In a previous article (““To 3PL, or Not to 3PL?”, in the January/February 2020 issue of PARCEL) I wrote about some of the high-level pros and cons of outsourcing your logistics operations to a third-party logistics (3PL) company. This “make vs. buy” decision should not be made lightly, and it can be quite stressful, especially for a distribution-intensive business whose competitive advantage hinges on the success if its warehousing and distribution operations.
Once you commit to hiring a 3PL, you’ll need to decide what, specifically, you want your 3PL to do for you. A typical 3PL relationship is built on several important moving parts, so let’s dig a little deeper and go beyond the general pros and cons. Before you begin your formal search for a qualified 3PL — and certainly before you sign a contract with one — you’ll be wise to consider each relationship component and explore it thoroughly. That way, you can identify the combination of 3PL services that will best support your unique business requirements.
Your Place, or Mine?
Your supply chain relies heavily on several important capital assets. Perhaps the most obvious example is the physical facility (the warehouse building and its surrounding yard) at which your inventory will be stored and your fulfillment operations will take place. The geographic location of this facility (or of each facility in logistics network) is usually extremely important because it directly impacts operating costs related to transportation, labor, taxes, insurance, depreciation, etc.
In addition to the physical facility, almost every warehousing and fulfillment center incorporates various types of fixed equipment, such as storage racks and shelving, conveyor, packing and unitizing equipment, and workstations. It usually requires various types of powered and unpowered mobile equipment, such as industrial trucks (forklifts, orderpickers, etc.), pallet jacks, and carts. And physical automation, such as sortation systems, industrial robots, and goods-to-person picking systems, is becoming more and more common in warehousing because it can offer a compelling business case.
Plus, many logistics operations rely on capital equipment that operates outside the “four walls” of the warehouse. These may include owned or leased vehicles (tractors, trailers, trucks, vans, etc.) that deliver products to customers.
The question here is, who is going to provide these capital assets for your fulfillment operations? In most cases, the 3PL partner includes them in their contract, but some 3PLs are willing to run your logistics operation using assets you own or lease. In the supply chain industry, the former is known as an “asset-based” 3PL, while the latter is known as a “non-asset-based” 3PL. Depending on your situation, either type of 3PL might make good economic sense for your business, but you should consider and evaluate the alternatives before selecting your 3PL partner.
Who’s Got the Conn?
The reality is that those who manage modern supply chains must effectively control the flow of information, just as they control the flow of their products. Consequently, reliable supply chain information systems and related technologies are the backbone of today’s warehousing and fulfillment operations. When businesses adopt best practices across their logistics operations, from planning through execution, they depend on accurate and timely information so they can manage, control, and track orders, inventory, workflow, and activities. And this includes the blocking and tackling that occurs in warehousing and fulfillment operations.
When interviewing 3PL candidates, it’s important to discuss supply chain information systems with them. Ask them if they can provide their own information systems to support your warehousing and fulfillment operations, or if they will need to use yours. Some common examples include:
· Warehouse management system (WMS)
· Transportation management system (TMS)
· Parcel manifesting and shipping software
· Labor management system (LMS)
· Electronic data interchange (EDI) software
· Import/export software
· Supply chain digitization and visibility software
· Supply chain reporting tools (key performance indicators [KPIs], dashboards, etc.)
Some 3PLs already have robust supply chain information systems and technologies in place and offer their use as part of their contracts. Further, some of these 3PLs insist on using their own systems to manage all their customers’ warehousing and fulfillment operations. And yet other 3PLs offer limited supply chain information systems, if any, to support their customers’ operations, and instead they expect their customers to provide this essential infrastructure for them to use. It is vitally important to establish which party’s information systems will serve as the backbone that ultimately controls your supply chain, so be sure to discuss this upfront with potential 3PL partners.
Boots on the Ground
The physical facility and equipment and the information systems comprise the fundamental infrastructure for your warehousing and fulfillment operations. Regardless of whether your 3PL provides either or both components, however, this infrastructure is of little value to your business without workers to manage and operate your supply chain. In fact, qualified people are the most important component of any successful supply chain.
Obviously, your supply chain operations will depend heavily on direct labor to do the physical work of receiving, putaway, inventory management, picking, packing, shipping, and any other warehousing and fulfillment activities. Although you might assume that your 3PL will provide this workforce, it’s not uncommon for the 3PL’s customer (or some other party, like a staffing company) to be responsible for hiring, training, managing, and retaining the necessary direct labor. Discuss your staffing requirements with your potential 3PL partners, and decide whether you or your 3PL will provide the workforce for your operations.
Of course, the success of your warehousing and fulfillment operations will depend on more than just direct labor. It will also depend on an effective team of qualified logistics practitioners who will ensure your operations successfully support your business objectives. For example, these professionals must have solid expertise in current supply chain industry best practices so they can manage your operations efficiently and cost-effectively. They must be knowledgeable about regulatory compliance requirements mandated by the FTC, the DOT, the Department of Commerce, the EPA, the FDA, OSHA, the EEOC, and departments of labor at the federal, state, and local levels. And if your business ships internationally, they must also be knowledgeable about the regulatory requirements associated with global trade. Plus, your logistics operations will rely on these practitioners having strong business relationships with other key partners in the supply chain ecosystem, such as carriers, customs brokers, freight forwarders, and port authorities.
With these things in mind, discuss the requirements of your logistics workforce with your potential 3PL partners. Decide how much of the workforce in your warehousing and fulfillment operations (if any) you would want to be responsible for providing. Remember that authority and accountability must be reciprocal, so whichever party provides each staff member should be accountable for the results they provide.
A Three-Legged Stool
All three components — the physical facility and equipment, the information systems, and the workforce — are integral parts of your logistics operations, and your supply chain is likely to collapse if any one of them is ineffective. Each provides measurable economic value, and many 3PLs would be happy to include all three components in their contract with you. It pays to give due diligence to identifying the blend of 3PL services that will best satisfy your business requirements.
Stephen T. Hopper is Founder & Principal of Inviscid Consulting, whose mission is to help business plan and streamline their warehousing, logistics, manufacturing, and distribution operations to drive down operating costs, boost capacity, improve service levels, and mitigate risk. He can be reached at email@example.com or 404.832.5326.
This article originally appeared in the March/April, 2021 issue of PARCEL.