Managing inventory across the end-to-end supply chain – from upstream production in factories and storage in warehouses to downstream distribution across various channels and ultimately delivery to customers – is a huge challenge for retail companies.
These businesses must be able to maintain the right amount of inventory in the right locations across their supply chain network at the right times in order to:
- Meet customer demand as rapidly and reliably as possible and prevent stockouts.
- Minimize operating and overhead costs for inventory, storage, distribution, and fulfillment.
- Manage spikes and drops in order volume due to seasonality, sales and promotions, business expansion or contraction, or other factors.
Many retailers engage third-party logistics (3PL) providers to help them move their inventory from the manufacturing facility all the way to their customers’ doorsteps.
A 3PL can really help you handle the complexity and costs of managing your inventory across your supply chain.
In this blog, we will explore the three key benefits of outsourcing your inventory storage and distribution to a 3PL.
Key benefit #1: Greater flexibility as business conditions change
If you operate a retail business today, you have to cope with constant change, which is driven by a whole host of factors including:
Volatile supply chain dynamics such as:
- Fluctuations in demand due to seasonal spikes or sudden surges in customer orders.
- Shortfalls in supply due to production delays, unavailability of raw materials, or poor inventory management.
- Supply chain bottlenecks due to transportation issues, container shortages, or other factors.
Your changing business plans and priorities such as:
- Expansion of your business into new markets and product areas, or across new sales and distribution channels.
- Contraction of your business due to adverse economic conditions or other factors such as seasonality.
To successfully steer your business through this dynamic and unpredictable environment, you must be flexible – able to adjust your operations to accommodate changing conditions.
When it comes to inventory management, flexibility is critical. You may, for example, need more warehouse space to store safety stock in the run up to the holiday season, or you may need less warehouse space for a period of time if your manufacturer is experiencing production delays.
If you own or rent your own warehouse, you have a set amount of space in which to store your goods – making it difficult to rapidly recalibrate your inventory management operations when business conditions change. Depending on the situation, you may end up running out of storage space or getting stuck with empty warehouses.
Outsourcing your storage and distribution operations to a 3PL, however, can give you greater flexibility and control. Some 3PLs – like Amazon Multi-Channel Fulfillment (MCF) – allow you to decide how much stock you want to store in their facilities at any point in time and when you want to utilize those goods to fulfill customer orders.
By providing flexible storage capacity and distribution services to meet the evolving needs of your business, a 3PL can help you navigate today’s complex, ever-changing business landscape.
Key benefit #2: Decreased operating costs
Another chief benefit of outsourcing your inventory management to a 3PL is that you can significantly cut costs for inventory storage.
If you run your own warehouse, you have to either buy or rent warehouse space – and this can quickly become a major capital expense involving payments for rent, taxes, utilities, security, and employees to manage storage and security at your facility. These overhead expenses can really add up, and take a hefty toll on your bottom line.
By having a 3PL handle your storage operations, you can avoid having to pay all the fixed costs associated with running your own warehouse.
Typically, all you have to do is pay one bill from your 3PL with a handful of charges for various services such as processing, storage, and transportation. The simplicity and transparency of this payment arrangement makes it easy for you to get a good grasp of your inventory management costs, and (as agreements with 3PLs typically have predefined rates) to forecast your storage and distribution costs in the future.
Chances are that your business will end up saving money – as many 3PLs offer cost-effective inventory storage and distribution solutions. MCF, for instance, offers simple, “pay-as-you-go” pricing for storage in Amazon’s fulfillment centers – with no hidden fees or long-term commitments.
It’s important to note, though, that many 3PLs do require you to enter into long-term storage contracts, which stipulate that you have to make a multi-year commitment to use a specific amount of space in their storage facilities and maintain a minimum level of throughput. Make sure you read the fine print of any contract you are signing with a 3PL to ensure that agreement fits your business needs.
Generally speaking, outsourcing your inventory storage and distribution to a 3PL can enable you to eliminate the significant overhead costs (as well as the financial responsibility and risk) involved in running your own warehouse – and this will benefit your bottom line over the long haul.
Key benefit #3: Improved operational efficiency
The third key benefit of outsourcing your inventory management to a 3PL is that you can streamline your storage and distribution operations.
When you engage a 3PL, you gain access to their network of warehouses and other logistics facilities and resources – and can leverage those assets to boost the efficiency of your supply chain operations.
For example, by partnering with MCF, you can tap into Amazon’s global network of over 2,000 logistics facilities, which will enable you to:
- Strategically position your inventory in fulfillment centers – so you can store it as close as possible to where your channel partners and customers are located, and thereby minimize shipping times and costs.
- Consolidate your inventory into a global pool, which you can use to fulfill orders across all your sales and distribution channels.
- Integrate your storage, distribution, and fulfillment operations.
A 3PL like MCF can really help you improve the speed and efficiency of your logistics operations – so you can easily store your products and get them to your customers as quickly and cost-effectively as possible.
Conclusion
A 3PL partner can help you optimize logistics operations across your end-to-end supply chain – efficiently managing and moving your goods all the way from the manufacturing facility to the warehouse to wherever your customers and business partners are located.
When you partner with a 3PL as part of your fulfillment and distribution strategy and they handle your inventory management, you can reduce the risks, costs, and complexity involved in storing and distributing your stock and set your business up for long-term growth and maximum flexibility in the short term in today’s challenging business environment.
