Controlling Costs with your 3PL

Controlling Costs with your 3PL

As a shipper, the challenge is controlling your logistics costs and meeting your customer’s expectations – which at times appears to be in opposition with each other. Since you aren’t putting the product away in the warehouse, picking the orders or driving the truck to your customer location – how do you make sure your costs stay in line?

If you are using a 3PL (if not, then do so!) then there are 2 areas that make up 90you’re your distribution spend:

SPACE and LABOR

With the right 3PL partner, you will be able to work together to meet your budgetary expectations with a concentrated effort to please your customer. But understanding how you can impact your 3PL costs is one step towards meeting those goals.

It all starts with how you profiled your business when pricing was developed. If you provided accurate information about your logistics characteristics, then pricing was created with those characteristics in mind for the most efficient methods of operation.

Let’s look at each area in detail:

Controlling SPACE
It’s important that your 3PL is storing your products efficiently and this must be revisited frequently if your business is evolving. The layout of your product in the distribution center should allow for fast moving products to be positioned for quick access whereas slow moving products will be located in an area that isn’t “prime” property for picking. Understanding if maximizing storage density or labor productivity is most important will help you know how your 3PL has designed your space needs.

If your 3PL has an efficient layout of your merchandise and is stored effectively with multiple stacks, then you won’t be paying for too much space. It’s all about minimizing space. As the 3PL considers how much space is required for your inventory, they will calculate it based on the following areas:

WHAT STORAGE METHOD IS NEEDED?  There are mainly 2 types of storage:
Rack Storage
Bulk Storage

Deciding on which storage method is best for your product is based on:
1) Stackability of your product;
2) Number of SKUs and the honeycomb;
3) Inventory turns; and
4) Outbound Order process

Designing the best layout for storage AND for accessing the product will ensure that your storage costs are minimized.

Controlling LABOR
So, you provided your 3PL with the snapshot of your business and how your inbound product comes in and how your orders go out. There are 6 basic steps that a 3PL goes through to manage your business.

Whse Process

Each step requires labor resources. Based on the accuracy of your business characteristics, the 3PL will know, basically, how much labor it will take to handle each of these functions. This proactive approach gives them an expectation of how to manage your business effectively.

Now, what are some things that can impact labor?

1) Business characteristics were inaccurate and your 3PL is finding out about the business AS IT HAPPENS. Reactive vs. Proactive.
2) Inbound loads are late or inaccurate. New skus are present without prior notice.
3) Picking and Order configuration is different than expected or not consistent.
4) Productivity is impacted due to volume fluctuations – up or down.

We don’t want to forget indirect labor costs too. These are costs for customer service, inventory control, and management. Your rates will reflect a percentage of these costs which is shared with all clients in the building. Certainly, a cheaper alternative than dedicated resources that you would have if handling yourself.

So, creating consistent workflows by your 3PL will drive standardization and efficiency that will allow them to manage human resources effectively and within budget.

A 3PL’s WMS technology will also help drive efficiency in storage and handling of your product. These sophisticated tools can aid in volume trends, activity trends and other ways in analyzing your business allowing the 3PL to make decisions and changes regarding your business.

Understanding how you impact SPACE and LABOR at your 3PL Distribution Center can help you make better decisions about your supply chain and comprehend the factors that impact those costs.

The good thing is, a 3PL has a wired mindset of providing value. They do that by being efficient, driving costs down and creating value with experience.