operating costs while boosting profits. In fact, 75% of businesses that outsource their supply chains reported lower costs.
Costs saved from outsourcing logistics include:
- Fleet maintenance and staffing
- Warehouse staffing
- Warehouse rent/ownership costs
- Training and hiring new staff
- Maintaining an in-house supply chain staff
Your business can also avoid spending time on cumbersome tasks such as reverse logistics.
Profit boosting comes from the efficiency maximization of supply chains. Your 3PL should be able to help you move more products faster than ever, meaning more sales and less time spent on each sale.
More Data Collected and Used
3PLs make use of supply chain management software (SCMS) to track changes in supply chains, make adjustments, and forecast potential changes. While your business uses the supply chain, the SCMS collects all the pieces of information.
But collecting data is the easy part, as nearly three quarters of all data collected is never used.
Supply chain managers use as much of the collected data as possible to make more accurate forecasts, to find ways to further reduce the cost of your supply chain without sacrificing quality, and to find any errors or holes in your current supply chain.
Improved Customer Service
The majority of U.S. customers say that free delivery is a top consideration when buying online. The reduced costs of outsourcing your supply chain make free delivery feasible, and that would make your customers happy.
Customers enjoy extra services without the price tag, and 3PL partners can help expand your services efficiently. Keep in mind that any 3PL partner you use is going to represent your business in the customer’s eyes. So, picking the right partner could make your business stand out, retaining current customers and attracting new ones.
Some of the ways your 3PL interacts with customers and can improve customer service include:
- Final mile delivery
- Just-in-time delivery
- Reverse logistics
- Fulfillment
Scalability
The inability to scale up or down as needed is a business killer. Your business works hard to grow, so it needs a supply chain model that can grow with it. This is possible with an in-house supply chain manager, but 3PLs are usually better at scaling.
Not all growth is smooth, and your business could encounter sudden slowdowns or spikes in growth. Your supply chain needs to be flexible enough to scale up at the pace your business needs.
More Focus on Your Business
Businesses should spend time focusing on their expertise, so it often makes sense to outsource tasks such as supply chain management. Most 3PL partners still keep businesses involved in major supply chain decisions, too, so you won’t be left completely in the dark.
Focusing on your business also allows you to move your resources away from supply chain management, training, warehousing, staffing, and shipping and allocate them toward growing your business. The saved time, energy, and money can be substantial.
Picking the Right 3PL Partner
Not all 3PLs are built equally. This isn’t to say that any individual 3PL is the best; rather, each 3PL adds a specific value to select industries. While any 3PL with a positive track record can manage your supply chain, it takes the perfect match to reduce supply chain costs while maximizing output.
Before deciding on a 3PL partner, you’ll want to ask yourself questions about your business, your outlook, and what you’re looking for from your supply chain. Choosing the right 3PL partner could be just what it takes to save your business.
[Related: Shifting Patterns: The Future of the Logistics Industry]
