Should Your E-commerce Business Use a 4PL to Grow?
So you’re a growing e-commerce business with a quality product and an eager market, but shipping & logistics are holding you up, right?
With so many different logistics companies offering as many services, it’s easy to get overwhelmed by your choices. You’re probably tempted to or already have settled for one of the big, one-stop-shops like Amazon Fulfillment or UPS for your logistics.
However, while they may be cheaper, full-service express couriers like Amazon or UPS may not be the best choice for your business. Unless you’re a large company, these services can’t make small adjustments to account for delays or perform a specific quality inspection when your goods reach the warehouse.
What then should you do if you want more control over your supply chain but don’t have the resources to create your own logistics department? Today, a growing number of businesses are choosing to work with fourth-party logistics (4PL) companies to solve that problem. 4PLs offer you flexibility and control without the high costs of managing your department or going through an express courier.
Here’s why growing e-commerce businesses can benefit from a 4PL.
What’s the Problem With FBA and Other Express Couriers?
Express couriers services like Amazon Fulfillment (FBA) and UPS were originally created to make logistics easier for growing businesses. However, after the early stages, many lack the options a growing e-commerce company needs.
Take Amazon for example: When you are first starting your e-commerce store, you want to get revenue as soon as possible. Amazon knows that, so they created a simple integrated service in their store covering warehousing, shipping, freight forwarding, and last mile. They own every part of this supply chain which means store owners can have a full logistics service even with little knowledge of the industry.
In the early stages, not worrying about logistics is great. However:
- What if you discover huge demand for your goods in a market Amazon doesn’t cover?
- What if you require very specific temperatures for your warehoused goods?
- What if there’s a particular warehouse you want to work with?
- What if you want to make a different return policy?
- What if a virus closes down the ports Amazon usually ships out of?
Amazon moves 2.5 billion packages per year for millions of customers. If you’re not a multibillion-dollar client, they usually don’t have time to specialize part of your process. That’s why Amazon has integrated a Fulfilled By Merchant (FBM) service into their store as well.
For the past decade or two, there wasn’t much you could do besides taking on your logistics yourself. However, that’s still not possible for most businesses.
Why Not Take Logistics In House?
Today, big retailers like American Eagle and Peloton might manage parts of their own logistics. However, for small to medium-size commerce businesses, piecing together logistics is hard.
The world of shipping has evolved dramatically in the era of e-commerce and the competition has never been fiercer. Emergent economies in East and Southeast Asia have given western consumers access to an ever-expanding selection of cheap products. Not only is there more selection, but more consumers expect goods to be shipped to their homes within a few days of purchase (60% according to Shopify).
To better manage their processes, many businesses are turning to third-party logistics (3PL), companies that can manage multiple stages of shipment. A 3PL warehouse, for example, might also be able to help your business find local fulfillment operators in their region as well.
But even when partnering with 3PLs, planning out a global supply chain is prohibitively difficult. There are thousands of potential partners (over 14,000 in the US alone) out there and many of them are hard to contact if you don’t have connections in the country they operate.
Businesses need a partner that gives them the flexibility of an in-house logistics team with the convenience of an express courier. That’s why a growing number of businesses are turning to 4PLs.
What Do 4PLs Do Differently?
Fourth-party logistics providers are unlike any other logistics company to date — they don’t own logistics assets like trucks or ships. Instead, they serve as both an in-house logistics team and a logistics consultant to a business.
One way to think of a 4PL is like a financial advisor for logistics. Financial advisors spend all their time researching market trends, the latest technology, and new investments so you don’t have to. They move your money between accounts and take a small percentage off the top, they don’t own a bank or have a stake in a particular stock (at least they shouldn’t).
Just like a financial advisor, a 4PL knows all the different logistics options available and can help your business find the most suitable ones. Their strength is building relationships with those providers for you. And because they aren’t tied down by their assets, they can change your providers as your business progresses.
Choosing a 4PL can help your business by:
- Lowering costs from high volumes of goods
- Establishing relationships with carriers
- Creating a single point of contact for all logistics and technical integrations
- Supply chain research and risk management
How to Know if 4PL is Right For Your Business
A 4PL can be used at almost any stage in a business’s growth. They are especially effective for businesses that are:
- New to logistics
- Want to scale up their logistics
- Want to create more complex supply chains.
While Amazon Fulfillment and other express couriers can work great for most early-stage businesses, you may want to switch to a 4PL if:
- Any part of your delivery service/product packing becomes specialized
- You start moving to markets not covered by Amazon
- You want to take customer service and marketing in-house
- You have a partner or two you want to work with
4PLs come in different flavors too. Many popular 4PLs operate like “Airbnbs for logistics.” These types of tech-oriented 4PLs show you all their logistics partners and let you research and pick them yourself.
Other types of 4PLs are relational. They create a client-consultant relationship with e-commerce businesses and select providers personally as a boutique service. You have some control, but don’t need to stay on top of your research like you would with a tech business.
There is no single best way to run logistics. However, recent events like COVID have shown commerce businesses the dangers of failing to take control of their supply chains. Operating without a transparent logistics plan could cost you customers and future growth down the line.