3PL companies offer different types of outsourced logistics services; including transportation, warehousing, materials procurement, inventory management, freight audit, payment and shipment tracking.
Research shows 3PL services have contributed to overall logistics cost reductions for 75% of businesses, and 86% of those businesses say it has improved customer service. (1)
The main functions of 3PL providers are:
- Shipping and receiving — focused on the management of the shipping process from start to finish; including carrier relations, freight data and matrix reports for real-time visibility and increased transparency throughout the shipping process.
- Transportation — the actual transportation of goods or services between multiple locations. For example, 3PL providers could handle the inventory shipment between your factory and warehouse or between you and your customer.
- Warehousing — this is the most common type of 3PL provider, as they handle storage, shipment and returns. A warehouse 3PL is integrated into a company’s warehousing and transportation procedures and specialises in the storing and distribution of goods and/or services.
- Distribution — many 3PL providers offer a wide range of distribution and wholesale services including outbound order fulfilment, picking and packing, custom labelling, and manufacturing. By outsourcing distribution to a 3PL provider, your employees can focus on other core competence business tasks.
Retailers utilising 3PLs seek the following advantages:
- Faster store replenishment
- Increased speed of delivery as well as the number of delivery options
- Improved transparency and visibility across all aspects of the supply chain
- Access to logistics expertise and knowledge — 3PL providers sole purpose is to focus on optimising how your business handles fulfilment, shipping and warehousing. They can provide insight into issues within the supply chain, particularly international logistics issues such as documentation, customs, duties and shipping regulations and protocols.
- Enabling you to focus on core capabilities - a 3PL provider can eliminate the need to invest in your own warehouse space, technology and transportation as well as employees carrying out the processes. This also frees up your key employees to focus more on business growth areas including strategic planning, optimising retail store & eCommerce operations, and customer experience.
- Scalability and flexibility — A 3PL provider can scale storage space and locations, allocated labour and transportation services depending on exactly what capacity and services are required. This means retailers can more effectively and uniquely grow their store network with much less hassle and without having to expand their labour and capital investment in logistics each time they open a new location / sales channel.
3PL success relies on data sharing
Whilst 3PL can seem like an obvious decision for retailers looking to efficiently scale their business, the benefits are not immediate and they only come with hard work and significant time investment to ensure the outsourced partnerships work.
By both parties being aligned on strategy and operational forecasts, customer expectations can be met when it comes to inventory availability, fulfilment, and returns.
If critical data, trends and insights are exchanged around products, stock levels, warehouse management processes and transit status then the 3PL partner has the best opportunity to optimise your overall supply chain and customer experience. On the flip-side, without suitable control, approval processes and transparency, expensive logistics activities such as high volumes of stock in transit or un-vetted store replenishment orders can creep in.
Without mutual visibility, your 3PL is ‘flying blind’ and unable to make the informed decisions to execute the practices that are right for your business. Likewise, your visibility on the status of products and inventory across your network will be hindered and this can cause inefficient operational outcomes. Without suitable data and systems integration, retailers typically end up hiring more and more employees to oversee the 3PL partnership as their retail operation expands.
So whose software systems should be used?
With data sharing and integrated workflows between partners being critical to 3PL success, the key question then becomes which business software system(s) should your employees and your outsourced partners team operate from to achieve this?
Many retailers simply opt to try and work out of their 3PL’s warehouse management software. This certainly allows retail employees to leverage best-of-breed supply chain & warehouse management processes developed through the 3PLs extensive logistics industry experience. However, fulfilling and managing inventory replenishment solely from a 3PL warehouse operation may not always be the best customer experience. It may make sense for some of your eCommerce orders to be fulfilled from your local stores rather than your 3PL operated warehouse. For example, your 3PL is based in Melbourne and you receive a web order from a customer based in Sydney. That order should automatically be routed to the closest store with stock availability, ideally a Sydney Store, to ensure next day delivery, reduced freight costs, and ultimately a better customer experience.
Typically, that would require you to use your own in-store POS and integrated eCommerce systems to manage fulfilment in that scenario. Another challenge of working directly out of your 3PL partners systems is that if you expand to work with several outsourcing providers (for example, a local and overseas partners in each country) then your staff have to learn several systems which can cause challenges as you scale up.
Other retailers have pushed their 3PL partners to use their business software. Whilst this makes it easy to provide access to inventory, supply chain, product, transactional, customer and other vital data, this means you are not leveraging your partners best-in-class supply chain and warehouse management software and processes. The ideal state is of course to use the best elements of both parties systems by integrating them to allow data and processes to be synchronised in real-time.
As a retailer you then get to benefit from operating best-in-class POS software to power your business growth and tap into the advanced supply chain and warehouse management capabilities of your 3PL partners systems. If you add more / change 3PL partners you can scalably integrate their systems with yours to develop an ecosystem that is built around collaboration, and allows each partner to focus on their core competencies. Retail Express has the option to integrate with your 3PL partners systems in exactly this way. You can set up real-time 2-way synchronisation in a controlled manner so all parties are working in unison.
As an advanced cloud-based solution, both parties can utilise the powerful BI, inventory management and CRM capabilities of Retail Express to ensure the benefits of a 3PL arrangement are full realised. Retail Express clients that have integrated with their 3PL partners warehouse management system have proven to achieve significantly better delivery times and improved customer service.
Sources:1 - 21st Annual, 2017 Third-Party Logistics Study