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One of the cool things about my profession is I rub shoulders with some VERY smart people – small business entrepreneurs, commercial real estate investors, brokers, and trusted advisors in the insurance, wealth advisory, tax, and banking professions.
I believe the imperative is to listen, learn and spot trends.
Lately, three trends have surfaced in my conversations – business exodus from California, mergers and acquisitions, and the use of 3PLs – third-party logistics providers.
As all three topics are meaty, I will dissect one each week for the next three – so stay tuned, dear readers.
Today, we will discuss third-party logistics providers – 3PLs.
What is a 3PL? A third party logistics provider is an outsource for the warehousing function of your business.
Generally, an industrial company makes, ships, or services something – or some combination of the three. Simple, right? As an example, that percolated product you are enjoying while perusing this periodical – yep, beans grown and harvested, manufactured by someone, finished cans stored in a warehouse, shipped to your retailer and delivered to your house – either in your grocery bag or an Amazon van. Imagine, the amount of warehouse space necessary for storing all of that coffee – plus the folks needed to receive the boxes, forklift them around, place them into inventory, access them when ordered, package them up, and ship them out the door – whew! Lots of steps, people, and space.
Now, let’s complicate the above with a seasonal ebb and flow of the work. You are committing employees and space – which are largely intractable to a workflow that changes. Said simply – during some parts of the year – workers are idle – yet you are paying them. Worse – your rent – for which you are committed long-term – covers a half-empty warehouse!
Enter the 3PL. All of the receiving, inventorying, material handling, order picking, packaging, and shipping is done for you – at item or pallet pricing and with a shorter time commitment – generally a year at a time. You pay for the space and handling you need without the overhead of a lease, full-time employees, or the appurtenant compliance headaches.
Why are companies using 3PLs? Aside from the reasons above – overhead and flexibility – 99 of every 100 industrial buildings are occupied – a vacancy of 1% – the lowest in history! If you need to expand – and choose to do so by leasing or buying a building – your choices are limited. Let’s say your business growth will come from adding a new machine – but you don’t have anywhere to put it – because that warehouse racking consumes a portion of the plant. Simply engage a 3PL, outsource your storage and shipping, and bingo! You have just found some space for that new machine. A similar scenario occurs when your expansion is employee driven – but you lack sufficient office space. Clip that warehouse and build a new suite – you’re done!