During 2022, many manufacturing companies anticipated consumer buying to continue at elevated levels, and therefore, increased their inventory. However, due to high inflation, a slower economy, less economic incentives, and other factors, consumers did not spend at the expected rate. Consequently, many of these companies spent 2023 trying to monetize and reduce their inventory on-hand. Had companies engaged the services of third-party logistics (3PL) providers, perhaps the issue of inventory surplus could have been avoided. Outsourcing inventory to 3PL providers allows manufacturers to devote more time and resources to moving their inventory while the 3PL providers focus on fulfillment.

3PL provider capabilities and their impact on manufacturing companies

3PL providers are external companies that offer logistics and supply chain management services. Standard 3PL providers typically specialize in various aspects of the supply chain, such as transportation, warehousing, order fulfillment, packaging, and distribution, among others. When the utilization of a 3PL provider is carefully considered and strategically planned, the benefits can reach beyond time and cost savings, since these providers have the capability to deal with customer complaints, manage inventory, fulfill deliveries, and accept returns from buyers. This assists manufacturing businesses in streamlining their logistics processes, managing inventory effectively, and improving overall productivity, and as a result, leadership can turn its focus towards growth and optimizing operations.

3PL services also offer businesses flexibility and scalability, which allows them to efficiently adjust their logistics operations based on fluctuations in demand and market conditions.

3PL providers invest heavily in automation and various technology systems, and through use of customized software and technology platforms, they can effectively manage inventory by monitoring inventory levels, directing warehouse operations, and leveraging real-time tracking to enhance visibility and control within the supply chain.

3PL providers also offer expertise and resources, which improve the efficiency of a business by bringing specialized depth to the supply chain. This can include a range of value-added services, such as product customization, management of returns, and customer service, which help leaders gain a competitive advantage while concentrating on scaling their business.

As manufacturing companies expand into international markets, they face various challenges related to the specific documentation, customs, and transportation regulations in new geographies. In addition to providing regulatory guidance, 3PL providers with experience in international trade and global supply chains can help efficiently navigate many complexities, including security protocols, transportation challenges, and international trade requirements, so companies can continue focus on their core competencies.

How to evaluate the ideal 3PL provider for your manufacturing company

Prior to enlisting the services of a 3PL provider, manufacturers should consider several key factors. These include the price, scalability, and size of the 3PL provider’s facilities as well as its location, which is essential and should be within the operational geography of the business. Manufacturing companies may also consider whether potential 3PL providers can ensure:

• Clear communication and collaboration to understand the company’s objectives and expectations,
• Seamless integration of the provider’s internal systems with the company’s technology and systems,
• The presence of a risk management strategy to address any potential disruptions in the supply chain, and
• Compliance with specific industry best practices and standards, regulations, mandatory licenses and certifications, and other necessary requirements.

In today’s competitive market, it is advantageous for manufacturing companies to understand the services 3PL providers offer and how electing to work with them can benefit their business. Manufacturers can gain industry knowledge, regulatory expertise, warehouse space, infrastructure, and other available resources through the use of 3PL providers to help improve efficiency while focusing on business strategy and growth.

Citrin Cooperman’s Manufacturing and Distribution Industry Practice professionals possess extensive knowledge that can help guide manufacturing companies through the evaluation of 3PL providers for their business. For more information, reach out to your Citrin Cooperman advisor or contact Mihaela Popa at mpopa@citrincooperman.com.