Companies of varying size are finding incentives to outsource logistics based on their unique challenges.
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In-house fulfillment can quickly become more effort than it’s worth for CPGs, and many find it easier to outsource logistics.
Third- and fourth-party logistics (3PL) distribution comprises up to 50% of direct-to-consumer (D2C) shipping by CPGs, with use of these logistics companies expected to increase, according to a survey conducted for PMMI Business Intelligence’s 2023 report “Packaging and Automation in the Warehouses of the Future.”
For many CPGs, the proportion of their business that is D2C isn’t large enough to be worth fulfilling alone.
“The emergence of e-commerce in our particular category for our particular products has been slow enough that, to date, we’re having that handled outside,” says one representative for a mid-size CPG.
It is not only small CPGs or those that only carry out small amounts of e-commerce business that are turning to 3PLs for help. Some CPGs with a wide variety of products manufactured at different facilities don’t want to spend money on transporting goods between internal sites, which would be required if they were to perform their D2C fulfillment themselves.
Instead, they use 3PLs and ship all goods to a central location where products can be mixed into a singular package and distributed to consumers.
“Many of our sites are focused on specific product families. Well, if a customer wants fruit, snacks, and cereal, then we’re paying transportation costs to our own internal sites,” says another representative from a mid-size CPG. “So, we have to leverage the downstream warehouses and 3PLs to create those mixed loads for us.”
CPGs Find Several Benefits When They Outsource Logistics
Surveyed CPGs say the main benefits they see from 3PL services are flexibility (49%) and scalability (41%).
Flexibility and scalability are top benefits noted among surveyed CPGs.These services allow CPGs who don’t currently have the capability in automation or the size of the organization to increase their storage and distribution capacity.
As D2C shipping falls outside many CPGs’ expertise, using third- party services allows them to expand into this market, while freeing up time and resources to focus on their core competencies, as 38% noted as a benefit.
Other benefits CPGs are finding with these services include cost savings (33%), access to expertise (31%), reduced delays (23%), and access to new markets (20.8%).
“Generally speaking, they have good inventory control,” one large CPG representative explains. “They’ve got space that I don’t have, and they generally are coordinated with the freight companies as well. So it’s really, once it leaves here, it’s done. We don’t have to deal with it.”
When choosing a 3PL provider to partner with, reliability is seen as the most important factor to consider.
As one 3PL company representative puts it, “If you don’t have reliability, and [CPGs] don’t trust you, you’re not going to get a chance to move anything.”
Cost is an obvious consideration for CPG companies and is more important for larger companies that will be dealing with larger volumes. However, even the largest CPGs will only consider a reliable 3PL service.
Source: PMMI Business Intelligence: 2023 Packaging and Automation in the Warehouses of the Future
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