Growth Strategies

The Logic of Thirds

How tapping into third-party logistics companies can help save you money
Magazine Contributor
2 min read

This story appears in the March 2010 issue of Entrepreneur. Subscribe »

If your company spends big chunks of money on shipping, you would be wise to check out a third-party logistics company (commonly called 3PLs), some of which can save you 10 percent to 15 percent on shipping.

"Our core competency is moving products for our customers," says Jim Jelinek, director of operations for Langham Logistics Inc. in Indianapolis. This may include everything from transportation to warehousing to packaging. Some 3PLs work primarily as freight managers and don't maintain hard assets such as warehouses.

"The great 3PLs help you create processes that deliver products in a shorter time period and prevent you from moving stuff around the country unnecessarily," says Josh Johnson, president of Fidelitone Logistics in Wauconda, Ill. Additionally, 3PLs can help save money by providing access to expensive IT systems, such as freight management systems.

Using 3PLs to provide warehousing means not having to buy facilities or sign long-term leases. "You can keep your cash invested in what adds more value to your business," Johnson says. This adds flexibility for small-business owners. You pay only for what you use.

Mark Wyman, a partner with PMC Logistics Services in Plymouth, Mass., says that small-business owners can also save by outsourcing some operations to 3PLs. "You don't have to hire a traffic manager. We have a team to help solve problems so that you don't have to spend the whole day doing it."

A 3PL can also negotiate deals with carriers. "A small company may spend a quarter-million dollars a year on freight," Wyman says. "That may not give them much leverage. Our clients may spend $400 million a year on freight, so we can leverage that to reduce costs."

How do you know if using a 3PL could be a good choice for you? "Ask yourself, 'What value do I get out of running a supply chain?' " Johnson says.

"The cost savings go right to the bottom line," Wyman says. "You don't have to sell more kazoos to have more money."

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