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