The Debate Is Over! Third Party Logistics Wins!

A debate has been raging about which approach is best for your business: in-house or 3PL operated.

Ever since Third Party Logistics burst on the supply chain industry scene as an alternative option for in-house operations in the early 1990s, a debate has been raging about which approach is best for your business In House or 3PL operated.

Over the last five years, and especially during the 2020 pandemic, the interplay of five key trends / strategies have in our view swung the balance firmly in favor of Third Party Logistics operations as the most logical, and in our view soon to be dominant, footing for successful, flexible and reliable logistics operations.

Let’s walk through each of these five trends / strategies to better understand how they’re supporting our assertion that Third Party Logistics is now clearly the best operational choice for retailers and brands:

Ecommerce Specialization

As ecommerce continues to explode and grow across brand retail markets, a stark reality is now facing many in-house businesses. Ecommerce at scale is completely different than the wholesale case and pallet pick operations most are used to. Even if an in house operation was able to support a small Direct To Consumer operation in a corner of the warehouse, expanding this to a large scale and maintaining the much different requirements for successful ongoing Ecommerce fulfillment operations are not the same thing. Ecommerce specialization in 3PLs has been ongoing since the late 1990’s – early 2000’s, and has different operational and systems requirements to be successful on a sustained basis. And brand/retail buyers beware, just because a Third Party Logistics company “says” they can do ecommerce, doesn’t always mean they actually can. You don’t EVER want to be the brand that any 3PL “learns” how to do ecommerce on as such a move can be very painful and even fatal for the success and growth of your online shopping operations and customer experience.

Distributed Logistics

Have written at length over the last three years about Distributed Logistics and how important this will be to competing successfully mid to long term in the ecommerce game. By employing a Distributed Logistics strategy using a network of selected and ecommerce capable 3PLs means you’re able to deliver faster, at lower cost and more sustainably than any centralized fulfillment operations. For an in-house operation to pull off Distributed Logistics (many sites spread across the country) on their own for even the larger brand and retail companies out there is almost certainly cost prohibitive, plus the nature of growing and shifting ecommerce sales activity means that as soon as an in-house network was completed, it would already likely require reset and changes for market shifts. Ecommerce capable Third Party Logistics providers by their very nature have built multi-client flexibility and the ability to shift and change volumes and locations based on client needs into their business operating models so you don’t have to.

People Shortages

Even before the COVID Pandemic struck, warehouse operators were having difficulty getting and keeping skilled and capable employees. After companies were over a year into pandemic operations, this situation got dramatically worse, whether it’s actual fear of contracting the virus working in people intensive ecommerce picking operations or even worse still the need to close warehouses or departments in warehouses. In-house operators and their HR teams dealt with requirements to send workers home for self quarantine days and weeks at a time and still operate effectively to get burgeoning ecommerce orders out to ever more demanding consumers. Now, post-pandemic, many of these challenges have not gone away. In the end is this a skill set your brand or retail company really needs to develop in house or again does it make more sense to leave it to 3PL experts who are dealing with this at nationwide or even global scales?

Redundancy / Resilience / Growth

The people point above and potential need for rolling closures of warehouses is nearly impossible for in-house operators to build into their networks. Large scale ecommerce capable 3PLs are much better positioned to build needed redundancy, resiliency and growth management strategies into their networks as they’re working at an aggregated overall level for all combined client business needs, not just the needs of one business. So the ability to connect to 3PLs seamlessly and rapidly make shifts between given sites due to any interruptions in specific site operations is key to keeping your ecommerce orders flowing Smart brands and retailers are looking to how they can proactively leverage a connected network of 3PLs to meet their rapidly changing and growing ecommerce fulfillment needs!

Warehouse Automation & Robotics

Last but certainly not least, automating as many ecommerce fulfillment functions as possible is ABSOLUTELY KEY to the mid to long term success of your direct to consumer ecommerce business. Not only does it help to address and minimize the impact people shortages on the business, it also delivers a lower cost per order to fulfill, which will be a key profit differentiator as ecommerce becomes an even greater percentage of your overall business. Only the very largest Brands and Retailers can justify the tens or even hundreds of millions required to effectively automate fulfillment centers on a nationwide or global basis. And will also add to this that new autonomous fulfillment robotics solutions are bringing even more cost effective, flexible and scalable options needed for automating local fulfillment operations and making any needed network changes and rests faster and easier than ever before.

And if for some reason the five points above are not enough to convince you that 3PL now rules, let me finish by sharing two additional personal insights from my 30 plus years working on both sides of this equation:

Firstly, after spending 15 years working for a major department store retailer, the team I was part of had made significant improvements across the board and towards the end of my time there we hit a point of diminishing opportunities to improve. What this meant was there were no more low hanging fruit relative to potential operational and systems improvements, but of course the CEO kept demanding more. After racking my brain for where else we could focus to improve costs and performance, the answer I came up with was actually to outsource our entire network to a Third Party Logistics firm, sell them all the distribution and logistics assets, then just pay our operating costs.

Secondly, not only do I now see this as a required cost cutting opportunity for “best in class” logistics operations, there’s also a competitive threat posed by holding onto these huge multi-site, in most cases inflexible distribution operations. If exploring outsourcing your fulfillment with a Third-Party Logistics provider interests you and you’d like a plan to execute such a strategy, you may enjoy reading this article Retail Infrastructure Obsolescence is Now Inevitable.

What you do next has the potential to be key to the long term success and profitability of your business. Firmly embracing the flexible use and tightly integrated management of Third Party Logistics providers is an idea whose time has come and those brands and retailers who move quickly towards this shift will have the pick of the best providers out there!

To view the full original article written by Jeff Ashcroft on LinkedIn, click here.

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