Third Party Logistics (3PL) on the rise to meet customer demands

In view of an increasingly global and interdependent economy, as well as a need for organisations to maximise efficiency, minimise costs and meet the exacting delivery expectations of customers, there has been a sharp rise in demand for the specialist solutions offered by third party logistics (3PL) providers. These solutions are varied and include warehousing, distribution and transportation as well as other added value services such as assembly and packing, among others. 

Peter Stephenson, who heads up Nigel Wright’s Supply Chain, Procurement and Logistics practice in the North East explained that outsourcing all or parts of its logistics function can give a company a competitive advantage in the market by enabling it to ‘…focus on other critical strategic areas, while ensuring that it offers all-round improved customer support.’  He added that complex services such as deconsolidation, a system of transporting cargo as separate pieces rather than in containers, have ‘come to the fore’ in recent years and 3PL companies are also diversifying their services to encompass B2B, B2C and ecommerce solutions, as well as investing in the necessary infrastructure to guarantee customers next day delivery anywhere in the UK.

Some of the most innovative 3PL companies, according to Stephenson, have built large deconsolidation centers at key strategic locations around the UK and have adopted what is known as a ‘flexible walls’ system, allowing customers to pay for the warehousing space they need but then easily up-scale investment if and when requirements change. Stephenson explained that this allows customers to forecast the space they need now and in five years time, as opposed to having to invest in extending warehouse space every time they grow. In his words, ‘By developing close relationships with clients and reacting to changes in the market, 3PL firms are giving customers the vision and capability to grow now and in the future.’

Historically, retail has always been a challenging environment for 3PL providers and over the years solutions have become increasingly innovative in this sector as retailers’ expectations have risen. High standards in the retail sector are essentially driven by consumers who want a faster turnaround on deliveries and, as Stephenson notes, tools like Facebook and Twitter have meant that 3PL failures are now constantly in the spot-light making it much tougher; ‘If one consumer from one dispatch doesn’t get their delivery when they expected it, that’s a one hundred percent fail.’ It is the emergence of ecommerce, however, that has really compelled 3PL firms to develop niche propositions in what is an increasingly competitive environment.

Ecommerce, in Stephenson’s view, has magnified the complexity of the whole 3PL process and the skillset and systems required to manage it successfully forces firms to offer customers unique and specialist solutions. ‘Companies recognise that as ecommerce gradually becomes the norm for most retailers, lead times will keep getting faster. City centre deliveries will eventually be down to just two hours following a customer making an order. Because most retailers don’t have the internal skills or the infrastructure needed to make this work efficiently, they will increasingly require 3PL providers to ensure orders arrive within customers’ expected timeframes.’

Having worked with multiple 3PL providers over the last ten years, Stephenson believes there are three factors that make firms stand out from the crowd and deliver complex solutions: systems, infrastructure and people. Firstly, leveraging the latest technology is essential to meet the high expectations of customers. Stephenson explained that the best firms now have fully integrated IT systems and dedicated in-house teams entirely focused on developing and improving Warehouse Management Systems (WMS). ‘To satisfy the very different needs of customers it’s absolutely critical to offer a high level of IT flexibility.’ Furthermore, another key aspect of the modern 3PL proposition is to offer customers visibility around stock, inventories and cost. Generic stock files are utilised enabling customers to hold all of their stock on site and monitor and track levels in real time.  ‘This guarantees that customer integrity is not impacted when goods belonging to companies in competition with each other are stored in close proximity. Costing models are also usually flexible, allowing both parties to leverage mutual benefits and savings.

While systems and infrastructure are vitally important, the most critical factor in the delivery of exceptional 3PL solutions, Stephenson emphasises, is making sure you have the best people at all levels of the organisation. ‘A strong management structure is key and that must be complimented by a multi-skilled workforce that can work across multiple contracts, allowing companies to easily manage increased capacity without causing service issues. Additionally, Stephenson contends, ‘This helps develop skills and provides people with job enrichment as well as opening up opportunities for progression, keeping retention high and costs low.’  

Stephenson added that because the whole 3PL operation is far more sophisticated and strategic now than in the past, firms require a much higher calibre of person. Consequently, the need to attract and retain talent is high on the agenda for companies.  Specifically, ‘there is a concentrated effort in the sector to educate young people about the exciting careers that exist in logistics.’  He concluded by saying that 3PL logistics solutions can be effective in different markets and that more and more companies are developing specialist knowledge within different sectors, rather than necessarily targeting and competing in one. ‘3PL is broad and varied and it’s important that firms continue to take best practises from different industries to ensure they are providing customers with the most modern and effective solutions.’