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3PLs Gain Competitive Advantage from Technology

We live in a global world.  There is simply no getting around that fact.  Around the world, goods are traded, shipped and delivered to the doors of consumers as well as to businesses.  Many factors have influenced the growth of the third party logistics industry.  Numerous industries have consolidated, forced by the need to increase the speed of fulfillment operations and reduce costs.  For example, the drug manufacturers have elected to outsource distribution as well as functional areas of the business model including research, packaging, drug manufacturing and more.

Third party logistics providers are now facing a growing demand for advanced logistics services.  With pressure from globalization, reductions in lead times, complexity in dealing with trade wars and changing tariffs and increased outsourcing of services, 3PLs are relying more heavily on technology.  As shippers find it increasingly more challenging to keep pace with the use and investment in the latest technologies, they are turning for help to their 3PL partners.

In general, shippers tend to be less technologically sophisticated and the growth and change in the field of logistics technology over the past few years can make anyone’s head spin.  Often shippers are highly focused on operational execution rather than finding the best way to execute or innovate.  When online shopping was first introduced, who could have imagined that in only a few short years, consumers would become accustomed to receiving their orders in only one or two days?  Recently, Amazon has upped the ante by investing billions to transition to a one day shipping model.  This has already started a chain reaction, impacting others seeking online dominance, including Walmart and Target.

Why Do Shippers Turn to 3PLs for Technology?

For most shippers, logistics is not their core competency.  Most companies prefer to focus on their core competencies.  This is one of the main reasons why companies choose to outsource warehousing and transportation logistics to 3PLs.  Shippers expect that third party logistics providers have the personnel, processes, technology, expertise and networks to be able to execute fulfillment more efficiently and cost effectively.  Increasingly, these core functional areas have become dominated by innovative technologies including robotics and automation, artificial intelligence, IoT, advanced TMS and WMS and other systems. Logistics technology can be complex, costly and challenging to set up and manage.  This is one of the primary reasons that shippers choose to outsource this and concentrate instead on their core competencies.

In contrary to their customers, for many third party logistics providers, leveraging technology for time and labor intense operations for multiple clients is an intrinsic part of their core operation.

3PLs have learned that using leading-edge technology including 3PL WMS  can be a game-changer, enabling them to fill and ship orders faster, more accurately, efficiently and cost effectively.  In their experience in managing multiple clients, types of inventory and locations, tech-savvy logistics service providers use technology to simplify, present, analyze and monitor information to make data easily understandable and useful for making the best decisions possible.

For most 3PL customers, why commit to a major investment in IT when a third party logistics provider can provide a higher level of service, technical expertise and tools without the outlay of capital?

Because 3PLs service multiple clients, their investment in technology can benefit many companies.  Special agreements and use of technology tools can help customers reduce transportation costs, provide expedited delivery service at lower rates and help shippers meet cycles in their businesses, scaling up or down as needed.  In handling so many different clients, a 3PL is better positioned to be able to absorb rising costs or changes that result from the need to scale a business better than a shipper operating independently can.  Economies of scale, as in any business can provide notable benefits for 3PL customers.

Third party logistics operations often have multiple warehouses or alliances with other warehouse operators, making it more cost effective for shippers to move product in and out of 3PL warehouses without having to invest in warehouse facilities, real estate, labor, technology and operations.

3PLs that invest in cutting edge technologies are the masters of customization.  Using advanced technologies in warehouse and logistics operations makes it quick and easy to meet the needs for customization without huge investments in labor and time.

In recent years, as globalization, supply chain complexity and costs have increased, the need for more and varied value-added services have escalated, ramping up the need for third party logistics providers.  The broad array of outsourced services speaks to the value of 3PLs as true partners to shippers, acting as an extension of their businesses.  This, in turn, has led to a greater need for advanced technology, specifically sophisticated 3PL WMS billing systems that enable third party service providers to capture and bill for every value added service provided.

Data analytics capabilities

Data needed by customers typically includes:
  • On-time and complete order fulfillment
  • Shipment visibility
  • Freight costs per shipment
  • Transit time
  • Cost-to-serve
  • Order-to-delivery cycle time

According to the 2020 3PL Study both third party logistics providers and their clients strongly agreed that 3PLs need to have analytics capabilities.  In reality, often 3PL expertise and aptitude do not match the expectations of shippers.  Part of the problem lies in the availability of “clean data”, that is using only correct, complete, accurate, relevant information.  Another major issue is the lack of adequate analytics resources and the use of skilled, experienced professionals to work on analytics projects.

According to the 2020 3PL Study:

“Shippers are increasingly aware that if they do not have the technological capabilities to accomplish their goals, they should partner with those that do.  As the amount of available data increases, shippers and their logistics partners will need to be able to take the available information and make it relevant.  Many 3PLs are already making significant investments in technology that allow them to analyze shippers’ operations.”

In order to capitalize on IT value-added services in order to ensure that they have a competitive advantage, third party logistics providers need to continually invest in systems and technology.

Why do 3PLs Invest in Technology?

Using leading edge technology helps 3PL operators to maintain necessary profit margins and help ensure business efficiency.  Sharing the use of technology helps to forge stronger bonds between shippers and 3PLs, largely due to improved communication and information sharing as well as meaningful collaboration which produces better results for the customer.

Yes, 3PLs are typically used to provide their customers with execution-based operations. Over time, third party logistics providers began to provide more value-added services, and this has resulted in a differentiation of 3PLs within the industry.  Having the ability to customize value-added services for their clients, adequately price the services and bill accordingly gives third party logistics providers a notable competitive advantage.

How Can Using Technology Provide Added Value to 3PLs?

Third party logistics providers can offer an array of information technology services desired by different types of clients.  By using the technology services and proficiency of a 3PL, clients can alleviate themselves of the need for major capital expenditures as well as the need to recruit, hire, train and monitor higher-priced technology employees. 

Here are some of the technology-oriented services provided by 3PLs:

  • Business intelligence, reporting and data analytics
  • Enhanced operational planning and execution of operations
    • Forward shipping of goods to minimize the impact of rising tariffs
    • Using cutting edge technology in combination with the experience and expertise of the logistics provider facilitates greater efficiency, lower costs-all to the benefit of the customer.
  • Seamless communication with supply chain partners through integration with other systems
  • Real time data visibility
  • Customer relationship management (CRM)
  • Advanced order management, returns processing, reverse logistics and fulfillment
    • Using a sophisticated warehouse management system helps 3PLs and their customers have the ability to deal with the fast-paced changing dynamics of e-commerce fulfillment.
  • Enhanced operations and planning
    • 3PLs invest in technology to provide visibility and monitoring capabilities across the entire supply chain to facilitate track supply and demand for order planning, inventory management, transportation and logistics planning and much more.

For third party logistics providers, investing in technology can be tricky.  Many 3PLs find it challenging to determine the viability of technology solutions without first committing to its use in their operations.  In order to attract customers that value IT capabilities, 3PLs need to consider technology to be essential to their business and allocate the financial resources needed to ensure continued investment and support to sustain this in their business.

Shippers often select logistics service providers with the lowest pricing and acceptable service levels.  Today, pricing is not the only, or often even the most dominant factor in selecting a third party logistics provider.  Shippers understand that they are operating in a more complex, dynamic and fast-paced world that can turn on a dime.  Finding an LSP that leverages technology helps customers incorporate more flexibility, visibility and accuracy into their operations

3PLs use leading edge warehouse management systems to get their customers up and running quickly, shipping management systems to facilitate real time rate shopping and transportation management systems (TMS) to facilitate product movement of freight and DTC deliveries.  Using data about their customers’ operations, a 3PL can monitor and report on supply chain performance, efficiency of operations and yield insight for improved decision making.

3PLs Leverage Customer Web Portals to Improve Service and Satisfaction Levels

Many 3PL warehouses provide secured, segregated 24/7 access to their customers so that they can have real time information visibility into inventory, operations, billing and much more.  Providing this access empowers 3PL customers to take control of their operations, reducing the need for 3PL customer service representatives.  

For third party logistics providers, investing in warehouse management software (WMS) and transportation management systems (TMS) is essential in enabling the collection and analysis of data.  Using operational data provides insight into ways that productivity, efficiency, transparency and accuracy can be improved and costs controlled.  Accessibility to real time data removes the need to talk to customer service representatives, lowering labor costs for 3PL warehouses.  This cost savings can be passed along, reducing rates while providing an elevated level of service and the needed technology-clearly a competitive advantage.

Summary

In the highly energized, competitive 3PL world, thirdparty logistics service providers need to differentiate themselves by providing more advanced or different services to thrive and grow, especially during tumultuous periods of today’s complex supply chains.  The old option of simply being the lowest cost service provider is no longer as effective as it had been years ago.  Lower cost 3PL operators tend to have the least flexibility in meeting the needs for customer adaptation as well as for problem-solving and cost efficiency that benefits their customers.  3PLs which operate on a basis of lower profitability are typically less able to invest in technology and are less able to withstand seasonal swings and the need to accommodate customer scalability.

For 3PL customers, the advantage of using technology is its ability to save on time, labor and cost.  Facilitating information visibility enables shippers to have data whenever and wherever it is needed to make the best decisions possible for the business.  Leveraging data analytics, advanced reporting and dashboards with business intelligence can help ensure that shippers can make decisions faster, “see around corners” and adapt operations, inventory, freight and other relevant factors to their utmost advantage.

For shippers, keeping shipping costs under control is paramount.  From air freight to freight markets, complications and costs abound.  Having access to technologies that produce the needed cost savings, including on shipping rates is essential.  From food and beverage to pharmaceutical and ecommerce logistics, inventory owners value the strategic partnerships with tech-savvy 3PLs and tend to rate the relationships higher in terms of satisfied expectations.

An added value for 3PL providers to invest in technology is the attraction of collaboration with 4PLs.  4PL providers, with their strategic partnerships can be effective in navigating the world of complex supply chains, reverse logistics and especially logistics operations and transportation management.

Helpful Tips for Selecting a Tech-Savvy 3PL

Here are a few questions to ask when looking for the right third party logistics provider for your business.

  • Can using this third party logistics provider save time and money for your business?  What type of technology investments has the 3PL made (and plans to make during the period of your agreement)?  How will this affect your calculation of savings?
  • Make sure that you first provide a list of systems to which the 3PL will need to integrate
  • If you outsource fulfillment, can this 3PL handle the volume of your pick and pack operation?  What kind of technologies will they be using to ensure accurate, timely, high volume fulfillment operations?
  • Does this logistics 3PL work in the area of global trade?  What kind of supply chain solutions are offered by this 3PL to provide visibility across the global supply chain?
  • Is the 3PL using or planning to use leading edge technologies?  How will the implementation of new technology impact your company?
  • What amount of downtime is needed during system upgrades?
  • How much access will you have to B2B ecommerce gateways, systems and platforms as well as to other systems?  Will training be needed and provided?

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