3PL Logistics 101: A Comprehensive Guide to 3PL Management in 2022

shipsy

Created on July 29, 2022

The explosive growth of retail eCommerce sent massive ripples of transformation across multiple industries, and logistics & distribution form one critical epitome. As the world recorded USD 4.9 trillion in retail eCommerce sales, the global logistics industry sat at USD 9.1 trillion, and the global 3PL market size hit the USD 961.8 billion mark.

While the demand for 3PL services is still growing at an unprecedented rate, the intense competition in the eCommerce industry has given rise to a plethora of 3PL challenges. 

The modern retailers or e-tailers are losing their nights’ sleep over questions such as:

How to reduce operational costs, how to reduce ETA SLA breaches, and how to complete fast deliveries without burning holes through the resources? How to decide which operational model works the best for which type of delivery and how to leverage the digital tools for transparency, data analysis, and business intelligence? 

The following write-up explores the answers to these and many other questions and discusses various aspects of 3PL logistics management, its challenges, and how leveraging the right technology can help retailers overcome these challenges.

Let us begin with an overview of the 3PL logistics.

3PL Logistics – What, Why, and How?

3PL Logistics – The “What”

3PL logistics refers to Third-Party logistics and involves the distribution, warehousing, and fulfillment services. 3PL service providers are the companies that offer distribution, warehousing, and fulfillment services to businesses and retailers.

As clear from the above statements, 3PL logistics is required when a business or retailer is looking for distribution, warehousing, and fulfillment (delivery) of their business offerings or merchandise. 

Now, all these three activities require a different set of facilitating resources, such as vehicles, drivers, operation managers, carriers, and of course, the engineering team that can control and manage the operations and processes in a transparent manner.

Before we dive deeper into the 3PL logistics processes, let us explore why 3PL logistics is important.

3PL Logistics – The “Why”

There are a number of benefits of using 3PL logistics in the supply chain, and some of the most crucial ones are shared below:

  1. Cost Savings

3PL firms specialize in logistics and offer a more extensive network of carriers, riders, and freight forwarders. They can help businesses avail better rates, and volume discounts, all the while minimizing overhead costs.

Businesses no longer need to make huge infrastructure investments in terms of transportation, warehouse space, staffing, and technological infrastructure.

  1. Expertise and Experience

Having a privately-owned network from origin to destination warehouse is neither possible nor profitable for retailers, especially when it comes to eCommerce, where sellers belong to all the categories – start-ups, SMEs, MSMEs, and large enterprises. 

A 3PL logistics provider emerges as a single point of contact (SPOC) for all such retailers. They can get end-to-end services, such as transport documentation, import and export services, international compliances, easier access to courier aggregators, etc.

  1. Focus on Core Competencies

Using 3PL logistics services makes it possible for the retailers to focus on their core competencies and outsource the distribution, warehousing, and delivery processes. They can focus on business-centric processes and aim toward business growth.

  1. Flexibility and Scalability

Using third-party logistics empowers retailers with flexibility and scalability, as they can utilize supply and distribution resources on the basis of current requirements. The retailers can downscale and upscale the operations as per the sales requirements. 

  1. Market Expansion

3PL logistics allow businesses to cater to customers located in multiple geographical locations without having to actually have a warehouse or dedicated delivery channel. The increase in international trade has in fact boosted the 3PL logistics sector as well and the diverse capabilities offered by the 3PLs allow businesses to amplify their revenue. 

Thus, it is a mutually beneficial scenario.

Next, we discuss how the 3PL logistics ecosystem work.

3PL Logistics – “The How”

Let us try to understand the third-party logistics ecosystem with the help of an example.

Suppose there is a steel manufacturer that produces steel bars for making grills and gates. 

Now, we have three scenarios:

  • He keeps the bars in a privately-owned warehouse
  • He manufactures the bars only after he gets the orders
  • He manufactures the bars and keeps them in a third-party warehouse, where a manager dispatches them once an order is received

All the orders are managed via an Order Management System (OMS) and the warehouse processes are managed via a Warehouse Management System (WMS). Finally, once the order is received and the bars are packed (bundled and labeled) the consignment is scheduled for delivery to the destination warehouse or customer site.

Now, the steel manufacturer can either contact the 3PL service providers individually and get the quotes for delivery fulfillment or completely outsource the delivery and fulfillment operations, where the company works with multiple 3PLs, carriers, etc.

Once a carrier or 3PL provider is finalized, the shipment is picked up and dispatched. It moves from one warehouse to another (might also involve international travel over water, land, or air) and reaches the destination hub. From here, the shipment is picked up by the delivery providers and is finally delivered to the customer. 

Once the delivery is done, the invoicing and billing start, which might also vary in terms of processes and modes, depending on multiple factors, such as currency, exchange rates, confirmation of consignment delivery, etc. 

In both cases, all the crucial processes mentioned below are manual:

  • Gathering quotes
  • Finalizing service providers
  • Scheduling consignment pick-ups
  • Checking shipment status
  • Paperwork (which is mountainous in case of international shipments)
  • Hub-to-hub shipment tracking
  • Key milestone events checking and reporting the same to the customer
  • Invoicing 

Now, what makes the entire process so challenging and resource intensive is the fact that the same process is repeated for every shipment. While the number of iterations involved for the manufacturing industry might be fewer, the value of shipments, contracts and the overall paperwork involved is mammoth size.

So, if we are talking about retailers who are shipping millions of shipments daily, 3PL logistics has a consequential say in the overall quality of customer experience and business profitability.

Next, we discuss the various challenges involved in 3PL logistics management and operations.

3PL Logistics Management Challenges

Challenges in 3PL Logistics Management

With multiple moving parts involved, logistics and supply chains are inherently vulnerable to inefficiencies and poor scoping. Throw in multiple parties for the fulfillment, distribution, and warehousing, and the mix becomes nothing lesser than a Pandora’s Box.

3PL logistics involves multiple processes and people as discussed above, and all that spurs a number of challenges that make it hard for retailers to stay profitable.

Poor Operational Control 

As businesses outsource their logistics to third parties, they give up on some amount of operational control. For example, they are no longer choosing the carrier, the service provider, the vehicle and rider combination for the most cost-efficient deliveries, etc.

If the 3PL service provider is working with multiple other service providers, the situation becomes an unpleasant mix of multiple people and processes that leads to a severe lack of control in the orchestration of deliveries or order movement from one milestone to another.

Cost Escalation

Manual management of 3PL logistics results in cost escalation with every leg of shipment movement. Right from quotes to spot inquiries and distribution to fulfillment, 3PL logistics management suffers from operational pain points such as transparency and real-time visibility, which add to the operational costs.

Lack of Visibility

Lack of real-time visibility into key milestone events, such as shipment movement status, ETAs, detention and demurrage costs, order pick-ups, billings, etc., leads to poor efficiency.

If the retailers are looking for tracking details of a shipment, they need to get in touch with multiple parties individually and that too cannot guarantee accurate information dissemination.

There is no way to confirm whether the shipment would be delivered on time and absolutely no optimal way to check and convey the delays or issues with shipment movement or delivery to the customer.

Last Mile Orchestration

Owing to the lack of process and operational visibility, the retailers find it hard to manage, monitor, track and control the last mile delivery orchestration. Which consignment is in which stage of delivery and whether the delivery fulfillment is the most optimal or not – they hardly have any say in it. 

Further, there is no way to get real-time insights into the order movement or other diverse sets of CX functionalities, such as dynamic ETAs. 

Shipper-Specific Requirements and Documentation

Every shipper or 3PL service provider has a specific set of requirements in terms of documentation and labeling. Many service providers ask the retailers to feature their names on the shipment labels and the requirements become even more stringent for international shipments.

Ensuring all this at the retailers’ end requires a full-fledged engineering setup for API integration, documentation management, etc.

All this calls for added operational costs and becomes a bottleneck for MSMEs and startups. 

Some other critical challenges in 3PL logistics management include:

  • Lack of collaboration
  • No single source of information and data 
  • Manual operations and processes 
  • Cost leakages at every step of the journey lead to lower revenue, etc.

Now that we have had a detailed understanding of the 3PL logistics ecosystem and various challenges involved in its management, let us find out how can retailers and businesses looking for 3PL logistics can overcome these challenges.

Overcoming 3PL Logistics Challenges with Smart Automation

Automation in 3PL logistics is a huge business use case that is spurring wheels of innovation and transformation across the entire industry. 

Automation is changing the fundamentals of every single process and operation in 3PL logistics-based fulfillment, warehousing distribution, and more. The global warehouse automation market is going to be USD 30.99 billion in 2025. Further, the 3PL software market is expected to be USD 2.3 Billion by 2032.

Automation solves the 3PL logistics management challenges via:

Status Standardization

Investing in 3PL logistics management automation comes with the benefit of status standardization. This means that irrespective of the language or shipment status-related communication used by 3PL providers, carriers, and any other parties, the retailer is going to have a uniform and unified view of the shipment status.

For example, instead of seeing “shipment picked”, “order picked up”, “picked up order”, “package picked up” etc from multiple parties, the retailer will find uniform information for all the providers – “Pick Up completed”.

Triggering Key Alerts With Standardized Status to the Right Stakeholders

Now, as soon as the shipment status is recorded in the 3PL management system, automated triggers are sent to the right stakeholders. For example, the shipment movement alerts are recorded in the system for retailers’ information and so on.

These triggers can be configured as well, to ensure rights-based access to the data or shipment information. This way, all the stakeholders are on the same page and have a single source of truth for all the legs of the order movement.

Automate Customer Alerts and Communication

All the key events are linked to alerts and communications, that are sent to specific stakeholders once a specific milestone is achieved. For example, once the shipment has reached the destination warehouse or hub, the alerts are automatically sent to the shipper, retailer, customer, etc.

As the automatic alerts are system-generated, they cannot be altered manually, if done by the retailer’s side. This means that the customers are going to get a message before delivery is going to be fulfilled to ensure that the customer is present at the time of delivery.

These alerts not only facilitate the dissemination of dynamic ETAs, but also trap redundancies such as failed deliveries, delivery re-attempts, and frauds. 

Real-Time Visibility

3PL logistics automation ensures real-time visibility into the operations and order movement. The managers, service providers, retailers, and even customers can check the last mile order movement. The businesses can ensure 100% control, monitoring, and tracking of order movements right to the customers’ doorsteps.

This becomes a game changer for the brands in QSR, on-demand, and hyperlocal commerce, as the managers can check the live order movement and create highly optimized delivery routes using the smart AI/ML-based algorithms.

Extensive Control Over Operations 

Using smart 3PL management platforms empowers businesses with control at scale via integrated dashboards offering a unified view of people, processes, assets, orders, customers, and more. 

They can choose smartly from the available list of 3PL service providers based on their pricing, availability, performance record, and more. Further, even the 3PL logistics providers can scale their operations in a high resource and cost-efficient manner, by deciding the optimization constraints that are available right inside the automation platform.

The documents can also be stored in the system and core functionalities, such as label generation can also be automated and completed from the dashboard itself.

So, the entire consignment movement gets controlled right from the integrated dashboard and is always under the direct supervision of retailers or the right stakeholder.

Data Analytics and Reporting

Another awesome feature of using 3PL logistics automation is highly advanced data analytics and reporting that helps businesses streamline and refine their operations over time. They can make sense of the mountains of data they have, such as failed deliveries, number of attempts, customer feedback, costs per delivery, etc.

All these facts and figures can be compiled in the form of reports for better visualization and understanding. The retailers can then take better and well-informed business decisions that, in turn, help them to amplify their revenue. 

Aggregation and Integration

Smart 3PL logistics automation platforms come with built-in APIs and smart integrations with multiple parties, such as eCommerce portals, customer portals, WMS, OMS, ERP, etc.

Thus, the retailers can work with multiple parties for seamless operations, right from consignment pick-ups to the last mile delivery orchestration. Such aggregations reduce the need for in-house infrastructure and expertise. 

Getting Started: How to Choose the Right 3PL Logistics Automation Partner

Choosing an automation partner for 3PL logistics and 3PL logistics management must involve a thorough study of the core offerings of the service provider. Not only the automation should be scalable, robust, and flexible, but it also needs to be consistently improving and the right fit for a business. 

The best way to get started is to look for an automation provider that works as a partner and not the vendor. Custom offerings, scalable configurations, and agile development with an in-depth understanding of the customer pain points are some of the must-haves. 

On the technical side, some of the must-have features include the following:

  • Intelligent Quote Management
  • Predictive Alerts
  • Real-time Customer Communication
  • Customer Auto Intimations
  • Finance Management
  • Automatic Error Detection
  • Document Vault Security
  • Incidental Cost Alerts

Here are some more considerations that can help you choose the best 3PL management solution: Click Here.

Drive Agile, Cost Efficient, and Transparent 3PL Logistics With Shipsy 

Shipsy offers AI-powered end-to-end logistics management solutions for a diverse set of industries, including 3PL logistics management. The solution comes as a highly comprehensive platform with intelligent functionalities and hundreds of custom features to streamline and optimize the order delivery orchestration.

Offering a diverse set of functionalities for each leg of order movement, smart data insights, and highly flexible management of 3PL logistics processes, Shipsy helps businesses to:

  • Auto-allocate 99.7% of delivery tasks 
  • Reduce last-mile delivery costs by 14%
  • Reduce delivery steps by 77%
  • Reduce freight costs by 12%
  • Ensure 100% error-free 3PL invoicing
  • Increase on-time dispatch by 28%

To know how Shipsy can help you achieve all this and much more with its smart 3PL logistics solution signup for a quick demo here

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