Whether you are a small business finally outgrowing your garage operation or a large company looking for a new fulfillment provider, you might be asking yourself if you should partner with a large, well- known third-party logistics (3PL) provider or a small- to mid-size regional 3PL. Both have their advantages and disadvantages depending on your company’s needs. Below, we will explore the pros and cons of different types of 3PLs.
Global, National, or Regional Footprint
Many hope that partnering with a national or multinational 3PL means there will be synergies and economies of scale by being a part of a bigger 3PL network. You might be hoping that you’ll be able to leverage volume discounts, achieve standardization on integrations, systems and processes, have a single point of management, and reduce transportation costs through more regionalized distribution.
While many of these benefits are achievable, there are also some drawbacks to consider. Large 3PLs have often grown through acquisition, which means a lot of different systems, processes, teams, and cultures exist across their locations. You may find yourself frustrated by the use of many systems, people, and inconsistency in your order fulfillment.
Another misconception is that, by having regional distribution points, you will save on transportation costs. While there is often a significant savings in freight, most 3PL clients don’t have the systems, processes, or order volume to make fulfillment from multiple distribution centers cost effective. The complexity of your product offering contributes to the feasibility of distributing from multiple locations. In-depth analysis should be conducted before making the decision to regionalize distribution, followed by a commitment to fully support the increased complexity. In the end, your 3PL expects you to have the inventory in the right warehouse and to send your orders to the correct distribution point.
Expertise and Resources
Big 3PLs usually have vast resources and, in many cases, will have in-house experts on almost any subject you need. The downside is that most will operate as their own division, and their expertise does not come cheap. Sometimes a “what if” scenario can turn into a small project that gets you a bill for many hours of consulting. Ask what types of resources are available to you and if that help is available to you free of charge. Paying for expert advice is sometimes worth it, but it’s best to know up front what you get when you partner with someone.
In contrast, a regional 3PL may be more willing to go the extra mile because they value you as a client and have a more vested interest. This “scrappy factor” is a client-first attitude that can make up for polish, planning, politics, and business acumen.
Larger 3PLs tend to have more dollars available for investment. Most large companies have well-defined plans for their money. If your business or growth plan doesn’t meet the ROI requirements then you might find yourself frustrated when you are asking for customization or automation, even if it could result in cost reductions for both parties.
Small to midsize regional operations are often more willing to collaborate and grow with you. The ownership and investors are more closely connected to your account and daily operations. This means they may be more likely to partner with you in cost-saving activities or to help with efficiency improvements that directly benefit you.
Small Fish in a Big Pond
Signing on with a large 3PL can leave you feeling left out. Make sure you understand what type of clients operate in the facility you are looking at and how they vary in size and scope. Do they have other clients in your industry, or will you be the first? Ask about customer service and what type of care you will be given. Do you get a personal customer service representative or, if you have a question, do you get directed to a call center? You will get lots of attention if you are the biggest fish in the pond, but the 3PL may not be adequately equipped with the systems, processes, or people to take care of you if you are a smaller client for them.
You may find that your business is considered small for a large 3PL, but for a regional 3PL, you could be one of their biggest clients. This may garner more attention and service than you might get as a client at a larger operation. It is important to understand what your requirements and resources are, and then determine where you want to fit in terms of the client hierarchy at a 3PL.
My Way or the Highway
The ability to be flexible in your business can be critical to your growth, so make sure to find out what happens if you change plans or move your business in a different direction. Is the 3PL willing to flex with you or do they have strict operating guidelines that you have to stay within? A larger 3PL is more likely to make you conform to their processes.
On the other end of the spectrum, some small operations are willing to offer flexibility because they have no processes. It is likely that neither extreme is right for most businesses, and a happy medium may be a mid-size regional 3PL that can offer both flexibility and consistent process outcomes.
There is no “one size fits all” solution when it comes to picking the right 3PL based on size or location(s). As you prepare to bid your business, write down the things most important to you and find a 3PL that will check most of the boxes. You may be surprised that what you find works best in the end didn’t match what you had in mind when starting the process. Good luck!