By Robert Carver
The latest studies show that third party logistics (3PL) providers have upped the ante in recent years, becoming a strategic resource for distribution and logistics processes. They’re assuming larger contracts, more complex projects and greater responsibility as trusted advisors to companies navigating the omni-channel landscape.
There are advantages – cost savings and operational efficiencies – that stem from leveraging 3PL partnerships. And as the technology gap closes between leading 3PL providers and the companies they support, collaboration will only grow.
The 3PL market is shifting, with consolidation growing. How can smaller players stay viable? How can 3PLs succeed as competition stiffens? Here are five things for 3PLs to keep in mind to reinforce value and grow business:
1) Think Bigger than Projects
The real opportunity for 3PL growth is fostered by taking decisive action to expand strategic activities with customers – beyond the transactional projects that 3PLs are known to do well. According to the Annual Study on the State of Logistics Outsourcing, “Activities that are strategic, IT-intensive and customer facing tend to be outsourced to a lesser extent.” If 73 percent of customers are satisfied with their 3PL providers and 92 percent of shippers report successful relationships with their 3PLs, the timing is ripe for providers to demonstrate their ability to do more with their existing customer base, extending services and lengthening contracts by building off their rapport and track records. Client stewardship builds trust that becomes a springboard for additional responsibility, and beginning with existing customers, creates a foundation to bring in new customers with larger, more strategic oversight across greater supply chain functions from the get-go.
2) Champion Value-added Services
Thanks to omni-channel requirements and growing customization preferences, the warehouse is increasingly a catch-all for kitting and packaging complex orders that extend well beyond individual item or pallet delivery fulfillment. 3PLs can suggest new ways to execute orders, thinking of the different stakeholders they deal with as product moves further downstream. Whether asset-based or not, a 3PL’s knowledge of operational best practices within the modern warehouse and their distribution centers will make clear they know how to use their resources creatively to come up with new ways to deliver a stellar product. Keeping options on the table for value-added services will make 3PL recommendations valuable, which is a gold star for customers who may struggle to advance their logistics to respond to varying customer requests. In 2013, value-added warehousing and distribution contributed $35.9 billion in gross revenue to the 3PL market, according to an Armstrong & Associates report, making it a key source of revenue potential for third party logistics providers to develop further.
3) Invest in New Fulfillment Strategies
Knowledge of new fulfillment strategies can be a key differentiator for 3PLs when companies are in the market to outsource, especially given the changing omni-channel landscape. Nearly one third of respondents in a 2015 3PL survey indicated they were unprepared to handle omni-channel retailing; only 2 percent consider themselves high performing in this space. Given the complexities of order fulfillment today, 3PLs who can solve businesses’ omni-channel woes will prove to be strong partners. Because this is not a mature process within the supply chain, 3PL providers need to develop their execution capabilities to make omni-channel a reality for more of their customers.
4) Befriend Big Data
Big data is important to support many business objectives, with supply chain being one of the most important beneficiaries. Companies need to rely on big data for historic analysis to forecast demand moving forward, and 3PLs who have a strong grasp on big data are more likely to be made privy to information surrounding larger business objectives. Whether through improved internal processes – using CRM tools, for example – to relay orders more efficiently and communicate progress to customers, or through better visualization of activity and trends affecting warehouse inventory or shipment status using business intelligence platforms, big data should be applied consistently to 3PL business strategy.
5) Consider Software Configurability and Functionality
The way that 3PLs execute effectively is dependent on their use of core technology systems. Whether their systems integrate with their customers’ or they use the same systems, 3PLs need to have strong warehouse management systems that match their customers’ internal technology capabilities and expectations. Once 3PLs invest in WMS, they need to show they’ll be able to incorporate them into their day-to-day, requiring configurability to suit different needs.
Companies should expect the following functionality from best-of-breed WMS solutions:
- 3PL Invoicing
- Item ownership at the warehouse location level
- Self-serve customer access to their data
- Multiple communication channels
- Flexible billing
For asset-based 3PLs, automated facilities can extend the application of WMS solutions. These investments add weight to a renewed strategic commitment, making project extensions easy to execute and envision.
Companies achieve real gains with greater end-to-end operational visibility. And the right technology connects all of the pieces together when reaching for new growth goals, as more 3PLs are realizing. Systems integration will ensure that the flow of information is continuous and the opportunities for collaboration are abundant. WMS should integrate easily with ERP and shopping systems to extend real-time insights taking place on the warehouse floor to other areas of the business where adjustments can be made with that information.
Without the right technology, 3PLs simply cannot take on larger projects or more strategic roles. Technology is the lynchpin for 3PLs committed to taking on more aspects of a customer’s supply chain needs and for finding opportunities for improved efficiency. Integrated ERP and WMS solutions make the transition to larger roles and responsibilities for 3PLs possible.
Changing the Mindset Requires a New Approach to Technology
Companies have traditionally developed their infrastructure and technical capabilities historically at a much faster pace than their 3PL counterparts. But that is rapidly changing – and as new technology is being adopted, 3PLs should consider all of the performance options available to them to make their investments worthwhile.
Competent 3PLs may consider success to be hitting execution benchmarks; but in order to be thought of more strategically, they’ll need to adjust that definition. 3PLs that excel in customer service and Big Data analysis while running operations more efficiently using a strong WMS solution will be well on their way to delivering additional benefits to existing and new customers.
The Promise of a Strategic Partnership
Companies who rely on 3PLs more often will benefit from 3PL warehouse capacity, transportation fleets and carrier relationships. When in sync, the decision is easy for companies to invest more heavily in 3PLs – all 3PLs need to do is make good on their promises for smooth logistics, customer care and innovation.
Taking a strategic approach gives 3PLs an opportunity for greater influence in the supply chain.