Rationale for Utilizing 3PL in Supply Chain Management
Did you know that 75 percent of shippers agree that
There is indeed an equal amount of opportunity with every challenge, and last year was no exception. In 2020, new business activity grew 24% over the previous year, with 4.4 million new startups. Yet, the challenge with many of those businesses is staying organized and competitive.
And for some new entrepreneurs, the world of logistics can be confusing to grasp. Retailers, for example, have enough work getting traction for new products. Understanding terms like 3PL, OMS, and WMS can become overwhelming.
But all these terms are vital for streamlining inventory management and staying competitive. Every entrepreneur wants to turn their business into high-growth brands. So the benefits to be gained from working with these logistics systems can produce more significant rewards.
Keep reading to learn how these management systems drive many businesses forward. And learn how help from professional expertise can create faster growth.
The demands of e-commerce have created dramatic changes to moving products around the globe. Customers have become used to receiving goods at speeds like never before. They also expect to get delivery at no extra cost.
So retailers are now challenged with increasing service while reducing cost. Consider what a small business would have to get involved in to go it alone.
First, retailers have to consider the amount of space they would need. The warehouse must be large enough for products and accessory items. And, of course, room for future growth is critical.
Then, to keep products in stock, functioning inventory management is essential. Managing the sale and restocking requires a labor force to maintain the flow of movement. Time becomes a significant factor in shipping products to end-users.
Yet, a working supply chain also has to address goods received to the warehouse. Expertise is crucial to getting fair pricing for shipments.
More labor becomes necessary for collecting and packaging items for shipping in a private environment. But shipments may need assembling in the warehouse first. So the components will also need counting and tracking by an integrated system.
Without a 3PL partner, the business owner will need to negotiate shipping contracts for all destinations. And they will have to learn compliance rules for shipping to all regions. Learning all these disciplines takes time away from the business.
Then, the one part of fulfillment that every business dreads is the returns. Efficient systems for handling returned goods from customers are among the most challenging. Like most previous elements, in-house operations need a labor force to address these issues.
Today’s entrepreneurs have enough pressure to keep their product line relevant. So outsourcing has become an advantage to growing businesses. But it’s still essential to understand how each system works.
Of course, business leaders still need to make informed choices for outsourcing. A basic understanding of each function and how they combine to perform logistics solutions become evident.
The rapid increase of online sales caused the development of new technologies in logistics. These critical changes have made three areas of focus more critical than ever. 3PL, OMS, and WMS services are vital to maintaining order and functionality.
All three elements have functioned independently for many years, but technology has advanced to integrate disciplines for the benefit of business customers. The driving force behind the technology is the growing demands of the consumer.
Automation is the key to an effective order management system. All aspects of an item’s movements get tracked from the point of sale to the final shipment. As a result, the business owner knows how much and where every transaction occurs.
So the OMS goes far beyond inventory management to ensure smooth operation. Suppose a business is selling one product on several different online channels. Without an efficient order management system, products can get lost or worse.
OMS connects to every facet of operations, so retailers know what inventory is on hand and when to buy more. It also tracks which sales platforms are performing best and for which product. Retailers can adjust sales funnels to attract more customers with this vital information.
Then, OMS will go a step further to set up functions for preparing the item for delivery. So, an order gets processed, packaged, and then shipped through a cohesive OMS. Businesses then receive analytics reports from this system to mark areas for improvement.
As a result, the analysis will help answer critical questions about several models. Besides inventory, data displays the time efficiency for the movement of inventory. Yet, the information can also help improve the use of physical space.
Products and SKUs fed into the order management system get tracked by one entity. Cross-referencing the data is only a touch away. The business owner is in constant contact with all inventory.
Software that performs all these functions offers significant savings to retailers. Manual reports become obsolete, and resources become better utilized for product marketing. Better customer service is then the critical feature.
From the customer’s point of view, the buying process is seamless. Retailers trace sales along to delivery and then with returns. Then, inventory management tracking keeps items in the queue for reuse or disposal.
The dynamics of e-commerce have made WMS operations essential services to most industries. A warehouse management system enables any business to function without physical space. Instead, a WMS will handle material on behalf of the business.
Warehouse management systems can get involved in every aspect. Accepting raw materials to the assembly of complete shipments gets simplified.
And then, the WMS will prepare, package, and deliver the final product to the end-user. An efficient fulfillment process will help businesses function on par with larger operators.
Yet, with WMS software, processing goes beyond the limitations of inventory management. There is far more involved than knowing where materials get stored. Warehouse management systems pull accessory goods together to create a product.
When a shipment needs to get assembled and packaged for delivery, it happens from a single source. The WMS also arranges for more inventory when needed. And WMS has the infrastructure to maintain both inbound and outbound shipments on the customer’s behalf.
All this movement takes place in settings large enough to complete every task. Yet, company inventory gets dedicated space for efficient storage.
On occasion, when bulk shipments need forwarding to other destinations, the warehouse works as a cross-docking facility. The freight owner never needs to handle the material physically.
The reduced movement of goods from a broad range of locations adds speed to the logistics process. With an integrated coding of material, goods get assembled faster with less handling. Then, when accepting returns, items get easily accounted for and returned to inventory.
Shipping goods to a wide variety of locations requires a coordinated effort. Third-party logistics platforms have grown with online commerce. The days of hiring a single provider for every delivery need are long gone.
Customer expectations have caused shipping experts to network more for improved services. So the 3PL program connects individual carriers for differing purposes.
For example, a small item like a cellular phone might get handled several times in varying ways. First, the product will arrive on a pallet with many items stored in a warehouse. When that one item needs shipping, it gets picked, cataloged, and tracked.
Then, a selected carrier moves the product to another warehouse near the final destination. The item might travel as part of a larger shipment again. Then, the shipment might go with LTL services on a new pallet with other items.
Less Than a Load shipments combine with other shipments to fill a truck. Then, when the items reach the new warehouse, pallets get separated again into individual shipments. The final stage might send the cellphone by local courier to the customer’s door.
Maintaining every stage of the journey is the job of 3PL expertise. The system experts choose suitable carriers for each link in the chain. When multiplied to include other shipments of the same product, the benefits are clear.
3PL systems must have agreements with carriers of all types. Cargo ships, trucking companies, and couriers are vital parts of the chain. An experienced 3PL firm has negotiated fair rates with all these carriers.
Yet, customers expect to receive products fast and in good condition. In most cases with today’s commerce, customers also expect delivery to be free of charge. The negotiated carrier pricing gets passed to the customer by 3PL services.
Making decisions on choosing a warehouse system depends on some critical factors. First, businesses must decide if the traffic volume warrants a logistics partner. Yet, starting from a small volume can still have advantages.
Geography also plays a significant role in choosing warehouse systems. A company with only a local influence may not realize the same benefits, but retailers who become international sellers need broader reach.
Weighing the cost of partnering with a third-party service is another factor. Often, the real advantage comes from this aspect of the model. Contracting the shared space of a warehouse management system reduces an unnecessary footprint.
For example, retailers that rely primarily on drop shipped products do not need physical space. Companies starting with new products can’t afford the expense of leasing property. And still, other larger businesses only need short-term storage solutions.
Companies that produce high-growth brands take advantage of scalability. Every uptick in sales means more inventory is necessary. A growing business always has enough physical space with a third-party solution.
There are alternatives to a third-party distribution arrangement. Businesses with investment capital buy land and build their facilities. If property ownership is part of the business model, owned warehouses may be a better fit.
Yet, for companies only starting, the cost of buying or leasing space is a significant commitment. Often, cash resources go to increasing inventory, so a contract to outsource warehousing becomes more cost-effective.
Regardless of size, business finds more savings in systems from outside sources because a considerable amount of work goes into implementing an in-house network. Yet, of course, both models have an initial financial commitment.
Here are a few factors to consider when building from within:
Working with a warehouse management system reduces a lot of labor costs. Yet, there are other positives to using a 3PL system. For example, OMS, WMS, and 3PL providers come with the expertise of people in the industry.
As with any system, there are challenges to overcome when first working with third-party providers. First, a business gives up a certain amount of control over its inventory. Yet, with most logistics partners, a constant line of communication keeps everyone in the loop.
Of course, it takes time for a distribution center to learn the nuances of each business. All companies have preferred methods of operation, but professional WMS or 3PL companies can adjust to fit the customer’s needs.
The key to a working relationship with logistics providers is open communication. Expectations for all aspects of service should get hashed out before contract signing.
As the world of commerce gets more complex, it’s more vital to have all aspects of a business working in unison. An order management system does wonders to maintain and increase sales flow. Yet, the warehouse management system should have access to the OMS too.
Some programs can integrate functions with 3PL. And with others, collaborative efforts already exist in the software. Yet, omnichannel sales growth has created a demand for warehouse management systems to do more.
As a result, logistics providers have advanced the technology in their services. 3PL, OMS, and WMS now combine to give retailers a more outstanding market presence. Small businesses now have a partner to help them compete with major players.
When working together, the vital elements of logistics now provide some crucial gains. Automation through all aspects removes the need to force separate technologies to cooperate. The results are crucial for improving business growth.
When all systems work on the same platform, items are easier to track. The constant contact with the product reduces the chance for fraud or theft. Inbound material receives dedicated space where items get picked only when needed.
The efficient storage of goods relates to fewer hands on the product. Less handling of material between centers prevents accidental damage. As a result, more product gets to market instead of the trash bin.
Integrating systems at one site makes picking and packing shipments faster. The increased speed of handling means less labor cost. Carriers will onboard customer shipments faster from inventory onsite with less waiting time for material.
Again, less damage to products saves businesses on their bottom line. Shipping costs get reduced with a 3PL partner that sources fair pricing. Warehouses with established networks have access to all aspects of the supply chain.
Customer returns are the most challenging part of logistics for many retailers. An integrated warehouse management system does more than services customer returns. Given the information from manufacturers, the WMS will separate returns according to categories.
For example, recall items and defective products get returned in various conditions. Once sorted, some items can get restocked for future sale.
Some items could be suitable for resale at discounted rates. And still, other products are repairable or can get redirected for recycling.
WMS software works with companies to dispose of items or restock them. With a system in place, items can go back into inventory, and data gets shared with OMS. Without ever leaving the warehouse, fewer products get lost in transit.
There are two reasons why small businesses gain advantages with third-party partnering. 3PL providers have a variety of carriers to choose from for the best job. And they coordinate different carriers as needed for the shipment’s destination.
Documentation gets done in advance by the warehouse team. Paperwork already saves more time in shipping, and the customer saves costs on internal labor from the service. 3PL experts are fluent in the language of expediting goods for transport.
Another cost of shipping is a factor in favor of third-party logistics providers. Warehouses have established relationships with carriers for various clients, so 3PL services negotiate better pricing with carriers for cost-effective service.
Yet, the shipping speed also gets a boost from integrated systems. A 3PL system works only as well as the information provided. There’s more data on hand when the warehouse management system is part of the entire process.
For example, the WMS provides exact information for picking and location in the warehouse. The 3PL system receives the information at the same time so it can prepare the shipment. The process becomes faster without the doubling of communication.
Then, when OMS gets integrated into the system, the data comes straight from the source. OMS instructs the WMS to pick and package the shipment. Meanwhile, OMS has informed 3PL people that a shipment is getting prepared.
The final piece is the reverse process. When returns happen, the integrated systems of 3PL, OMS, and WMS work in unison. Return items don’t become lost or damaged while data remains fluid between platforms.
Each part of the inventory management process has a cost when done separately. So when performed together, the cost savings are significant, partly thanks to automation. The other part of the savings comes from materials coming and going from one source.
The landscape of e-commerce has put enormous pressure on businesses to perform better. Retailers of high-growth brands have learned to deliver products faster and cheaper. Customer satisfaction is at the core of those solutions.
Smaller retailers have to find better ways to compete. The third-party logistics industry has met the challenge for many businesses by integrating platforms.
Tangible advantages can be gained from combined systems for small and medium-sized businesses. To compete with the price and speed of larger retailers, a company must seem more significant to increase visibility.
Companies can only maintain a more prominent presence when costs get reduced. Labor and physical space are the most significant factors in the cost of doing business. Warehouse management systems have addressed the answer for both.
Companies have become leaner operations without the high cost of land. And labor costs go to sales growth instead of logistics. Then, as revenue grows, the WMS allows a business to scale as needed.
Scalability is one of the critical elements for choosing third-party providers. With space available as a company grows, there’s never a crowding issue. In the unlikely case of contraction, businesses won’t get left with too much space.
For some businesses, giving up inventory management control is a difficult change. At first, working with their materials with remote access feels disconnected, but a trusted delivery service is similar in practice.
The good news is, retailers now stay connected through all channels working together. There’s no contact loss from passing over with 3PL, OMS, and WMS on the same platform. With the business owner at the controls, there’s always a connection.
Technology has given growing enterprises the power to operate like larger businesses. The only difference is, there is no burden of owning physical space. And from a financial standpoint, that releases funds for more product line investment.
Instead of buying warehouse space and leasing trucks, companies can then widen the reach of their brand. New SKUs can get implemented at a faster rate which encourages sales growth. Yet, it also creates more visibility in the marketplace.
Small business retailers of various industries have looked for improvements to compete for a long time. 3PL services have made significant leaps in streamlining freight movement. Order management systems are a necessity with online commerce.
Now that these platforms work with warehouse management systems, business growth can happen faster. For more information on how integrated systems can help, check out this page and fill out the request form today.
CINCH – Coordination, Inventory, Navigation, Compliance and Handling- the five core facets of our logistics system!
Did you know that 75 percent of shippers agree that
Third-party logistic providers (3PLs) are a way of outsourcing your
Did you know that 75 percent of shippers agree that