Managing your stock of auto parts can be done in-house, which makes it easier to quickly grab items your customers need. However, as your business grows, you may reach a tipping point where handling things on your own may not make sense.
When your inventory of stored parts outgrows your current storage space, or your demand for parts exceeds the amount of labor you have dedicated to picking the items, it may be time to consider outsourcing your auto parts logistics to a third-party logistics company (3PL).
If you’re considering outsourcing your auto parts logistics, here are some things you need to keep in mind:
Calculate Your Cost Per Order
The first step toward evaluating whether it makes financial sense to outsource your auto parts logistics is calculating how much each order costs you.
Some things to include in this calculation include:
- Cost of goods sold
- Shipping costs
- Storage costs
- Marketing/advertising costs
- Custom packaging
You’ll add up the total costs for groups of orders, then divide by the number of orders, to determine the cost per order. The higher your cost per order, especially when compared to the price of each order, the less profit you’re making overall.
Calculate Your Overhead Cost Per Order
While your cost per order includes some of the variable, tangible costs of fulfilling orders, the overhead cost per order includes some of the intangibles of doing business. Some of these expenses include:
- Salaries
- Benefits
- Training
- Insurance
- Infrastructure costs
- Specialized IT
- Utilities
- Rent
You may not have a concrete number for this metric, but it’s important to do your best at estimating how much overhead each order requires so you can get a more accurate accounting of your profit margins. The higher your overhead, the less you’re making on each order.
Predict Future Costs
Costs change from year to year and, sometimes, week to week depending on the cost of energy, real estate, and other factors. While it can be difficult to predict these fluctuations, it’s important to attempt to at least get a round number you can use when you’re future planning.
This number allows you to create a budget and understand whether or not it’s feasible for you to continue handling all your order fulfillment in-house.
Compare to Costs of 3PL
When you get a quote from a 3PL company, the number can feel high because you’re used to all the smaller costs hiding in your books. But by calculating the cost per order, adding overhead, and then predicting potential future costs, you can better see that working with a 3PL for your auto parts logistics may actually save you money in the long run.
Your East Coast 3PL Partner
At Cannon Hill Logistics, we understand how difficult it can be to balance cost and the needs of your business’ growth. Whether you need some extra warehousing support or you want someone to handle the entirety of your auto parts logistics, we’ve got the skill and experience to take your business to the next level. Get your quote today!
