How to Get Your 3PL Business Ready Now for a Recession3PLs that leverage technology can thrive during the downturn
For quite some time now, economic experts have been warning of a coming recession. Rather than rehashing the signs of a coming economic downturn, in this blog we will focus on how you can prepare your 3PL or supply chain business for the seemingly inevitable recession with a special focus on the role that technology and innovation can play.
Will This Recession Be Different?
According to industry experts, yes. In the past 10+ years, business models have changed. Industry surveys indicate that most companies plan to use investments in technology and innovation to power them through the coming downturn.
Leveraging Technology and Innovation during Challenging Economic Times
Grant Thornton is one of the world’s leading organizations of independent audit, tax and advisory firms. A Grant Thornton LLP survey of middle-market C-suite leaders and business owners has produced some surprising results. More than 250 business owners and C-level executives from companies with revenues ranging between $250 million and $3.5 billion was surveyed in late June 2019. Here are some of the results:
- 62% of the survey respondents anticipate a recession within 18 months
- More than half of survey respondents value innovation and innovation-related activities as one of their top investment decisions in advance of a recession. Most respondents are counting on their continued investments in technology and innovation to help carry them through the period of financial downturn.
Why Companies are Planning Strategic Technology Investments before a Recession
- Using technology enables companies to better manage inventory levels without carrying unnecessary inventory costs.
- 43% of survey respondents indicated that they monitor customer demand patterns
- 36% of respondents are implementing systems to track and maintain inventory levels
- Big data capabilities and technology tools that were not in use during the last recession are anticipated to be in more widespread use soon
- Innovation can be used in data gathering and analytics tools to improve forecasting and financial management, crucial during a recession
According to Chris Stephenson, National Managing Principal of Grant Thornton’s Financial Management practice, “Most companies believe a recession is coming, and the key is to plan now-then invest in, innovate and execute on the core business during the downturn, which will position companies that do to dominate the recovery. Companies that approach a recession with the discipline to control expenses and manage cash, but with a matching vision to align ongoing investment with strategy and opportunity, can win the downturn rather than merely surviving it.”
3PLs and Technology
As with many industries, the supply chain logistics industry is already in the throes of an accelerating technology revolution. From digitization, blockchain and AI to machine learning, robotics and drones, supply chain companies have moved from being merely mesmerized by the potential of innovative new technologies to warmhearted adoption.
Yes, supply chain logistics companies have overcome their fear and loathing of change and technology, primarily because most companies, especially in the 3PL arena now accept that using innovative technologies can give their businesses a competitive edge. Many shippers depend upon third party logistics providers for technology and IT services. (In many cases, the 3PL that is using cutting edge technologies often wins the business.) Technology is more than simply panache. It is a game changer, enabling operations to eliminate errors, streamline for efficiency, catapult labor resources into the productivity stratosphere.
In order to remain competitive, your business must rely on working technology, not outdated legacy systems but rather cutting-edge technology that shaves minutes off tasks, eliminates costly errors and helps ensure customer satisfaction. If you are a 3PL, this is especially important as customers expect third party logistics providers to have and use technology to the fullest extent. Technology is a key differentiator between 3PLs.
As a matter of fact, 70% of the respondents to the 2018 Third Party Logistics Study cited warehouse/distribution center management systems as one of the primary IT systems or tools a 3PL must have to service a customer successfully.
According to the 2019 Third Party Logistics 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 information and make it relevant as many 3PLs are already making significant investments in technology that allows them to analyze shippers’ operations. The majority of shippers-93%-agree that IT capabilities are a necessary element of 3PL expertise, and 55% of shippers agree they are satisfied with 3PL IT capabilities.”
What has the supply chain learned in the past 10 years? Speed and having the flexibility to adapt quickly to changing market dynamics are critical.
View the Recession as an Opportunity and View it as a “Reset”
In advance of and during a recession, brands that invest in themselves and offer more perceived value tend to retain existing clients as well as create more opportunities to expand their client base. in the past ten years or so, in addition to cyclical recession, it seems that there is a continuous state of crisis, constant disruption and a world economy that changes faster than businesses can seem to adapt. This dynamic trend is forcing companies to adapt at a faster pace. This means more investments in technology, the need to upgrade workforce skills and continual analysis and measurement to determine ways to impact client needs. The fevered pitch at which businesses operate can tend to make people more creative, innovative and productive.
With economic downturn invariably comes opportunity, learning to “do more with less”. In these challenging moments, it is often time to uncover unmet client needs and identify opportunities for new products and services to fill those needs.
“Fish where the fish are” is good advice for casting your net during economic hard times. Explore new markets after first identifying prime, opportune target markets. During a downturn, being able to collaborate with others can provide vital uplift to innovation through collaboration. Consider partnering with clients, universities, suppliers, governments, vendors and others willing to share costs, risk and resources.
Advice for Weathering the Storm
Gain ground now. In advance of a recession, it is advisable to gain market share and make tracks. Companies that were able to capture opportunities in advance of a recession tended to survive the recession reasonably comfortably.
Invest in data intelligence. Make investments now in technology to ensure that you have access to real time and active history data so that you always have actionable data at your fingertips.
Squirrel away savings now. Find areas in your business to simplify so that you can build a bank of savings. This can be done by streamlining, limiting processes, variations and locations for increased efficiency and effectiveness. One example of this is to examine the number of product variations by category that you carry and reduce SKUs to a more manageable number.
Hone your business focus to a small number of initiatives and your core operation.
Invest in opportunities and core functionality that will generate revenue or reduce cost during recovery.
Cut shipping time with crossdocking. Consider increasing your reliance on crossdocking to help decrease shipping time to less than 24 hours, cutting inventory costs.
Increase your flexibility. Make your supply chains more agile so that they will be able to match supply to demand during conditions when there is upheaval, dynamic changes in supply and/or demand. Being able to respond rapidly is key to weathering a recession.
In terms of operations, consider switching to a workflow-driven warehouse management system. This will enable your business to have the flexibility needed to quickly make changes to operations at a lower cost.
Provide more value-added services. Outsourcing is the new normal. More supply chain businesses than ever before rely on 3PLs to do work that used to be done internally. This can include activities such as inspection and processing of returned goods; sending kits of information and products to physicians; providing customer service to end consumers via telephone; getting returned apparel ready for resale: pressing, minor repairs, etc. Providing these services to customers is only half the battle. Often the real challenge comes in billing for every value-added service your business performs. For this, you need a top notch 3PL billing system.
Be able to scale up, or down. Make sure that the warehouse management system you are using is readily scalable and able to be implemented at a lower cost if you decide to expand your warehousing operation. Using a workflow-based WMS can make a significant difference in providing the needed flexibility and scalability needed at a lower cost.
Focus on Differentiation Innovation. Evaluate, collect data and measure which problems to fix on a priority basis, quantifying the size and value of each opportunity. In order to be successful at differentiation innovation, your company must have a clear understanding of what your client or prospects wants most and needs. Being able to determine which challenges, if focused on will bring the highest margins, customer loyalty or other tangible benefits is essential
Act offensively. Playing defense by cutting costs will only take you so far. Go on the offensive early to generate growth.
- Invest in research and development.
- Focus on winning accounts strategically by considering the potential lifetime value of each new client.
- Consider realigning distribution.
- Scale back non-core business units and projects that are a drain on profitability, labor and time. Instead, concentrate on the core areas of strength.
- Maintain, even grow marketing investments.
- Work to enhance the customer experience, simplifying and personalizing it.
- Make strategic investments to enhance your products and services and gain leadership of your market share.
- Determine ways you can continue to extend and grow your core business and/or your core competencies.
How Technology Can Help Your Business Weather a Recession
- Data….data….data…First, know your business inside and out as well as that of your competitors. Make sure that your 3PL WMS has the capability to readily create customized reports and dashboards for both you and your customers. Providing real time actionable data in reports is essential to good decision making.
- Digital technologies enable businesses to operate faster, communicate directly and simplify operations through a use of both continuous and step-change improvements. Go paperless!
- Use cost management tools and strategies along with new technologies to get costs under control.
- Leverage technology to enable your business to provide a higher level of service and increase customer satisfaction. For a 3PL, using a web portal can make a tremendous difference in providing excellent service to your customers.
- Use technology as a differentiator. Make sure that the WMS you select has an easily configurable 3PL billing system so that even the most outlandish value -added services and contract terms can be accommodated. No sense in leaving money on the table!
Where Are You in Your Technology Refresh Cycle?
Did You Know that
- Consumer-grade personal technology is typically designed to last around three years.
- Business class technology usually has a four-and-a-half year life span.
Scheduling replacements of your technology will enable you to minimize downtime so that your business can enjoy consistent, higher workforce productivity. Planning in advance will help you reduce undesirable short-term or emergency technology fixes on outdated mobile devices, computers and other essential equipment. Planning in advance can help you to schedule the expense, even spread it out over months or a couple of years to make the expense easier to bear.
If you wait until the recession hits, it will be too late!
Prevent Technology from Becoming Obsolete
Here are some signs of trouble that need correction to prevent disruption to your business:
- Updates can no longer be pushed to your computers, making your outdated software vulnerable.
- Servers that can no longer handle new software
- Hardware and software that no longer are supported by the manufacturer/software developer
- Wireless networks that are limited by old hardware
- Networks that are incapable of handling newer network infrastructure equipment
Upgrading your investment in technology will help you to
- Be have more effective control over power management
- Benefit from innovative, new functionality
- Help you with enhanced, streamlined operational processes
- Provide you with new features that can help your business save time and money
- Reduce the incidence of hardware failure and resulting support costs
- Improve scalability of your technology solutions
- Decrease failure rates, downtime and cybersecurity risk
- Ensure adherence to regulatory compliance
Contrary to popular belief, a recession is NOT time to cut all costs, including investments in technology. In today’s technology-driven world, having cutting edge technology at the helm of your business enables you to provide the information visibility, data for solid decision making and intense control and management over your operations.
Yes, you should still focus on your core competencies and this is where technology can empower your operation. As a third party logistics provider, your focus may be on issues ranging from shipping rates, to global trade, air freight shipping costs to freight forwarders and global logistics. At the core of your business, however is the need to provide the type of valuable service your customers need-and that requires technology.
Whether your business focuses on 3PL and 4PL, food and beverage, medical devices, pick pack and ship or ecommerce logistics, your third party logistics business must embrace technology to survive this fast-paced, data-driven supply chain world.
Use of cutting edge technologies helps generate cost savings in fulfillment centers, 3PL warehouses and distribution centers from full pallet to pick and pack e-commerce operations. Being able to provide more value added services to your customers as well as to accurately bill for them is essential to your continued growth and profitability.