Logistics Outsourcing Decisions

TLDR: A company had a decision to continue their operations in house or outsource. Outsourcing would save the company $1.4M in savings. I advised them not to outsource.   Now, I know some of you short-sighted, quick cash grab folks will stop reading here. But for the rest of you, come find out the appropriate way to approach this situation.   On Monday, I shared about a company faced with the decision to keep their operations within the US or outsource to China. The company produced two products at their US facility that were their top selling, but also their more specialized manufacturing processes. The company did identify a $1.4M average saving per year via outsourcing.   So how did I get to the decision to keep their US plant? 1️⃣ I evaluated the financial impact of keeping the plant in the US versus outsourcing to China for just the facility comparison. This included all costs of raw material, labor, electricity/utility costs, lease costs, management costs, overhead costs, capital outlays, and start-up costs at each facility over a 10-year period. 2️⃣ I analyzed and forecasted transportation costs for each facility. 3️⃣ I analyzed and forecasted inventory and the costs associated for each facility. 4️⃣ I identified and did a risk assessment on the quality, capital investment, and macro-level risks with transferring operations from the US to China.   Why did I advise to not outsource? ❌ Two of their top selling items require a specialized manufacturing and assembly process that is competitive advantage for the company. Duplicating the process would be a high impact risk. ❌ To effectively maintain quality standards and execute the manufacturing and assembly process, labor in China would need to increase (decreasing savings). ❌ Freight costs and transit times would increase, leading to an increase in safety stock (inventory), additional use of warehouses (holding and storage costs), and increase in lead time for product replenishment. ❌ There is risk with price fluctuations related to transportation costs that would diminish potential savings. ❌ Wage increases over time will lead to a diminished return. ❌ US operations created a more responsive and agile supply chain to service US based customers.   Are you starting to see how $1.4M in yearly savings doesn’t look as promising?   What were the recommendations to reduce costs in other ways? ✅ Renegotiate the lease on the facility to lower operating expenses (~$3M). ✅ Process improvement initiatives including enhancing ERP capabilities to improve forecast accuracy, better production scheduling, and manufacturing processes (this would improve just utility costs by 2% within a year). ✅ Leverage the in-house manufacturing and assembly process that is proprietary as a potential new business unit in itself.   Don’t be blinded by a dollar sign! Stay tuned for Friday where I’ll give you tips on how to approach these business impacting decisions. #supplychain #processimprovement #manufacturing

Managing your own warehouse? Excess space is quietly draining your business dry. Running your own warehouse might feel like control, but it comes at a steep price. Every square foot of unused capacity is eating into your profits, limiting your growth, and tying up valuable resources. Here’s why outsourcing to a 3PL can save you from this trap: #1 - Smaller, Smarter Networks Mean Better Space Utilization With strategically located fulfillment centers, you don’t need sprawling warehouses. Efficiently placed hubs reduce transit times and allow for smarter inventory distribution, saving costs and improving delivery speed. #2 - Pay Only for What You Use Fulfillment partners optimize space based on demand, so you’re not stuck with the burden of underutilized warehouses. This scalable approach lets you grow without the pain of fixed overhead dragging you down. # 3 - Precision Inventory Management Working with experts means your inventory gets the attention it deserves. High-velocity SKUs can be slotted closer to customers, reducing picking times and getting orders out faster, all while maximizing every square foot. #4 - Eliminate Operational Overhead I can't stress this enough. The burden of rent, utilities, staffing, and maintenance? Poof! It’s gone. Will there be different problems? Of course. Instead, your resources can focus on what drives growth: marketing, new product launches, and customer acquisition. # 5- Smaller Footprints, Bigger Impact Localized fulfillment centers prioritize agility. They’re built for rapid replenishment and precise inventory management, all while offering the flexibility to adapt to your needs. This means fewer headaches, faster delivery, and happier customers. Holding onto your own warehouse might feel like control, but it’s a logistical and financial anchor. Outsourcing fulfillment means smarter space utilization, sharper processes, and freedom to grow. #ecommerce #logistics

Stop focusing on the backend and start focusing on your business.  Automation and outsourcing give e-commerce businesses a chance to free up valuable time that's better spent on growth and excellent service.    However, they aren't cost-effective options for every business - you've got to do your homework before deciding if it's a good fit for you.  These are the key steps to help you make an informed decision:  - Assessing Readiness: First, evaluate your current operations to identify repetitive tasks that don't directly contribute to growth. Tasks like customer service inquiries, order processing, or inventory management are prime candidates for automation or outsourcing.  - Cost-Benefit Analysis: Conduct a thorough cost-benefit analysis to determine if the investment in automation and outsourcing is justified by the time and resources you stand to save. Consider the long-term savings and efficiency gains against your upfront costs.  - Growth Stage Evaluation: Assess whether your manual processes are limiting your business growth. If scaling up seems impossible without more streamlined operations, it's time to consider automation and outsourcing.  - Implementing Strategies: There are 2 parts of this process.  1. Automation: Identify repetitive tasks that can be automated to reduce errors and free up valuable time. Implement automation tools and software designed to enhance your e-commerce business. As an Amazon seller, you can improve efficiency by using inventory management software instead of spreadsheets, automating your advertising with PPC management tools, and simplifying case submissions with reimbursement tools. 2. Outsourcing: Enhance quality and effectiveness by delegating specialized tasks to experts, such as marketing, logistics, or content creation, allowing your team to focus on core activities. Thoroughly vet potential partners to ensure they have the necessary expertise, experience, and a proven track record, prioritizing those with a history of success and positive client feedback. Once you've automated and outsourced, what should you do with the time saved? 1. Focus on Growth: Use the additional time to focus on product development, market expansion, or improving customer relationships. This is where your energy can drive real growth and innovation. 2. Strategic Planning: Spend more time analyzing market trends and planning your business strategies. A clear, forward-thinking approach can set you apart from the competition. 3. Skill Development: Dedicate time to enhancing the skill set of your team. Investing in training and development can lead to a more capable and motivated workforce. Adopting automation and outsourcing is about allocating your most precious resource - time.  By freeing up your team from repetitive tasks, you enable them to focus their efforts where it matters most - your business's growth.  How do you use automation and outsourcing in your business processes?

Is 3PL Your Secret Weapon or a Costly Crutch? The hidden truths that ecommerce businesses need to know. Ecommerce is booming, but with growth comes challenges. One of the biggest questions I hear from ecommerce owners is whether to use 3PL services or not. Let's break it down. → The Cost Factor: ↳ At first glance, outsourcing logistics might seem expensive. But consider the hidden costs of managing inventory, shipping errors, and overworked staff. Sometimes, the actual expense lies in doing it all yourself. → The Efficiency Angle: ↳ A good 3PL partner can streamline operations, giving you the freedom to focus on what you do best: growing your business. This can translate into faster delivery times and happier customers. → The Flexibility Game: ↳ Scaling up or down with demand is crucial in today’s market. With 3PL, you gain that flexibility without the overhead of managing a bigger team or facility. → The Risk of Dependency: ↳ But beware of becoming too reliant. If your 3PL provider faces challenges, your business can feel the ripple effects. So, is 3PL a secret weapon or a costly crutch? The answer depends on your business model and goals. Evaluate carefully, choose wisely. Success lies in finding a partner who aligns with your vision and can truly enhance your operations. Curious about how to assess the right 3PL fit for your business? Let’s dive deeper in the comments.

Trying to decide to outsource fulfillment vs scaling your own operations? Start with these questions 1. How do I want to spend my time? Internal ops = more time in the biz vs on the biz. 2. Am I stretching my dollar to the places it needs to be? Outsourcing means paying someone else to do it, but understanding your true all-in cost per package is a necessity, and that's harder internally. 3. Does my product require unique pack-outs? The more customized the outbound, the less likely you'll find your ideal 3PL 4. Am I overcomplicating my shipment specs? Heavy products usually mean a greater disparity in zone-based shipping. Outsourcing with bi-coastal facilities could yield the greatest savings. 5. What is my risk tolerance? Speaking from experience, scaling a warehouse involved more risk but had more upside for us vs using an established shipping network. Our journey went from Outsourced Fulfillment ↓ In-House Fulfillment ↓ 3PL ↓ 3PL Network (via acquisition) Unsure of what your path should look like? Jump in my DMs, I would be happy to chat and talk further on your journey so far #3pl #fulfillment #ecommercefulfillment #wms #warehousing #logistics