Third-Party Logistics Solutions
The logistics function, moving goods from the plant to the customer, is critical to a successful business. It is also important to the nation's economy. In fact, it is reported to have accounted for a total of $1.3 trillion or about 8 percent of the gross domestic product in 2011.
Third-party logistics solutions companies (3pl) allow businesses to outsource their fulfillment and distribution functions to experts. They help businesses with shipping, receiving, warehouse inventory, and tracking. Third-party logistics providers do not take ownership of the goods at any point, but rather ensure proper storage, handling, and transportation of the goods, sometimes all the way from the plant to delivery to the customer. Many also handle other operations and aspects of the e-commerce process such as customer service, billing, Internet marketing, and technical support.
The use of 3pl solutions companies is growing. Several overall economic trends have accelerated this growth, according to IWLA (International Warehouse Logistics Association). These are the general trends toward outsourcing non-core functions, the growth of e-commerce, and the benefits of a partnership between the manufacturer and the marketer and logistics provider.
The primary reason companies outsource to 3pl providers is so that business owners can focus on their core business while outsourcing logistics to an expert. A business might start out with an idea for a product, market it over the Internet, store it in a small warehouse, and hire employees to manage the warehouse and ship the product. But, after a while, the business grows. The warehouse is no longer large enough and the owner is spending too much time managing the logistics employees that she can't focus on product development or business development. By outsourcing logistics, the owner is able to then refocus on what he knows best -- the company's primary business.
Many companies lack the capital to invest in the large-scale shipping and warehouse operations needed to expand the business. By outsourcing to a 3pl solutions firm, the small business is able to gain the capability to ship anywhere quickly. The company also gains additional marketing, sales and customer service capabilities. All these additional capabilities are obtained for a much smaller investment than if the company had to build these capabilities in-house.
A study quoted by IWLA found that 95 percent of CEOs believe they need some form of logistics strategy. Third-party logistics providers often are a staple of that strategy. They can lower personnel costs and warehouse costs through shared services and through more efficient warehouse layout and automation. They can assemble and pack items more efficiently for faster and more accurate delivery, provide better customer service, improve cycle time, and free up resources in the manufacturers' and marketer's non-core areas, IWLA says.
For many e-commerce operations, product demand varies with the seasons, sometimes by as much as 300 percent. A 3pl solutions company can more easily scale up and down to manage this variance than a small business is able to do, according to Industry Week.They also have the ability to provide incentives to employees to improve productivity during peak times. This ability to scale is important because customer's expectations for quick fulfillment often are highest during peak seasons such as the Christmas holidays.
3pl solutions companies also know how to organize operations so that items can be found and shipped quickly. They use analytics to determine which items are hot sellers and place them close to each other in the warehouse.
Many 3pls are already international. They have distribution centers around the world. They also understand the local markets and regulations needed to operate in them. By partnering with a 3pl solutions provider, a company can use the 3pl's knowledge to expand globally much faster and easier. This enables a company to expand into another country or region with a smaller investment.
The U.N. Global Corporate Sustainability Report 2013 indicates that companies are increasingly aware of the importance of sustainability and are making progress in setting expectations for suppliers. However, most companies fall short of acting on behalf of sustainability throughout the entire supply chain. Many 3pl solutions firms have already taken many of these actions and can help a company with its sustainability goals. They can reduce transportation emissions. Also, because 3pls are able to optimize distribution networks, they save energy. They also have the expertise to train drivers in fuel-efficient behaviors and to specify and afford low-emission technologies.
Cargo thefts and other security threats are occurring more frequently. Goods must move freely and securely and the supply chain must be able to withstand any threats to its security, according to Security Magazine. Because supply chain management is a core business for 3pls, 3pls are able to advise on and implement security measures all along the supply chain from information security to warehouse access control to cargo security. They also can help manufacturers improve their own security measures.
Manufacturers who want to grow quickly may experience difficulties in scaling up quickly. However, with a 3pl, the manufacturer can take advantage of an already existing infrastructure and experienced and well-trained staff. As the business continues to grow, the 3pl continues to find solutions at each new stage.
A 3pl solutions firm can provide call center or Internet order taking support, as well as implement systems that track item availability, material use and distribution. A 3pl also often can help manage returns effectively, saving the company money and loss of unhappy customers.
A good 3pl solutions firm has experienced customer care staff who, through various methods such as call or chat, often can ask questions of the customer and then consult with them about products and services that meet their needs. In many cases, this upsells the customer. This improves revenue as well as leading to happier customers over the long term. The firm also can assist with mass mailings of samples to key potential customers and with followup direct mail campaigns. It can monitor social media for product or company mentions.
A 3pl solutions firm is able to attract, train and retain high-caliber employees. This means that companies who contract with 3pl firms have access to that expertise without needing to go through the long process of recruiting and training employees on their own or the day-to-day management of them.
A 4pl solutions firm, while still being a firm to which operations are outsourced, often tends to work with a company on a long-term or even joint venture basis. The 4pl will be the sole interface between the company and its various logistics service providers, typically using software to accommodate the requirements of their customers and these various providers. Customers of 4pl firm, then, typically turn over control of all their logistics to the 4pl.
A 4pl also tends to focus heavily on process improvement, often through automation. A 4pl also manages all aspects of the supply chain, including reverse logistics, or all the logistics that happens after the product is delivered to the consumer. This would include things such as recycling, refunds on defective merchandise, repairing or refurbishing machines, and decreasing the costs of disposing of obsolete machinery.
A study estimates that about 30 percent of all items purchased online will be returned. These returns can be costly to a company, both in terms of immediate lost revenue and unhappy customers who may go to a competitor to find what they need. A 4pl solutions firm can help lower these costs. If a customer returns a product, the 4pl solutions firm would issue a refund or send a suitable alternative product, just as a 3pl would do. The 4pl firm then would go a step further, to research what caused the unsatisfactory customer experience in the first place and take steps to ensure this doesn't happen again.
3pl solutions firms can sometimes form a 4pl within their existing structure.
A 2014 Deloitte study quoted by the Logistics Bureau shows that 79 percent of companies with high-performing supply chains achieve above-average revenue growth for their industries. On the other hand, only 8 percent of those with low-performing supply chains achieve above-average growth. A 3pl can improve the performance of your supply chain.
A 3pl solutions company also can scale up as your business grows, allowing you to grow with a smaller investment. A full-service 3pl also can improve your sales, directly through its call center, and indirectly through ensuring satisfied customers. It can also help you reach your environmental goals, as well as your goals of expanding into other countries.