Third-party logistics providers, or 3PLs, provide a variety of services for their clients, including warehousing, shipping, inventory, and management. By taking the stress of handling logistics out of their customers’ hands, a 3PL can allow businesses to focus on their core operations.
Businesses across the world have seen a shift in recent years. As e-commerce has become an essential part of retail and supply chain operations, 3PLs can organize quickly changing product flows, offering confidence.
In addition, labor shortages mean that automation is necessary to keep operations running smoothly.
Outsourcing to a logistics provider, however, can be a daunting process. Many businesses are unsure where to begin, whom to trust, or how to evaluate different 3PLs.
A recent UPS webcast featured Eddie Cissell, the head of engineering at United Parcel Service Inc.; Scott Hertel, the director of product solutions at UPS; and Rick DeFiesta, the executive vice president of sales at Geekplus Technology Co. They shared insights on the importance of outsourcing to a 3PL, how to start the process, what to expect from automation, and more.
Why is now the time to outsource to a 3PL?
The COVID-19 pandemic made it clear to many businesses that maintaining a strong supply chain is essential. 3PLs are an answer to this problem, agreed the panelists.
“For me, it boils down to three things: complexity, flexibility, and cost,” Hertel said. “Supply chain flexibility continues to increase. Consumer expectations continue to shift. And we’ve seen a lot of that shifting in the past four years.”
One thing 3PLs can help businesses do is meet their customers where they are, Hertel said. While e-commerce is growing, it still only makes up around 20% of all retail, so a multi-channel strategy is needed.
It’s also important to look ahead when considering outsourcing, now just at where you’re at today, Cissell said. He recommended looking at what your business might look like in the next five years, and considering if you have the space to grow properly.
Automation will only continue to progress, added Cissell. This means automating now could help you keep up with future digitalization trends.
“Your 3PL outsource partners, they’re staying ahead of the industry,” DeFiesta said. “They can share what they’re seeing from their other customers, obviously with discretion. They know and can see where the market is going.”
How to get started with outsourcing
Success with a 3PL starts with a clear idea of what you want to get out of the partnership. This means the first thing to know is what you want for your business.
“From my perspective, it starts with a vision for your business,” Hertel said. “How and where do you plan to grow? What’s critical for you to be able to penetrate the market the way that you believe you have the opportunity? What are those key success measures?”
Once you have a clear vision of what you want from a 3PL, you can attend trade shows, meet with consultants, or gather referrals from industry peers to find the right partner for you, Hertel said.
But even with referrals and a clear vision for the future, it can still be difficult to trust a 3PL enough to hand over your company’s operations to them, DeFiesta acknowledged.
One way to build trust is to rethink the way that you think about cost. Rectifying an error, for example, can create a number of increased costs for a company. A 3PL, on the other hand, handles all of that cost itself.
“Quality is related to cost,” DeFiesta said. “A lot of companies take for granted things like what it costs to ship, what it costs to pack, what it costs to handle a return and put it back in inventory. All these things are going back into the cost of an error.”
“Whereas a lot of times, your accountants are looking at just the cost of the item, not all the processes it took to bring it back and potentially resell it,” he noted.
Cissell added that it’s important to remember that a 3PL has likely done this process hundreds of times. Also, a 3PL can give you more insights into your operations than you ever had before.
How has automation changed logistics?
A simple fact for many businesses is that they need more labor to meet their needs, said Geek+’s DeFiesta. He said his clients are typically about 70% to 80% staffed.
“There’s always been the concern that robots are replacing people, but that’s really not the intention or what’s really happening here,” DeFiesta said. “It’s really helping the productivity of the associates that are already there.”
DeFiesta also pointed out that automation doesn’t just make things easier for businesses struggling to meet their labor needs. Many robot interfaces include options for multiple languages, enabling employees who might struggle to communicate with teammates to easily operate robots.
UPS’s Cissell also pointed out that warehouses are typically large, sprawling buildings with high racking. In a facility with no automation, employees spend much of their time simply walking back and forth across the warehouse to retrieve items.
Goods-to-person (G2P) robots, which are common in automated warehouses, typically do all of this traveling for the employees.
Robots and software can also make your operations more flexible, and therefore more durable, than ever before, Hertel said. While automation used to mean fixed infrastructure and long deployment times, that’s no longer the case, he said.
“The technologies today are incredibly modular and scalable and flexible,” Hertel said. “This allows us, from a 3PL perspective, to react quickly to changes in the market and changes within our infrastructure. That allows us to continue to introduce different layers of technology to create value.”
Cissell pointed out that many 3PLs can even scale robotic services up and down according to their customers’ needs. During peak seasons, the 3PL can temporarily scale up its fleet to keep up with the flow of goods.
How do you ensure you’re not a small fish in a large pond?
Even if you’re sold on the benefits a 3PL could provide, you could still be worried that with so many customers, your 3PL could forget about you over time. Hertel said this is a common question UPS gets, simply because of the size of the company.
“From a provider perspective, we’ve been very vocal in a lot of our messaging around serving the SMB [small and midsize business] market,” Hertel said. “I think about how our relationships are set up with our customers. There’s a dedicated account manager with each client, large or small. So, regardless of size, you have a personal relationship manager and a personal connection within the organization.”
DeFiesta also pointed out that, at least in the UPS Supply Chain, many warehouses are multi-client sites.
“When you have a multi-client facility, what you’re able to do is share the assets and share the experiences in the building,” DeFiesta said.
A multi-tenant warehouse means that 3PL clients can work together to establish a supervisor, a shift manager, and other associates, DeFiesta said. This means that companies work together to shoulder the cost of the labor.