- Hourly Labor and Additional Costs
In the first two parts of our 3PL Cost Breakdown, we presented warehousing cost structures for storage and handling. These two functions cover the scope of what the industry would view as standard warehousing functions. However, when working with third party logistics providers it is very common for customers to have needs for additional services not covered under normal storage and handling. Whether or not customized rates are set up for these activities (oftentimes these requirements come up after the initial rate agreement is in place), the bottom line cost is usually derived from an actual labor cost to handle the given function. Here we will go over some of the different forms of labor in the 3PL environment.
As simple as it sounds, Warehouseman Labor is the price to the customer for a single warehouse employee to work on a task after considering the 3PL cost and markup. Tasks outside of the normal scope of services that incur Warehouseman Labor charges will include:
– Value-Added Services (VAS): Most 3PLs have a VAS department to take on special projects for clients. Typical projects include retail compliance labeling, reworking items or packaging, and kitting.
– Sort and Segregation: Sort and segregation is required any time inbound deliveries contain items that are mixed within the container or trailer and require going through all the items to break them out by SKU. Normal inbound handling and unloading charges do not usually cover sort and segregation.
– Inventory Inquiries and Inspections: Since most 3PL companies are not in close proximity to the customers, their customers may need them to investigate certain items. Maybe certain lots need to be inspected, case packs counted, or anything else that the customer cannot do remotely.
It is good practice in logistics and warehousing to keep clerical labor to a minimum. This is mainly because the more clerical work involved usually results in increased data entry error and processing time. Nonetheless, from time to time there may be a need to have customer service representatives doing tasks outside of normal order processing. These tasks included but are not limited to special routing, manual ASN entry, entering or changing item profiles, or any other special requests that require data entry or database management.
Technology is a very significant function for 3PLs, and if your prospective 3PL does not have IT solutions, you might want to reconsider. However, with technology comes maintenance and implementation. Likely the largest IT piece in warehousing is electronic data interchange (EDI). Some 3PL companies have specific rates for EDI such as trading partner setups and transaction fees. IT development might also be required when setting up new processes and automation in the warehouse.
The best recommendation when understanding pricing and working towards setting up pricing with a 3PL is to list out every task you can think of that might be required of the 3PL. Anything that you think might not be covered under normal handling and storage should be addressed with the 3PL and implement specific prices for those activities. Otherwise, you may be hit with high hourly labor charges that could have been negotiated at a lower rate to begin with.
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