In today’s business and consumer marketplace, the ability to get products to consumers rapidly has never been more important. It is almost table stakes for acquiring and keeping customers at this point. Whether B2B or B2C, this dynamic impacts the purchasing choices we make every day. Just-in-time (JIT) fulfillment is the new norm and greatly impacts the ways businesses run and consumers behave.
Large online retailers set a new standard for same or next day fulfillment. This forces many companies to essentially become distributors just to survive in today’s marketplace. The challenge here is that not all organizations are built to operate as a distributor. From the infrastructure to the systems to the people; distribution is simply not a core competency. This pressure highlights a major opportunity in the marketplace to leverage the expertise and capabilities of Third-Party Logistics (3PL) providers to close the distribution gap while improving customer experience and thus driving an increase in customer satisfaction and retention.
Let’s dive into the value 3PL providers deliver and how right-sized packaging can increase that value at scale:
Reasons for leveraging 3PLs vary from organization to organization, but it really comes down to capabilities and value. The large players in the 3PL space can reduce costs, improve efficiency, scale operations, and focus on core business activities, all while providing their customers with expertise in distribution and supply chain management. With operations and warehouse space across the globe, and concentrated capabilities in strategic hubs, 3PL providers add another level of value. Getting products in the hands of consumers faster is more important than ever before and is often a requirement for customer retention. Acquiring and building out distribution space in these key hubs is both costly and time-consuming, but a 3PL contract can grant rapid access to a shipping hub, while allowing for demand to be capitalized. For companies that are good at manufacturing and marketing products, partnering with companies that are experts in distribution can make a lot of sense.
While it may seem simple on the surface, distribution is hard. Between managing increasing consumer demand, faster delivery expectations, turnover in staffing, and the rapid rise of distribution automation; 3PL execution is incredibly challenging. On top of these challenges, many 3PL contracts may only run 2-3 years, with Year over Year cost savings requirements to maintain a contract. These conditions create a clear opportunity for investment in automation, but also present the risk of a limited Return on Investment window for capital investments. To offset these risks, multi-client warehouses are becoming common in the 3PL space, allowing for greater utilization of technology investments across a portfolio of customers. With staggered contract end dates, operational security is improved for 3PL providers, and capital expenditures can be spread across multiple contracts.
Moreover, technology (PaaS, RaaS, SaaS) service leases become more appealing as they can be better structured to align with 3PL contracts and deliver a much stronger ROI. Finally, it is important to acknowledge data or the quality and completeness of such data. Often, 3PL providers inherit customer data that can be dated, inaccurate, or missing critical elements. This dynamic reduces the true effectiveness of 3PL providers and their ability to maximize their distribution expertise without further investments. The limiting factor here is often contract length and the time commitments to invest in data cleansing to create a more impactful operation.
While we’ve covered the value streams that 3PL organizations can deliver to their customers, a major advantage is gained through the implementation of technology in the distribution environment. From more advanced Warehouse Management and Execution Systems (WMS/WES) to strategically deploying robotics, massive output and efficiency gains can be achieved. These gains provide opportunities for significant savings and capabilities but can be minimized when the entire workflow is not optimized.
Faster pick rates and better accuracy will only further highlight the bottleneck at packing stations, which leads to the opportunity for On Demand Packaging® solutions that are integrated with the overall workflow. These solutions, when appropriately integrated, further drive the benefits of distribution automation. Corrugate costs can be substantially reduced through decreases in consumption, while labor challenges are mitigated through getting stronger outputs from reduced labor resources. More importantly, the impact to outbound logistics costs is likely to see reductions of 10% or more, which often creates the biggest bottom-line impacts. Simply stated, moving the same amount of stuff in fewer trucks is a win-win for all parties. By implementing On Demand Packaging solutions in the distribution workflow, 3PL providers can create a massive impact on the operational and market challenges they face every day. These solutions align directly with many 3PL SLAs and present an opportunity to deliver above target cost savings to their customers.
The bottom-line is that making a large capital investment and introducing process change to adopt an On Demand Packaging® solution can be a risky decision. This is especially true when a 3PL contract may only be guaranteed 2-3 years and constantly under pressure to deliver year over year savings. ROIs need to be realized in months – not years – with options to pivot quickly. These circumstances create a lot of risk and can get more difficult based on each contract structure.
But what if that risk could be mitigated through truly differentiating from competition and industry norms? The truth is that deployment of emerging packaging technology doesn’t have to come with extended ROI investments as the PaaS model presents a tremendous opportunity with reduced risks. The 3PL market is primed for innovative technology and disruptive thinking. Whoever embraces this mindset has the potential to outpace the market and present new and existing customers with unmatched value streams and cost savings not commonly seen in today’s market. Through leveraging the right technology in 3PL operations, companies can deliver best-in-class results today while having the ability to rapidly evolve for the future.
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