Outsourcing part or all of warehouse operations to a third-party logistics provider (3PL) is a growing trend. Seasonal fluctuations, warehouse space constraints, and rapid expansion of e-commerce orders place a strain on any business.
A 3PL usually provides a range of logistics-related services that may include transportation, distribution, warehousing, as well as other value-added services. A 3PL that provides warehousing services will receive your products, and manage them through to delivery, using their own facilities, equipment and employees.
Why outsource your warehousing?
Operational costs are rising every day, and containing them is an ongoing challenge. Third-party outsourcing companies have economies of scale and technologies that provide process efficiency, better pricing, and superior customer support. A 3PL can also offer flexibility and access to scarce resources. An established outsourcing partner can respond more quickly to capacity issues, external market changes, and unplanned events. In summary, the benefits are:
- less investment needed e.g., vehicles, space, and staff.
- access to the latest technology solutions
- availability of industry expertise and best practices, and ability to deal with uneven demand and seasonal peaks.
- reduction of risk
Trends in outsourced warehousing
1.
Automation and technology
Technology plays a key role in modern 3PL warehousing. Automated material handling equipment, robotics, and cloud-based warehouse management systems (WMS) form the basis on which they operate.
2.
Data management
Data analysis tools can deliver actionable information and reporting of activities in real-time. The continued growth of e-commerce is impacting warehouse operations and emphasises the need for reliable and accurate information.
3.
Partnership and collaboration
Collaboration and communication between manufacturers, retailer distributors and their chosen 3PL providers are becoming increasingly important as supply chains become more complex.
4.
Workforce management
Efficient resource management is vital, especially during seasonal peaks and in times of labour shortages. In busy periods, this involves hiring and training additional staff and ensuring regulatory compliance.
5.
Sustainability
More companies are adopting environmentally friendly practices in their operations. The aims include reducing their energy use, minimising waste and using reusable packaging.
Challenges when outsourcing warehousing to a 3PL provider.
Although there are many benefits to enjoy when outsourcing, there are some challenges.
- Loss of managerial control
The loss of direct visibility and managerial control over your warehousing operations can lead to issues. These may include quality problems, inaccurate inventory management, product damage or delays in order fulfilment.
- Communication and collaboration
Poor communication leads to misunderstandings that create inefficiencies and errors. Effective communication channels are essential for ensuring that both parties are aligned on expectations, timelines, and any changes in requirements.
- Managing performance
Measuring the performance of outsourced warehousing involves assessing various key performance indicators (KPIs) or metrics that are important to you. These KPIs may include metrics such as order accuracy, on-time delivery, inventory accuracy, warehouse capacity utilisation, and customer satisfaction. The 3PL provider needs to understand your requirements clearly. KPIs are used to identify areas for improvement and track progress over time.
- Scalability
As business needs fluctuate, the 3PL provider must have the flexibility and capacity to accommodate changes. Bottlenecks and capacity constraints impact order fulfilment and customer satisfaction. 3PL warehouse services need to have the capability to scale up operations quickly during peak periods and scale down when demand normalizes.
- Tracking the costs.
Outsourcing can provide cost savings, e.g., reduced overhead expenses for facilities and equipment maintenance. However, this must be weighed up against the 3PL service fees and the visibility of pricing models.
Data security risks
There are potential operational, financial/legal, confidentiality and brand reputation risks in any partnership. The cost of assuming or passing on risk makes a difference to the costs and the working relationship you will have with your partner.
Overcoming the challenges
By understanding and managing the challenges, you can make a successful partnership with your chosen 3PL. To establish a successful outcome:
- Maintain quality control standards through standard operating procedures (SOPs)
- Implement accurate demand forecasting techniques and collaborative planning.
- Establish clear communication channels with regular updates.
- Confirm the use of warehouse and inventory management systems.
- Have strict data security measures and confidentiality agreements.
Embrace the benefits of outsourcing warehousing to a reliable 3pl provider while mitigating challenges effectively.
Selecting the right 3PL partner
The selection process can be tricky and includes assessing many factors. Pricing models that are offered can be complex. Most business communications, either transactions or person-to-person activity are now conducted electronically. Do they have a secure system of communication, i.e., an online portal? Your chosen provider may have ways of working that do not easily fit your behavioural style or culture and both parties must adapt.
Understanding the potential challenges such as the loss of direct control over the outsourced operation and the need for strong communication is vital to ensure success.
Engaging and contracting with a 3PL is putting in the foundations of a potentially long-term professional partnership. The aim is to achieve a smooth and efficient transition.
SCCG consultants can work with you to establish goals, navigate the market, and select the right provider for you. When we know what you are looking for, we can help you to find the right solution and implement it. Learn from our logistics consultants how to navigate the steps to success.
Contact us today at +(44)1926 430 883 or [email protected]. Alternatively press the Contact Us button, below:
