Turning Fixed Logistics Costs Into Variable Costs via Outsourcing

Too many fixed costs can sink any business—especially newer businesses without a steady profit stream. Fixed costs refer to recurring costs such as rent, taxes, utilities, salaries, and other such necessities. Unlike fixed costs, variable costs fluctuate based on multiple factors, such as product volume or service usage.

In most cases, variable costs are preferred because they adjust proportionately to the peaks and valleys of the business. Variable costs offer an ideal way for many shippers to keep money in their proverbial pocket when things are slower without sacrificing service when orders pick up.

While some of these costs cannot be avoided, many can be converted to variable costs by enlisting a third-party logistics (3PL) provider. The following expenses can be made variable via outsourcing:

Real Estate

When sales underperform, it can be difficult to scale warehousing or fulfillment operations to match if a business directly owns or leases these facilities. The rent still has to be paid whether the storage space is full or not.

Through multi-tenant facilities, 3PLs can scale storage space based on your current demand. 3PLs can monetize unused space by leasing to other clients and expand your storage space during peak sales periods or in the face of unexpected demand. This convenience also extends to the additional utility costs associated with cold storage.

Material Handling Equipment

From forklifts to conveyors to indoor cranes, the upfront cost of material handling machinery can be intimidating for businesses of any size. New and functional equipment can often be out of reach entirely for small and medium shippers—especially those who don’t maintain high sales volumes all year round.

A 3PL offsets this cost more easily because they can spread it across multiple clients. For a logistics provider, material handling is an indirect cost rather than a direct one, so the impact on client rates is often minimal.

Software

The fixed cost of logistics software solutions can eat away at a direct owner’s supply chain budget. Efficient operation often requires a variety of solutions, such as warehouse management systems, transportation management systems, yard management systems, electronic resource planning, and more.

3PLs roll these costs into their customer rates, often providing a substantial discount over what the shipper would pay for the solutions directly. Given the narrow margins faced by logistics providers, most have invested heavily in a full suite of supply chain solutions to drive efficiency in every area. Customers ultimately benefit from these investments at a much lower cost.

Labor

The supply chain sector faces a shortage in both skilled and unskilled labor, making it difficult for many shippers to maintain a reliable workforce. This shortage extends from the warehouse floor to the manager’s office.

While reliable labor is perhaps one of the greatest benefits offered by 3PLs in general, turning labor into a variable cost offers a substantial positive impact on the bottom line. The 3PL handles human resources, insurance, and other benefits, all while scaling labor up or down based on demand for each client.

Reduce Your Fixed Costs With a 3PL

Through these services and many others, 3PLs offer a means for shippers to turn potentially crippling fixed costs into more manageable variable expenses. Reach out to your 3PL and ask how they can help you reduce the strain of fixed costs on your budget.

If you would like to learn how Phoenix Logistics can help you, please contact us today.