As supply chains grow more complex and prone to disruptions, more and more companies are turning to third-party logistics providers (3PLs) for help. 3PLs can provide a whole host of distribution and fulfillment services for their clients from warehousing and inventory management to shipping and receiving, transportation management and freight brokerage, and returns management.
The resources, expertise, relationships, and assets that a 3PL offers can help companies better navigate dramatic shifts in demand, capacity constraints, transportation network congestion, and labor issues. Indeed, many 3PLs have moved far beyond simple storage and transportation services and are assuming more of a consultative role with their clients, helping them design and shape their supply chain.
As 3PLs take on more of a partnership role, it becomes even more crucial for shippers to understand the value and benefits that a 3PL can provide as well as what characteristics to look for when selecting one. Toward this end, CSCMP’s Supply Chain Quarterly assembled a panel of experts to share some of their insights about the 3PL market: Bobby Clements, Allan J. Miner, and Johann Strauss. Bobby Clements is the vice president of UPS Global Logistics Products and Services for UPS Supply Chain Solutions. Allan J. Miner is the president of the third-party logistics provider CT Logistics. Johann Strauss is the key account manager of KION Group, which supplies forklifts and warehouse equipment for many 3PL companies.
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Q: What is the business case for when a company should work with a 3PL partner?
Bobby Clements–UPS Supply Chain Solutions: There are many different reasons—or “compelling events” as we call them—why companies outsource their logistics and supply chain activities. There are around 20 of them! They usually stem from a combination of challenges pertaining to network constraints, operational inefficiencies, or customer dissatisfaction.
For example, some companies have a priority to accelerate growth but have challenges (such as “we are out of space” or “we want to enter a new market we can’t effectively serve today”). For others, they don’t have the capital, or even culture in some cases, to improve operational efficiency, which is critical to running a profitable business (“we need help managing labor costs” or “we don’t have the expertise to support investments in technology and automation”). In a recent study we commissioned, managing labor costs was the No. 1 reason cited for seeking help from a 3PL. And others understand that driving brand loyalty requires them to consistently deliver exceptional quality—fulfilling orders accurately, quickly, and on time.
Most companies that outsource recognize the need to focus on core strengths, like sourcing, marketing, selling, and taking care of their customers, and leaving logistics to the experts.
Allan J. Miner–CT Logistics: On the transportation side, when a company loses key “traffic” or “transportation” managers or supervisors who oversee daily inbound and outbound shipment activity for all plants, DCs/warehouses, and customer deliveries, it makes sense to outsource the role to a third party.
Johann Strauss–KION Group: It is difficult to have one 3PL business case that fits it all. Some companies simply want to focus on their core activity and not be bothered about the daily moving of their products. Others want to benefit from the 3PL’s relationships and bargaining power to reduce overall logistic costs and generate savings. In-house logistics is linked to a significant investment in labor, equipment, and real estate. 3PL companies have the expertise, technology, and competencies to develop the best solution for the customer.
Q: What should be the main criteria in selecting the right 3PL?
Bobby Clements–UPS Supply Chain Solutions: Customers want to know that the 3PL has the right network, capabilities, and expertise to meet their needs. But in my experience, it eventually comes down to trust. In a true partnership, companies need to be able to share their vision for the company, and both parties must be transparent with one another, have frequent and open communication, and have common goals. They need to work together to solve problems and work toward continuous improvement. Without trust, the relationship will undoubtably fail sooner or later.
Allan J. Miner–CT Logistics: The main criteria should be whether there is synergy between the 3PL’s operational, day-to-day staff who are managing your business and your own key daily operational traffic/transportation personnel—the ones who are in constant contact with these key 3PL line staff members. In addition to that synergy, the 3PL should have 24/7 staffing for any and all “hot” loads that need to be expedited.
Q: What advantages do 3PLs bring to companies entering new markets?
Allan J. Miner–CT Logistics: 3PLs can provide competent, previous experience in those new markets so that all the local groundwork for effective communication and management relationships are in-place.
Q: With rising inflation, can a 3PL lower overall distribution costs?
Bobby Clements–UPS Supply Chain Solutions: We experience the same inflationary challenges that other companies do. But modern 3PLs are better equipped at managing controllable costs than most companies.
Traditionally, labor could range from 50% to more than 60% of fulfillment costs. UPS has invested millions of dollars in robotics, material handling equipment, and warehouse execution and control systems to improve productivity and reduce reliance on manual labor, while improving order accuracy at the same time. And because most of our customers are in multi-client facilities on one of our campuses, we are able to flex labor across multiple clients and buildings.
UPS is also able to offer competitive pay and benefits to our employees, which helps drive down attrition and training costs.
Allan J. Miner–CT Logistics: The current inflation picture presents a challenge for all 3PLs. However, their customers will find that using the distribution centers/warehouses in a 3PL’s current network will help them reduce their capital and/or operational costs. Consolidating and optimizing assets is the key to cutting costs, and using a 3PL can help with that. Additionally, a 3PL can help its clients cut costs by actively reviewing and rebidding all transportation and distribution contracts and agreements as they expire.
Q: In times of ongoing stress on supply chains, how can a 3PL help clients meet their customer service commitments?
Bobby Clements–UPS Supply Chain Solutions: One way that 3PLs can help improve customer service is by providing good visibility tools that allow clients to see where their goods are at any point and alert them of problems so that the 3PL and/or customer can take proactive measures to correct them. UPS, for example, has a visibility tool called UPS Supply Chain Symphony that provides end-to-end visibility of the supply chain that give customers access to their inbound, in stock, and outbound orders on a single system.
Allan J. Miner–CT Logistics: One way that a 3PL can help with customer service is by locating their product(s) in closer proximity to their client, so that smaller quantities can be shipped more frequently to the client’s customers at a reduced cost. Shorter transit times will increase service levels.
Johann Strauss–KION Group: A 3PL needs preparation and anticipation in order to help its clients meet their customer service requirements. With inventory and goods moving and evolving fast, having clear and transparent communication between the 3PL and its customer is important. If a need comes up quickly, it is important to have the right operators and mobile equipment on hand or quickly available.
Q: How can 3PLs help companies meet their needs during a tight labor market?
Bobby Clements–UPS Supply Chain Solutions: In our warehouse network, UPS employs thousands of people. We operate dedicated and multi-client facilities on each of our main campus sites. Not only does this give us access to a large labor force, it allows us to flex that labor across our facilities and individual clients. In addition, as previously mentioned, our investments in automation and robotics help us maximize our existing workforce.
Allan J. Miner–CT Logistics: In terms of carrier contract negotiations and management, the 3PL can put staff onsite at your facility, if absolutely mandatory, or they can create a dedicated 3PL staffer to manage the company’s shipment needs from a remote location. In other cases, these 3PL staffers can be in charge of more than one client at a time.
Johann Strauss–KION Group: The core costs for a 3PL company are labor, facilities, and mobile equipment. Working with quality machines can help 3PL providers attract and retain quality personnel and reduce sick leave for back problems, for example. (One of the most common issues.) When selecting mobile equipment, 3PL companies can focus on more ergonomic machines to help retain employees. Linde Material Handling, for example, has designed all its lift trucks around the operators. The latest models lead to 50% less operator movements, leading to low operator fatigue and high productivity.
Q: In what ways do 3PLs allow customers to receive the benefits of new systems and technologies without large capital investments?
Bobby Clements–UPS Supply Chain Solutions: For some companies, this is precisely why they outsource. The benefits from advanced technology—including software and automated picking and sorting equipment—are well documented. In addition, new technologies are being introduced at an accelerated pace. At UPS we have developed a technology ecosystem, partnering with companies on the leading edge to ensure our customers have the benefit of the latest technologies without all the investment of R&D and risk of obsolescence. Most companies would rather invest in their products than in warehouses and fulfillment automation. The right 3PL partner can help them do just that.
Allan J. Miner–CT Logistics The 3PL’s capital investments allow them to add and manage a new client’s freight activity under their corporate IT systems and global/company deployment. As a result, the client does not have to spend money on a new system itself.
Johann Strauss–KION Group: Most 3PLs are working with state-of-the art software that help businesses manage their inventory, track transportation routes, and analyze logistic streams. For mobile equipment, many 3PLs are working with advanced telematic solutions to get real-time information about their machines and optimize consumption and usage. The information gathered can be used to reduce operating cost for the end customer. Networking and advanced sensors even enable some machines to act autonomously. A GPRS (ground penetrating radar system) transmission from the machine’s hardware to a cloud solution makes it a very efficient solution that does not require large capital investment. Those savings can be transmitted to the customer.
