In-House V 3PL Providers Showdown, Part 1: How Much Is It Costing You?

Published : September 3, 2014

paying-logisticsHandling your own supply chain logistics may seem like a no brainer. After all, you design your products, and you manufacture them with pride. What could be more logical than to simply package them up and ship them out when an order comes in?

Unfortunately, it may not be as simple as that. There are many factors to weigh when making decisions about your supply chain. Is it really running smoothly? Are all your customers satisfied every time? Is it cost effective? If you can't answer all of these questions with confidence, it may be time to consider allowing 3PL providers to handle your supply chain.

There are numerous reasons to consider using third party logistics, but for the scope of this article, let's focus on the main one: money.

It may not be the only reason you started your business, but it's certainly one of them. And, let's face it, even if your business is your life's passion, and you enjoy it so much you would do it for free, the reality is, that without a steady income stream, no business will remain "open for business" for very long. There's no way around it. Money matters. It pays the electric bill. It funds your research and development. It compensates your hard-working employees.

In house vs 3PL Providers: Assessing Cost

That leaves the question: Which order-fill option is actually the most cost effective? In house or outsourced?

Some of the costs of each of these options are fairly obvious and easy to compare. You can simply add up what you spend on your order desk, your packaging department, and your shipping costs. Compare these to what a third party logistics service would charge.

This comparison will give you a rough starting place, but there are other costs to consider, as well. Many people fail to consider the hidden costs associated with in-house order fulfillment. Here are a few of the less-obvious costs that you should add to your calculations to get an accurate picture of what your in-house supply chain logistics are actually costing you.

  • Staff. Your shipping and fulfillment operation must be manned. You need order processors, customer service reps, packers and shippers. And, of course, all of these people require competitive salaries, benefit packages, health insurance, social security and unemployment insurance.
  • IT investments. When you handle your own orders, you need a reliable IT infrastructure. You need computers for processing orders, tracking shipments and returns, and following inventory. And no computer system is bug free. With IT comes the necessary repairs, upgrades, security risks and service calls.
  • Fixed assets. Order fulfillment takes space. Warehouses are needed to store inventory. Space must be allocated for packaging, labeling and pick-up and delivery. This is hardcore overhead. Land must be purchased or leased. Buildings must be constructed and maintained. Parking lots are needed. And don't forget taxes. In the year 2012 alone, businesses in the U.S. paid more than $228 billion in property taxes, according to Total State and Local Business Taxes, study published by Cost.org. All of these costs have to be figured in when comparing in-house operations to outsourcing.

Reinvestment Opportunities

When your business saves money it represents more than just a fat sum sitting in the bank. It represents the opportunity to grow. Money saved on your supply chain means money that can be reinvested in research and development, or even customer service.

Bottom line

You owe it to your business to look carefully at all the costs your company incurs as part of its in-house order fulfillment process. Then consider what the influx of those saved dollars could mean for your company and its future growth. When you get to the actual bottom line, you are likely to conclude that 3PL providers is the best way to allow your company to thrive and grow.

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Topics: Supply Chain Logistics

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