3PL – IT Risks and Benefits to 3PL Clients

Continuing my articles on “What do you want from your 3PL” and following on from my previous article regards “3PL Expertise”, this publication highlights what to look for and be aware of regards your 3PL’s IT System.

The Benefits and the Risks

When going into a relationship with a 3PL, potential clients have a tendency to ask for the Information Technology (IT) attributes they are comfortable with or already have. They are unaware of many opportunities made available utilising current systems and the inherent power in their data.

Today, the supply chain utilises acronyms such as EDI (Electronic Data Interchange), SCV (Supply Chain Visibility), IoT (Internet of Things), WMS (Warehouse Management Systems), TMS (Transport Management Systems), RFID (Radio Frequency Identification), GSM (Global System for Mobile communication), plus more. Most 3PL warehouses have tried to keep up with this technology to keep themselves current and competitive, no longer using paper based instructions, moving back and forwards around the warehouse assembling orders to be collected by transport companies at the end of the day, to be delivered without notification at the drop off address entered on the manual consignment note.

While the above acronyms may not be saying too much to you at the moment it, the IT systems used by 3PLs will be using many of these – or should be. You have power in the data about your products, your customers and your suppliers and the power is not in the generation of data, it is in the ability to capture, analyse and inform using the data already there.

1.1. Benefits

The real service provided by the 3PL is not storing stock, then picking, packing and shipping orders. It is in the availability of accurate, real-time information.

You will be able to advise your 3PL – using your own digital or manual system – of inbound deliveries, with the 3P importing the data into their system within minutes using technology such as OCR or EDI. The 3PL will already have set up their IT system with your product/customer/supplier information, so by ensuring the minimum manual touch points there is less risk of human error.

On arrival of the stock, you will be informed of the inbound status, you can also view the information by logging into your portal at any time, 24/7. Once the stock has been received and using a good WMS the stock will be placed in the most appropriate stock location to ensure storage and picking efficiencies (saving time and money), you will now be able to see exactly how much stock you have; in total, how much is still due in, how much has been allocated to outbound orders and how much is in “quarantine” (problem stock).

Technology now means you have a multitude of ways to advise the 3PL of outbound orders, not only can you advise the 3PL using OCR (faxed/emailed orders), but the 3PL’s system can also be informed directly from your own IT software, or even your eCommerce website using EDI and APIs (Application Programming Interface) – again less human interaction the better. Outbound orders can now be picked, packed and assembled in the most efficient manner and shipped in the most effective way. Consignment notes will be generated automatically at this time providing you with a tracking number enabling you, plus the consignee (your customer) the ability to “Trace” the outbound order during its travels to the consignee, right up to and including a copy of the consignee’s signature and date/time of the delivery (all within minutes of the delivery happening).

By using technology such as rugged smart phones, which can be used as data loggers, pick and pack scanners, GPS and sign-on-glass for the delivery drivers, all warehouse and transport components are coordinated, visibility of the order is continuous throughout the process. These systems “capture”’ data, for example by scanning product codes, quantities, bin locations, etc and match these with the order information automatically thereby checking the validity of every pick. There is no need to “generate” (input) data.

Technology will improve the ability of the 3PL to manage their costs and reduce the costs they want to pass on to you. But the data that is captured across the process is a goldmine of information waiting for you to use. An example is to identify and improve “delivery cost per customer” as some customers may not currently be profitable regards shipping costs, is this reflected in your pricing structure?

1.2. Risks

1. With the continuous, sometimes radical but none the less, unrelenting advancements in IT systems some 3PLs will be left behind. Now more than ever, information technology plays a crucial role in third-party logistics and indeed the whole supply chain, from source to consumption.

Risks will vary depending on the level of assimilation into “Technology”:

  • Manual systems, typically paper based with spreadsheets controlling/manipulating data – a high number of touch points thus maximum number of opportunities for errors in all processes from entering data to picking and packing incorrectly, all the way through to delivering to wrong customer (if at all).
  • Semi-manual, can be because systems have not been upgraded or installed a system that has gaps in processes or even are “building” a system in-house. Any problems here can, in fact, be more insidious. Manual systems often have checks and balances in place because the risks are known, semi-manual systems are often assumed to not have as many ‘problems’ and as such may go unnoticed until it requires a major review or even a system overhaul. A total audit of all transactions may be required as the depth of the problem may not be known. Not all systems built “in-house” are robust, easily audit-able and simple to use. This is the worst type of semi-manual system as they are using their clients as guinea pigs and problems will not always be identified to the client – the 3PL will attempt to fix before it becomes public. Symptoms can include ‘system is down for update’ or ‘sorry you can’t login into your portal, we will advise once fixed’ or you get complaints from YOUR customer.
  • Fully automated systems. Although theoretically these should have the least errors, if your 3PL has not kelp up with updates, errors may creep into the process. They may not have the in-house resources to fix system errors so bring in contractors, the question then is, are they reputable contractors or just based on price.

1.3. Take-away

With any IT system used by your 3PL, you should have accurate, real-time, 24/7 visibility. You should also have access to a range of automated and self-customisable reports with invoices being clear and easy to follow.

Prior to contract

  • Ask whether the IT system is a self-build, proprietary on-site or cloud-based, etc – then search the reviews on the internet.
  • Ask what limitations there are to their IT system. Can their IT system “connect” to yours e.g. via API, are they able to do the work and will they charge for the interface?
  • Request a presentation of the IT system and use it to follow a number of scenarios throughout the process from receipt to delivery. They will show you the ‘front-end’ (what you will see via your portal) it may also be of benefit for you to follow through using the ‘back-end’, this will give you a better picture of the abilities of the system.
  •  Carefully consider the in-house IT capabilities of your 3PL.
  •  Obtain examples of ALL the available reports, ask if you can request customised reports (and is there a cost). Are the reports configured as a PDF or provided in MS-Excel format, there is limited value to a PDF report.
  • If possible – ask the 3PL floor staff what is good about the IT system AND what is not so good.
  • Ensure to ask the Referees provided by the 3PL what they think of the IT system: the reports, including financial reporting e.g. invoicing and credits; is the portal open 24/7; have they encountered any System failures/downtime; System accuracy; the 3PL’s response to requests for new reports/report editing; have they had their system interfaced with the 3PL’s IT system and the difficulty achieving this, does it work.
  • Finally – some 3PLs charge for each part of the IT system used, e.g. a fee for the portal, a fee for different reports, a fee for generating a new report, etc.

Current Contract

If already in a contract with a 3PL it is very hard to change your IT requirements. That said, you should still talk to your 3PL provider to ascertain what they do have available, you may be surprised what they can do for you (especially if they do keep their IT System up-to-date).

So it may still be advantageous to review the above, you might be able to identify an opportunity that helps your business (and them?) in some way, with either the outcomes or financial impacts.

Your story

If you have an example of a good or bad 3PL experience please share them and bring them to the attention of both potential clients and 3PLs Providers. Helping everyone this way raises the bar.

My next article in this Series will be on 3PL Customer Care

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Is your 3PL Provider an Expert

“Improve your competitive advantage, reduce your warehouse and distribution costs by up to 20% and improve customer relations, minimize your CAPEX” etc. These are some of the headlines often espoused by Third Party Logistics companies (3PLs) looking to gain your business and they are not totally wrong, but not all is right either, there is another side to any 3PL arrangement (as with any service arrangement) as many will have found out the hard and usually in very expensive way. As you may have guessed from the opening, for this series I am referring to asset based 3PL warehousing (the services provided by these 3PLs are at their facilities and not owned or operated in anyway by the Client).

To set the scene a little background may be appropriate – 3PLs are those entities to whom Client companies pass responsibility to for the control and management of part of their supply chain, in this case warehousing and distribution. As more control/management of the supply chain is given over to the 3PL, the more complex the agreement/contract becomes. 3PLs are usually engaged to fill the gap between your knowledge, resources and experience – meaning some Clients are often not even aware of how the arrangement works or even what a 3PL can do for them, thus making it difficult for themselves and the 3PL Provider to each get the most from the arrangement in the long term.

I will be writing some articles to help Clients understand the relationship, with the intent of building long term, collaborative relationships with their 3PL Provider. The articles will be broken up into different facets of the function/relationship – for example: information technology, collaboration and expertise, etc – where I provide the benefits and possible downsides. Having a knowledge of potential issues or being able to identify a current one is critical and could be the difference to making a profit or just making the relationship costly for both companies.

The first in focus is:

1.            EXPERTISE

Benefits

3PLs have experience in the storage, picking, packing, sorting and arranging distribution of orders. They will have the experience to identify and mitigate potential issues and know how to quickly resolve problems. Having skills in best practice, they will be working efficiently and effectively thus ensuring they can maintain minimum costs to them AND to you, whilst ensuring the integrity of the goods from receipt to delivery.

Whether they are using the latest 3PL Warehouse Management Software (WMS), integrated with Transport Management Software (TMS) or are using a legacy system, they will still be knowledgeable to the point they will know what reports you need and what access you will require to enable you to clearly and simply know your stock situation (24/7) and to know what is happening with each and every sales order/stock transfer up to the point of delivery.

Your chosen 3PL will also have expertise in the same industry you operate in. For example, a beverage 3PL should know how the beverage industry works, along with all the idiosyncrasies that go with that industry, which would be different for FMCG and again for industrial goods. This includes not only the inbound transportation, storage and distribution but also the Reverse Logistics which, due to e-commerce, is a growing business in itself.

All 3PL staff will have the relevant knowledge and experience to support your company and your customers, relative to their role/position.

With you being able to trust that the 3PL (as a whole) has the expertise to store and provide, not only the stock as and when required but also the information supporting the agreement, you can then focus on your own core competencies, resting assured you are leveraging the expertise of reliable and experienced professionals, providing value for money, keeping overheads low and minimizing your need to input time and labour into managing the flow of stock.

Risks

Unless you are aware of the potential risks (and indeed opportunities) there is a chance you will miss them, this is especially the case when talking to a perceived “expert” – remember they have many clients and receive regular enquiries from potential clients so they know exactly what to say and when to say it – whereas you would rarely be sourcing a new 3PL (hopefully).

So… I will start with an analogy for clarity. You are a passenger on an Airbus A380, you sit back and relax assuming the aeroplane has been checked correctly by properly trained and qualified LAMEs (Licenced Aircraft Maintenance Engineers). Another LAME, trained on Airbus A320s could probably do most of the checks and reviews but when it comes down to it, you do not want to drop from the sky because the LAME missed something critical to the A380 but not so on an A320. Even worse, a LAME trained on B 737s may have got the role – just because he could “talk the talk”.

Obviously, this would never happen on a commercial flight, as the aircraft are maintained to standards set by the respective domiciled country, for example CASA (Civil Aviation Safety Authority) in Australia, as well as IATA (International Air Transport Association).

Clients of 3PLs must do the same. You must know and agree the minimum standards and require the appropriate level of expertise from all personnel of the 3PL, relative to their position.

Typical problems that may be encountered by having a 3PL with less experienced or suitably skilled management and/or staff include:

  • Lower levels of efficiency – this will impact directly on the 3PL as their labour costs will increase, but ramifications may affect your business, for example the 3PL taking shortcuts to get the job done (still charge the same), with your customers not receiving their orders when expected – review the SLA (Service Level Agreement) as the 3PL will may have an unreasonable buffer built in e.g. Sydney to Sydney should be “Next Day” but the agreed SLA might say 1-5 days! Unlikely, but possible.
  • Higher expenses – by not correctly checking stock at time of receipt you may miss the chance to place claims on vendors for incorrect supply or on carriers for damaged deliveries. Other higher costs could be internal loss/damage (by warehouse staff) although a 0% SLA is a tough one to get into the agreement it should not be too loose either.
  • Increased errors and mistakes – picking, packing and dispatch errors will affect not only you but also your customers, it may cost the 3PL (or you) to correct the situation but this will not make the customer think any better of your customer service (especially if it’s a regular occurrence). Remember, your 3PL’s performance translates to YOUR performance – good and bad.
  • Lower levels of DIFOT% (Delivery in Full, on Time) –similar to above but this includes timeliness. If the Customer does not get their full order, when expected, there WILL be repercussions. Whether the under-performance for this SLA for example, was due the 3PL’s stock control being out of sync thus impacting your ability to raise purchase orders effectively, the result is still a very upset customer.
  • Miscommunication and slower response times due to a lack of understanding of your specific needs and requirements – Having functional as well as industry expertise ensures the 3PL understands your requirements as to what, when, where and how much and can quickly communicate to you if there is an issue or indeed any form of confusion, i.e. they should not need an interpreter or prompting.
  • Cost control – without functional and no less, industry expertise, costs may not be effectively managed along with ideas or suggestions on cost saving measures not presented to you. If the 3PL is also not professional, they may even restrict the presentation of ideas that may reduce their overall revenue e.g. suggesting a different Carrier to lower overall transport costs may affect the 3PL by lowering their mark-up on freight revenue.

Take-away

Prior to contract

  • Included in the Tender Process should be section to ascertain the skill/experience level of the 3PL, this can be by the 3PL providing references from actual clients and providing copies of the full resumes for the management team – from supervisors up.
  • Ensure the referees ARE followed up and questions asked regards when things are going well as well as when things go wrong (this will add a lot of value), then review the resumes. Each of the management team should have direct experience of at least 5 years in warehousing (at the respective level) and at least 1-years’ experience within your industry.
  • Remember to ask questions about:
    a.      How they manage the Supply Chain
    b.      How long they have worked in your Industry/Niche market
    c.      What SLAs and KPIs (Key Performance Indicators) they have in place to monitor efficiency, effectiveness and accuracy
    d.      Include subjects such as their Strategic workforce management and
    e.      Reverse Logistics/End of Life supply chain management (especially for e-commerce)
    f.       Focus; are they Process Driven or Customer Centric (lucky to have both)

 In Current contract

Being in a current agreement with a 3PL you should already have garnered most of the 3PL’s skills. That said, if you have any concerns about your 3PLs performance then ask to see the resumes and review the SLAs and KPIs on a regular basis. If the resumes are lacking or the SLAs and KPIs are anything other than optimum (and reasonable) then you should open discussions with your 3PL Provider and agree new SLAs and KPIs – and what happens if they are not met, and just as importantly, if they are met.

 Stories

If you have any of your own stories please share them and bring them to the attention of both potential client and 3PLs Providers. Helping everyone this way raises the bar.

My next article in this Series will be on Information Technology used by 3PLs