3PL vs Internal Logistics: Which is Better for My Business?
When your cosmetics and skincare business is skyrocketing with sales, keeping up with the shipping demand can be challenging. Aligning your logistics strategy with your manufacturing demand can feel like a minefield, especially if you're also navigating high shipping costs associated with meeting demand. If this sounds like something you're worried about, then you should consider third-party logistics providers, also known as 3PL.
Much like outsourcing your manufacturing through private labels, outsourcing your logistics strategy can be highly beneficial. In this guide, we explain what it means to pair your private label manufacturing strategy with a 3PL service, whether internal logistics is more beneficial for your business growth, or whether using third-party logistics providers is more beneficial for your cosmetic business.
What is 3PL for cosmetics businesses?
Before we go into further detail, it's integral to discuss the meaning of 3PL and how it relates to private labels. 3PL services refer to cosmetics and other businesses outsourcing their logistics strategy to third-party providers.
This means that another company will handle most, if not all, elements of their shipping strategy, from warehousing to fulfilment. 3PL services are crucial to a smooth-running supply chain, as cosmetic manufacturers can entrust 3PL services to manage inventory tracking to warehousing and fulfilment management, ensuring that customers receive their items in good condition, on time and to the customer's expectations.
So, what does this have to do with private labels? Much like private labels, 3PL services are an outsourcing strategy, meaning businesses pass the responsibility of fulfilment and supply chain management onto a 3PL service provider.
Similar to private labelling, 3PL services can have significant cost-saving advantages for businesses, relieve pressure by securing transportation services, handle inventory management, and manage other elements of eCommerce stores.
Much like private labels, eCommerce cosmetic and skincare stores rely on 3PL service to provide a comprehensive service that spans far beyond fulfilment services. 3PL services can manage customer support, reverse logistics, custom-branded packaging, and much more. Like Australian Private Label, 3PL services can significantly impact your brand identity and reputation amongst consumers.
What is internal logistics management?
Internal logistics management refers to businesses handling their own logistics strategy. This involves managing their inventory, supply chain movement, warehousing, fulfilment, reverse logistics, customer support for delivery, custom packaging and more.
Managing internal logistics can be beneficial as companies have complete control over their logistics movement, meaning they can control shipping providers, packaging procurement and costs.
Typically, there may be entire departments within a cosmetics or skincare business that manages the internal supply chain, including stock controllers, procurement managers, warehouse operatives and professionals responsible for communicating with logistics companies.
Pros and cons of 3PL for cosmetics businesses
Inventory management is one of the critical factors to consider when setting up your cosmetics or skincare brand or redesigning your existing logistics strategy. Inventory management is one of the key contributors to your business growth and the ability to keep pace with demand.
Without effective inventory strategies, the cosmetic and skin care products you sell with a shorter shelf life may risk becoming dead stock. This poses a significant risk to profitability, so it's critical to use inventory management software that integrates with your business to ensure you can fulfil orders and ship to customers quickly.
One of the key benefits of outsourcing logistics services is that 3PL offers comprehensive inventory management systems for your eCommerce store, ensuring the quick sale, processing and fulfilment of customer orders.
Additionally, third-party logistics services can keep a closer eye on your inventory levels by using integrated software, ensuring that they can quickly alert you to stock-out issues, increase in stock demand or declining stock trends.
This information allows you to flex to your customer's requirements and alter your online store information to match your stock levels. Here are some other benefits of using 3PL services for cosmetics businesses:
- Shipping cost savings: It's no secret that shipping rates can be costly, and when you include the costs of branded packaging, warehouse rent, staff payments and all the other costs associated with in-house logistics, the cost of running your business piles up. One of the key benefits of using 3PL services is that they offer more competitive rates through partnerships with freight forwarders, with lead logistics providers offering lower shipping rates. These exclusive deals can drastically reduce operational costs, giving you more funds for further product development.
- Integrated fulfilment, warehousing, customer service and reverse logistics: One of the critical difficulties of having an in-house logistics strategy is keeping track of warehouse storage, customer service, reverse logistics, and fulfilment can be very difficult. Coordinating them to seamlessly integrate without a centralised service or platform can lead to stocking errors and significant fees associated with managing these as separate entities. With 3PL, businesses can bundle these elements into one, ensuring that they have a centralised service that monitors all of these factors, integrating them for greater visibility and management.
- Scalability: 3PL services are highly beneficial for cosmetic and skincare businesses that experience big hikes in demand, promoting broader business expansion. This is because 3PL services can easily procure more warehouse space for additional products, expand inventory and closely monitor demand to ensure brands know when they're likely to scale their business.
- Expert service: Accessing expert logistics and warehousing knowledge is integral, especially when starting a cosmetics or skincare business. Much like private labels, 3PL services can give you access to expert logistics professionals that specialise in providing services for eCommerce businesses. With this, you can improve operations, access advice on optimising shipping methods, and improve system integration.
However, like all things, there are some disadvantages to using 3PL services for cosmetics and skincare businesses. Mostly, these disadvantages orientate around losing control and visibility of logistics operations. However, partnering with a 3PL service doesn't mean that your logistics division will run independently of your business. Like private labels, good 3PL services will integrate seamlessly with your business, giving you control and providing a constructive partnership.
Pros and cons of managing internal logistics for cosmetics businesses
Despite the many benefits of employing 3PL services, many cosmetics businesses use their own internal logistics management strategy to handle operations. This can be better for cosmetics and skincare businesses that want greater visibility about their stock, where it's going, current market trends and want access to their supply chain.
Businesses that use an in-house logistics provider may improve operational efficiency but have specific staff members to control their business entirely. This can be beneficial as some businesses may feel more comfortable with their staff handling stock and interacting with customers. Some other benefits of managing your logistics and warehousing services include the following:
- Cost control: When you control your logistics strategy, it's relatively easy to cut costs. This is because you have greater visibility of what services cost more, allowing you to re-strategise to improve cost-effectiveness.
- Easy to identify inefficiencies: Similarly, monitoring your whole logistics management strategy allows you to identify inefficiencies in other areas, such as fulfilment errors impacting delivery times or inventory problems surrounding order volume. By identifying this, you can easily re-strategise and reorganise your department for a more cost-effective process.
- Align strategy with marketing campaigns: One of the key benefits of using an internal marketing strategy is that you can easily align your cosmetic or skincare eCommerce business marketing campaign with your logistics strategy. So, your customers will experience greater consistency across your business, fostering loyalty. For example, if you run a marketing campaign that offers free next or same-day delivery to customers within a specific area, you can ensure that your fulfilment centres and shipping partners can facilitate this before launching the campaign.
Despite these positives, managing the entire process alone can pose significant disadvantages. Here are some examples:
- Not having access to expert logistics advice
- Working with a smaller network of freight forwarders who may not offer faster delivery
- Very difficult to scale
- Costly to manage when securing large warehouses, paying supply chain management staff and shipping partners
- Inventory control problems as a result of poor integration
Which is better for your business?
So, considering the above, which is better for your cosmetics and skincare business? This depends on varying factors, including business size, future growth plans, current stock and existing operational costs.
However, we believe outsourcing to a 3PL can hold significant benefits for managing delicate goods like skincare and cosmetic products requiring special handling, storage and packaging. Additionally, 3PLs can offer you more time to work on product formulation and identify areas within the beauty market to fill with new products.
3PLs benefit emerging and existing companies looking to optimise their logistics processes. While managing internal logistics can give companies greater visibility and control over their costs, the comprehensive services that 3PLs offer give cosmetic and skincare businesses more opportunities to redirect their time and funds to other crucial business endeavours.
If you're considering outsourcing to third-party logistics providers, why not outsource your product manufacturing through Australian Private Label? Like 3PL services, we can optimise your operations and help you produce impressive products while cutting costs and making life simpler!
Can 3PL services offer cost savings?
In many cases, 3PL services partner with shipping providers and offer exclusive lower shipping rates for their cosmetic business partners. This can lower costs for businesses.
Additionally, 3PL services reduce the need for an in-house team to manage the entire supply chain for a cosmetic and skincare business. You can reduce costs by reducing the number of employees you need.
This allows cosmetics businesses to redirect funds to formulating more premium products or choosing custom product formulation services from private labels.
Why do 3PL services offer better shipping costs?
As mentioned, 3PL services offer better shipping rates by partnering with distribution services that offer special rates to third-party logistics providers. These exclusive rates may be significantly lower than rates offered to stand-alone cosmetics and skincare businesses.
What are the significant disadvantages of using 3PL services?
Some of the significant disadvantages of 3PL services include losing control over warehousing, delivery support and fulfilment.