COVID-19 Shifts Grocery Supply Chain to 3PL Outsourcing

18 Ways that 3PLs Help Grocery Retailers

If there is one thing that businesses should have learned from the COVID-19 global pandemic is that their companies need to be agile enough to “roll with the punches”

Grocery store retailers have seen the light.  Consumers, pushed by the pressure to remain safely at home earlier this year have been grocery shopping online, picking up curbside or retrieving online grocery orders from their doorsteps.  Fast and furious, consumers waded through weeks of waiting as the grocery home delivery industry ironed out the kinks in their transportation and logistics.  Today, most consumers report higher levels of customer satisfaction as home delivery waiting times have abated with same day service typical in many, if not most markets.

Many grocery retailers have joined forces with 3PLs to increase the efficiency of their supply chains, get access to warehousing closer to urban areas to expedite home deliveries and for many other reasons.  With margins razor thin, wringing as much cost out of grocery supply chain operations is critical. 

Why should a grocery retailer outsource to a third party logistics provider?  Numerous reasons, as it turns out:

01. Technology

As reported in the annual 3PL Study, shippers often outsource to 3PLs if they lack the technological capabilities needed to accomplish their goals.  It is common to find 3PLs that have made significant investments in technology, knowing that it provides a competitive advantage.  This includes but is not limited to warehouse management systems, business intelligence, real-time track and trace and transportation management solutions.

02. Locations

3PLs frequently have warehouse and distribution facilities within close proximity of population centers, enabling quick delivery windows, ideal for home delivery directly to consumers.

 

03. The Need for Speed

Grocery retailers deal with perishable products and need to ensure high quality, safe food products.  In addition, they need to accommodate shorter delivery windows and meet changing consumer demands and expectations.

 

04. Expertise

Leveraging 3PL core expertise in inventory management as well as cold chain management of perishable goods is an important consideration in outsourcing.

 

05. Reducing Middlemen Decreases Costs

Use of a 3PL eliminates distributor markups.

 

06. Efficiency

Outsourcing to a 3PL helps streamline the process of getting products to market quickly.  Less steps in the supply chain means less time and cost.

 

07. Competitive Advantage

Grocery retailers now need to compete with the big dogs, Amazon and Walmart.

 

08. Service+++

3PLs can provide enhanced service offerings such as temperature controlled warehousing, lot code and date management, packaging, such as configuring products into variety packs to create a new SKU, endcaps for promotions, etc.

 

09. Streamlined Operations

As experts in core operational processes and ways to optimize supply chains, grocery retailers often rely on 3PLs for more efficient distribution operations.

 

10. Rapport

Outsourcing helps to establish a direct relationship with grocery retailers as it eliminates the middlemen.

11. Labor strategy

Like Amazon, Walmart has had a transformative effect on warehouse labor cost in the grocery industry.  Warehouse labor is frequently unionized.  Unionized labor is expected to compete against nonunion labor rates such as those at Walmart that are half that.  3PLs have labor costs that are half that of unionized labor and tend to compete effectively against Walmart.  3PLs tend to pay lower wages and offer fewer benefits than grocery retailers.  This is especially important when comparing to unionized labor.

 

12. Transportation and Shipping Costs

Outsourcing to 3PLs is often done to take advantage of their ability to handle mode optimization and consolidation programs.  This helps to mitigate risk and maximize efficiencies for 3PL clients.

 

13. Flexibility

Use of 3PLs is popularity as it enables increased flexibility and agility, critical in dealing with the changing dynamics of customer demand, supply chain risk and a challenged economy.

 

14. Increased Capacity

Outsourcing to a third party logistics provider can provide access to capacity that may be greater than that of asset-based providers

 

15. Facilitates Growth Strategy

Some grocery retailers have prioritized company growth and prefer to pay for distribution labor as an ongoing operating expense so that they can invest more capital into more stores.  Another strategy involves grocery retailers selling off their inventory and distribution centers to enterprise-sized wholesale distributors to reduce corporate debt.  Outsourcing to a 3PL is typically less expensive than maintaining an internal workforce to run a distribution operation

 

16. Freight Cost Management

Outsourcing to a 3PL opens the door to shipment consolidation, LTL deliveries and the ability to build loads with multiple food shippers to keep freight costs under control.

 

17. Facilitates Brand Strategy

Useful for brands that want to avoid using food brokers or selling to food distributors.  These food brands prefer to maintain direct relationships with grocery retailers and avoid markups by food brokers or food distributors.  Outsourcing to a 3PL that is experienced in grocery retail deliveries is critical in meeting buyer requirements to avoid retail chargebacks.

 

18. Streamlines Re-Supply

Products can be pre-positioned in key locations in a variety of 3PL warehouses for re-supply with reduced order-time transits to keep up with consumer demand.

How Have 3PL Warehouses Helped Grocery Stores Ensure the Food Supply Chain for Consumers?

Early in the COVID-19 pandemic, there was a flurry of consumers purchasing beyond their immediate needs, (panic buying) causing spikes in order volume at distribution centers.  As retailers rushed to react to escalating consumer demand, inventories at the distribution centers were quickly depleted. This problem temporarily overflowed to 3PL warehouses.

As the problem with roller coaster consumer demand continued, food manufacturers bypassed forward warehouses and started shipping directly to retailers, reducing inventory at third party logistics warehouses.  During the pandemic, however, the supply chain continued to adapt, resulting in a need for supply chain and e-commerce services for hot selling items including personal protective equipment (PPE), hand sanitizer, cleaning supplies and other goods.

In addition, many 3PL cold and ambient warehouses have reported being besieged by calls from smaller brands trying to get their goods online.  Reaching out to 3PLs for help with e-commerce omnichannel fulfillment, warehouse and distribution services is common as third party logistics providers tend to invest in technology both to service their customers as well as for their use.

Conclusion

Despite what you may have heard, the grocery industry remains intact and the food supply chain is not broken.  As we continue to deal with the dynamics of the COVID-19 global pandemic, consumers will be able to do their grocery shopping in person or enjoy the convenience of online grocery shopping from home.  There is plenty of food as well as numerous options.

Because of these factors, grocery retail supply chains are in the process of adjusting.  Outsourcing to third party logistics providers is part of that transition.  Gone are the days of simply watching the projections for forecasted demand and engaging with food brokers and distributors to stock store shelves.   Today, the mechanisms of planning and control are more challenging, no matter the product category.  The entire process seems to be on steroids.

3PLs can play a vital role in helping grocery retail supply chains and directly impact both consumer satisfaction and the retailer profitability, all while providing the flexibility needed for these dynamic times.

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