Asia Development Bank (ADB) projects Indonesia’s digital economy to be worth $133 billion by 2025. It will represent about 50% of all e-commerce transactions in the ASEAN (Association of Southeast Asian Nations) region.
However, businesses in Indonesia are riddled with logistical challenges involving the country’s geography. If you are a manufacturer, a small business owner, or run an e-commerce business, managing your own logistics becomes even more complex as it is directly linked with customer satisfaction.
Partnering with a third-party logistics company (3PL company) is a better strategy to ensure perfect order fulfillment. You can manage time planning, capacity setting, on-time production and distribution, transportation mode selection, and much more.
Here we shall look at the meaning of 3PL, the scope and benefits of partnering with a 3PL company, and ultimately, how to choose a 3PL provider in Indonesia.
What is a 3PL Provider in Indonesia?
A 3PL company is a firm [that] provides multiple logistics services for hire. Preferably, a 3PL provider integrates these services for better customer service.
Interestingly, 3PL companies may store and transport goods without owning them. They can operate easily at any supply chain level so that a manufacturer or wholesaler may outsource part or all of its logistics to a compatible 3PL logistics firm, which handles the entire process in Indonesia.
Among the top services that 3PLs in Indonesia provide are
- E-commerce fulfillment
- Warehousing & distribution
- Inventory management
- Inbound transportation
- Outbound transportation
- Cross-docking (real-time unloading and transferring of products from an incoming vehicle to an outgoing truck to minimize or eliminate holding costs)
- Product packaging
- Freight cargo
- Air cargo
- Freight forwarding
- Customs Brokerage
- Product return services
- Logistics information systems
- Financial services
- Sales support
These 3PL work processes can be broadly understood per the following:
- Warehousing & Transportation
A 3PL company streamlines different logistics services, typically involving transportation, warehousing, and order fulfillment. You can schedule a pickup, ask third-party logistics to collect products from your suppliers and deliver them to your end customer. Alternatively, you can store products at 3PL warehouses.
Regarding transportation, 3PL companies can cooperate with private fleets, track freight payment, and insurance paperwork, consolidate LCL or LTL freight, and employ carriers.
Ultimately, the 3PL company receives the order from your business for fulfillment (from your e-commerce site integrated with 3PL’s platform).
- Picking & Packing
The 3PL warehouse team selects items in accordance with the order, packs them, and prepares them for shipping. Many 3PL companies also offer distribution and wholesale services such as outbound order fulfillment, picking and packing, custom labeling, and manufacturing.
3PL companies are responsible for printing and affixing delivery addresses, receipts, and order labels to the packed boxes, but sometimes they outsource the labeling to a specialized logistics partner.
- Shipping & Receiving
3PL collect packages from the warehouse and delivers them to a distribution center. From here, the packages are connected to a last-mile courier or directly delivered to the end customer. Further, 3PL companies use reverse logistics for your e-commerce business to process returns.
Types of services from 3PL
3PL service providers have grown over the years, especially with the advent of the e-commerce business model. Sometimes, 3PL companies own their assets for business operations or provide managerial/technical assistance in operationalizing logistics. Some commonly known 3PL types based on your business models that operate in Indonesia are:
- Transportation-based 3PL
Teams in these 3PL firms focus on transportation from factories to warehouses and then to customers.
- Distribution-based 3PL
Such 3PL warehouses store your products until you send them orders. When a 3PL provider receives an order, it selects items from its inventory, packages them, and ships them to the recipient.
- Forwarder-based 3PL
Such 3PL companies direct stock from your warehouse to a carrier who handles delivery to a courier or end customer.
Financial-based 3PL firms provide online solutions for e-commerce logistics involving freight payment, audits, inventory accounting, and financial management.
- 3PL customer developers
Best suited for enterprises, 3PL customer developers can completely take over your logistics activities. Such 3PL companies also build and deploy new logistics systems on their own to maximize efficiency.
- 3PL service developers
Such 3PL service developers like Locad provide IT infrastructure and management. Locad offers value-added safety and dependability services such as
- Shipment tracking
- Compliance management
- Order consolidation
- Package selection
3PL logistics cost
Here are some common costs related to 3PL logistics that you should know:
- 3PL inbound shipping costs
Inbound costs relate to the shipping of goods from your production site to its final destination. 3PL companies in Indonesia may typically charge you higher than usual courier services due to inventory management and operational expenses such as picking, sorting, packing, and inspecting products.
- 3PL warehousing costs
Alternatively, you can choose 3PL warehouses for faster and more efficient order fulfillment. 3PL warehousing companies in Indonesia will charge you based on
- Space occupied (square or cubic footage, pallet space, bin space)
- Inventory positioning (as close as possible to your customer base)
- Type of goods (like hazmat)
- 3PL handling costs
Your 3PL partner company may charge you an additional surcharge for handling any hazardous materials and other special goods. Additionally, you can ask your 3PL logistics partner to fulfill value-added services like kitting, eco-friendly packaging, and inserting marketing materials at extra cost.
- 3PL shipping costs
Any 3PL will charge you a fulfillment fee based on volume, weight, distance, shipping speed, or a combination of all. If your 3PL provider in Indonesia is charging you more than common carriers for freight shipments, speak to their customer service to negotiate lower shipping costs.
- 3PL aftercare costs
You can ask your 3PL partners in Indonesia to process product returns or exchanges. They will charge you for end-to-end reverse logistics, from communicating with your end customer, shipping and receiving unwanted products and sorting and evaluating returned items.
What Do 3PLs Do in Indonesia?
3PL is an effective arrangement for outsourcing e-commerce logistics processes such as inventory management, warehousing, and order fulfillment. Let’s look at how 3PL companies handle it in Indonesia:
Given Indonesia’s location, connecting geographically separated islands can be complicated and stressful for enterprises. It is here where a 3PL company can handle worldwide shipping logistical requirements such as customs, freight forwarding, and consolidation, thereby freeing up your time and resources for the core business.
Extensive warehousing & transportation services
3PL warehouses are integrated into a company’s management system to get live opening, closing, and dead stock reports. Many warehouse 3PL providers offer customizable ways to handle storage, distribution, and product transportation.
When it comes to transportation, 3PL companies update live tracking information with an ETD (expected time of delivery) on your order management platform. The POD (proof of delivery) is subsequently uploaded upon delivery.
Enhance customer satisfaction
It is never too easy to satisfy any customer. 3PL in Indonesia understands it and offers various fulfillment services, including pick & pack services, order consolidation, and post-delivery support directly to your end customer. Further, you can ask your 3PL partner to determine if the returned package should be restocked, recycled, or disposed of.
Factors to Consider When Picking a 3PL Provider in Indonesia
A survey in a World Bank report noted 39% of respondents chose cost, while the other 30% and 31% considered reliability and timeliness as their most important logistics performance indicators. While the opinions are divided among businesses, here’s how you can go about choosing a 3PL provider in Indonesia:
Step 1: Document your 3PL requirements
Success is never achieved through gambling but with calculated risks. In other words, listing out priorities per your business vision will help you find the right type of 3PL logistics company. Start with forecasting sales and projecting order volumes based on industry-specific trends.
Step 2: Research your 3PL options in Indonesia
Indonesian 3PL providers offer various services so that you don’t have to spread your logistical needs across multiple touchpoints. Any 3PL provider with a wide range of capabilities will offer better flexibility in customizing solutions to your business needs. They will also be able to handle logistical changes that occur as your business scales up in Indonesia.
Step 3: Know your 3PL provider in Indonesia
Now that you have narrowed down the top 3PLs in Indonesia, it is important to pick a 3PL company that aligns with your business goals and values. You may measure the proficiency of your 3PL provider in Indonesia using the following parameters
- Technology integration (ERP, GPS, RFID)
- Company experience
- Warehousing facilities
- Market share (Domestic and International)
- Customized service
- Payment flexibility
Look out for the most desirable traits in 3PL companies below:
- Company reputation
The disruptions in the recent past have already laid down the path; you have to be in business with third-party partners who are constantly investing in themselves. A 3PL company with mere illustrious history differs from a 3PL company that records growth through reinvestment. In other words, the company’s reputation is also a measure of periodic updates in its equipment, facilities, tech, labor, and pricing.
- Employment of the latest technology and integrations
Any third-party logistics are expected to have WMS (warehouse management systems), EDI (electronic data interchange), and various tracking systems for order fulfillment. You must look out for a 3PL logistics company that can integrate seamlessly with your existing ERP (enterprise resource planning) and other systems for growth and efficiency.
Inquire about the Warehouse Management System and accuracy rates of your 3PL provider. A simple thumb rule here is to consider other options if they are lagging behind technology adoption or if their accuracy rates of order fulfillment are less than 99%.
- Safety provisions for the consignment
Consignments involving hazardous goods or special category goods require industrial knowledge in handling, transportation, packaging, and delivery of goods. Opt for a 3PL company with experience in handling hazardous items. Also, ask for a curated insurance package or other financial products from your 3PL in Indonesia.
- High-level customer service
It is imperative for your 3PL company to offer proactive customer service, responsiveness, and communication to your business. However, the deal-breaker is to determine how well your third-party logistics partner will represent your company, its principles, and values when dealing directly with your customers and acting on your behalf.
- Legal compliance with government regulation
The Indonesian Government issued Government Regulation No. 80 of 2019 on Trading Through Electronic Systems (GR 80). The regulation intends to govern the rapid growth of e-commerce in Indonesia and emphasizes more on consumer protection.
Since order fulfillment through third-party logistics exposes end-customer data, you may analyze the company policy on personal data protection before choosing a 3PL provider in Indonesia.
- Scalability and flexibility
Planning for redundancy defines your rate of success in good times. You can start it with the following:
- Choosing a 3PL provider who is familiar with the complexities of logistics order fulfillment in your sector or business category.
- Choosing a 3PL service provider that will accommodate your dynamic order fulfillment requirements, keeping the overheads low for both parties.
- Choosing a 3PL partner with an established network of strategically positioned facilities and warehouses for faster order fulfillment.
- Looking out for omnichannel logistics technology to combine inventory tracking, logistics, and distribution across sales channels for greater transparency.
Benefits of 3PL Companies
Here’s how your business can benefit from 3PLs in Indonesia:
Launch in new domestic & regional ASEAN markets with ease
You can easily rely on a 3PL warehouse coupled with sophisticated tools to expand into new Indonesian and regional ASEAN markets. Third-party logistics can make necessary adjustments via custom management software and continuous supply chain monitoring systems to eliminate inefficiencies. This will ultimately lead to savings during your logistics initiatives.
Free up capital that’s tied up in warehouse spaces
3PL warehouses can efficiently replace your need for storage, handling, and delivery of produced goods. Partnering with 3PL logistics in Indonesia that aligns with your business requirements can help manage your supply chain, allowing you to focus more on your core business. Further, small businesses can now ensure the efficient distribution of large product quantities.
Reduce your overhead costs
3PL companies can minimize overhead costs involving inventory management, transportation in Indonesia, staff, and tracking technology, among other things, for manufacturers, wholesalers, or retailers like you.
Insulate your business against global supply chain disruptions
3PL logistics can ease your business transition between seasonal periods and industry fluctuation as they can scale space, handling, and transportation per your current requirement.
Act as financing providers
Some 3PL companies offer financing to retailers like you. An article published in the European Journal of Operational Research proved that a retailer with adequate working capital benefits more from 3PL financing due to lower purchasing (ordering and transportation costs) and financing costs.
The role of a 3PL logistics partner in securing a competitive edge for your e-commerce business is well-understood. The rapidly growing e-commerce sector, coupled with the cost, reliability, and timeliness of increasing automation and digitalization in logistics processes, determines your choice of a 3PL service provider in Indonesia.