When a retail or e-commerce business is getting off the ground, handling fulfillment directly makes sense. However, as these companies grow into the middle market, fulfillment costs can begin to whittle away at profit margins. Inevitably, a decision must be made—invest in expanding in-house logistics or outsource to a logistics provider.

Considerations When Deciding Between a 3PL or In-House Logistics

Determining whether to maintain full control over fulfillment or engage a logistics partner is a critical point in an organization’s growth. Unfortunately, as many business leaders weigh this decision, they may not realize the true cost of fulfillment. Here are some of the areas to consider when determining the best path forward for your fulfillment operation.

The Hidden Cost of Labor

Warehouse labor costs may seem straightforward at first, but as the size of a fulfillment operation grows, so do the associated labor costs. Beyond basic pay, warehouse operators must consider:

• Over time
• Temporary staff
• Health insurance and other benefits
• Recruiting, onboarding, and training costs
• Human resources management costs

Also, keep in mind that even if you offer great benefits and pay, the reality is that warehouse work is physically demanding and has long hours, especially during peak seasons. Warehouse turnover rates are high compared to other industries, typically ranging from 40% to 60% annually, depending on the specific warehouse’s characteristics. Studies have shown that turning over a single warehouse employee can cost more than $18,000.

Growing Storage Needs

As your business grows, so must your ability to store higher volumes of inventory in more locations. With 86% of consumers now expecting delivery within two days, it’s becoming less feasible for e-commerce businesses to operate a single, centralized warehouse. Facilitating fast delivery means keeping inventory stored near large customer markets, which means in-house logistics operations must invest in fulfillment space in numerous regions around the country to meet customer demand. It isn’t impossible, necessarily, but this is one of the areas where in-house fulfillment becomes a major commitment. Many growing businesses may struggle to justify leasing or buying half a dozen or more warehouses to accommodate rapid growth.

This is one area where a 3PL like Phoenix Logistics can provide a major benefit to its partners. As an affiliate of Frank Crivello’s commercial real estate firm Phoenix Investors, Phoenix Logistics has access to a national portfolio of warehouses to help its partners store inventory anywhere it needs to be.

Missing Out on Volume Discounts

Parcel carriers used to hike rates once a year, but volatility in the supply chain has resulted in additional targeted rate hikes throughout the year, as well as higher surcharges during peak seasons. The best strategy for offsetting these costs involves leveraging large shipment volumes for a discount. 3PLs do this by combining the volumes of all their customers to get the best rates. Unfortunately, a single retailer typically lacks sufficient volume to negotiate substantial rate reductions on its own.

The Cost of Limited Opportunity

When you consider the costs mentioned here—labor, warehouses, shipping—it’s important to remember that all of these things direct resources away from the activities that generate your actual revenue. In-house fulfillment can create an unexpected resource bottleneck, preventing you from investing more in product development, sales and marketing, new sales channels, supplier relationships, and other key areas.

3PLs: A More Cost-Effective, Scalable Alternative

While in-house fulfillment may be feasible in the early stages of the business, scaling up with growth ultimately means that the cost of the fulfillment operation must also grow. Third-party logistics providers exist specifically to address this problem by bringing purpose-built infrastructure, expertise, and economies of scale that a single business can’t typically match on its own.

Finding a good 3PL partner gives your business more than someone to pack boxes and stick them in the mail. You’re gaining an extension of your brand that can help you streamline fulfillment costs and maximize investment in your business.

About Phoenix Logistics

Strategic Real Estate. Applied Technology. Tailored Service. Creativity. Flexibility. These fundamentals reflect everything we do at Phoenix Logistics. We provide specialized support in locating and attaining the correct logistics solutions for every client we serve. Most logistic competitors work to win 3PL contracts, and then attempt to secure the real estate to support it. As an affiliate of giant industrial real estate firm Phoenix Investors, we can quickly secure real estate solutions across its portfolio or leverage its market and financial strength to quickly source and acquire real estate to meet our client’s need.