Many companies are choosing to use contractors for storing and shipping of materials. This can have both advantages and disadvantages.
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Many companies are deviating from having their own warehouses and transportation services to that of contracting with various fulfillment services such as UPS Supply Chain Solutions. The use of third party logistics, or 3PL, means a substantial cost savings to companies who would ordinarily have to lease or otherwise contract these services. For the small company who lacks space for building a warehouse, with room for a fleet of trucks, the cost can be prohibitive. For companies who have the space, but don't currently have warehouse or transportation services, the capital expenditure may not be within the scope of their current budget allowance.
For many companies, contracting with a fulfillment services company is easier and cheaper than doing the work themselves. After all, they don't have to worry about storage, transportation, or distribution of the material. With a phone call to the 3PL company, they arrange for the material to be shipped to their customer or they pre-arrange a schedule for a specified amount of product to be released to the customer on certain days of the week or month. They don't even have to call a trucking company, since most fulfillment services companies have their own fleet of trucks for transportation of goods. It takes the responsibility off the company, and they can concentrate on producing more product.
More companies are choosing to contract services with a 3PL company, so they don't have to concern themselves with the warehouse, distribution, and transportation of finished goods. Delegating these functions to someone else gives the company more opportunity to concentrate on providing the finished goods that will eventually be stored at the warehouse facility for later transportation to customers. It's a function that companies tend to find time consuming and often boring from a paperwork standpoint, so if they can leave all that up to a third party, that improves their efficiency. It also means the company doesn't have to hire warehouse workers, an effort that is often difficult because of the low rate of pay that companies tend to pay their warehouse workers. This lends itself to a high turnover in that area of the company, and thus, the need for additional training hours.
Depending on the terms of the contract, sometimes the 3PL company also handles billing and collecting payments from your customers for the products it ships. This frees time that your accounting department can use to take care of other financial matters. Freeing the company of continually hiring warehouse workers, replacing fleets of trucks, and paying bills for shipments to customers will allow them to operate more economically, as they will be able to operate with less staff.
Using a third party logistics company can be a financial advantage for many companies. This is especially true for small companies who may otherwise have to go to the expense of building or leasing a warehouse and vehicle fleet for transportation of goods to their customers. For the small company, this means they are able to contract the work to a 3PL company instead of leasing a warehouse and then having to transport material themselves.
Since the warehouse worker is usually paid less than other unskilled laborers, there tends to be a high turnover of personnel in that area. When companies manage their own warehousing, they have to replace personnel that leave, recruit, hire, and train new workers, which costs the company money. By outsourcing those functions, they don't have to be concerned with hiring workers for the warehouse and distribution areas, thus saving money on benefits and training. This allows them to focus their budget on production efficiency and assures that they are paying the lowest prices available for their outsourcing needs.
When a company outsources its warehouse and transportation needs, there is less payroll expense. Depending on the size of the company, choices may be made to outsource that function, as well, using outsourcing services such as PayChex or ADP, thus cutting costs in the accounting department.
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