The Financial Benefits of Outsourcing Delivery: A Case Study with PAPL
Outsourcing delivery makes financial and operational sense for a company that doesn’t have a high volume of deliveries for several reasons:
Cost Efficiency
Fixed Costs
Hiring a driver and purchasing a delivery vehicle involves significant fixed costs. These include the salary and benefits for the driver, insurance, maintenance, fuel, and depreciation of the vehicle.
High Cost per Delivery
With a low volume of deliveries, these fixed costs are spread across fewer deliveries, making the cost per delivery disproportionately high. Third party delivery outsourcing can alleviate these burdens by offering a pay-per-delivery model that dramatically reduces the financial strain.
This not only eliminates the need for capital expenditure but also transforms the cost structure from fixed to variable, improving cash flow and budget flexibility.
Flexibility
Scalability of Delivery
Outsourcing allows the company to scale delivery services up or down depending on demand without being tied to fixed costs. If the company has fewer deliveries, they only pay for the services they use.
Third party delivery outsourcing also provides greater flexibility during seasonal peaks or unexpected surges in demand, as third-party providers are often better equipped to handle such fluctuations.
Variable Costs
When using third party delivery outsourcing, the company pays a variable cost per delivery, which can be more manageable and predictable compared to the high fixed costs of maintaining an in-house delivery system.
This model gives businesses the ability to control costs more effectively by aligning expenses directly with sales volumes, helping to safeguard profitability.
Business Owners can Focus on Core Business
Operational Efficiency
By outsourcing, the company can focus its resources and attention on its core business activities rather than on managing a delivery operation, which may not be a core competency.
This shift in focus can lead to increased productivity and innovation in other areas of the business, as teams are no longer bogged down by logistics management.
Expertise of Delivery Providers
Third party delivery outsourcing companies specialise in logistics and can often provide faster, more reliable services than a small company could achieve on its own.
These providers are typically equipped with advanced technology, such as route optimisation and tracking software, that enhances the overall delivery process and improves customer satisfaction.
Lower Risks
Reduced Liability
Outsourcing reduces the company’s liability related to vehicle accidents, maintenance issues, and employee management, transferring these risks to the third-party delivery provider. This means fewer worries and possible consequences and costs for your company.
In summary, for companies with a low volume of deliveries, the high fixed costs associated with maintaining an in-house delivery service can make the cost per delivery excessively high.
Third party delivery outsourcing offers a more flexible, cost-effective, and lower-risk solution.
Businesses have experienced significant savings and operational improvements by leveraging the expertise and scalability of outsourced delivery partners.
Real Case Study
PAPL is a local company that specialises in the sale and distribution of consumer lifestyle products. Its main channels are tourist hotspots and several larger departmental stores across the island.
On an average, PAPL needs to make 25 trips monthly to these stores to replenish, account and arrange their merchandizes. A simple yet conservative calculation of their internal cost would be as follows:
- Van and other related transport costs- $2500
- Employee salary, CPF and perks – $3000
Total cost = $5500
Cost per delivery = $5500/25 = $220
If PAPL has a minimum order value of $500, it may struggle to deliver profitably due to the high cost per delivery.
Past Solution that PAPL Used
PAPL engaged on-demand platform drivers to help trim its cost. However, because of the nature of such services, PAPL could never be assured of certainty and availability of manpower.
Frequently, its team members had to invest time in training new drivers and hoping that they adhere to their protocol and delivery instructions.
This lack of reliability impacted their delivery efficiency and customer satisfaction.
Current Solution with Channel Management Systems
We were referred to PAPL by one of our happy clients.
The transition to Channel Management Systems began with some initial anxiety for PAPL, as they had to train our team members. However, the onboarding process was smooth and efficient, with our team becoming highly independent from the second week.
Our team members knew exactly what to do as we rendered a professional, client-vendor relationship.
The result? PAPL was able to shave more than 60% of its cost while losing next to nothing. In fact, with CMS, it has gained access to a wider network without owing one!
Manpower and vehicle challenges are now a thing of the past, allowing PAPL to focus on their core business operations while enjoying significant cost savings and operational improvements.
Ready to channel your deliveries to CMS?
Our solutions can help your business produce a strong return on investment. Allow us to free you so that you can focus on growing your business. Get in touch with us to discuss how we can best support your business needs.
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