If you’ve read the news at all—even cursorily, you probably noticed that inflation has dominated coverage for over a year. (Even I wrote about the causes and effects of inflation on the supply chain, which you can read here.) Yet, even if you have been blissfully unaware of the news tornado surrounding the record-breaking inflation rates in the US and globally, your wallet has definitely gotten the message.
With inflation seeming to cool thanks to interest rate increases by the Federal Reserve and many investors and analysts predicting an end to rampant inflation on the horizon, you may think the economy will bounce back sooner than later. But as the Economist warns, not so fast: “the average economic forecaster thinks a recession in America is an odds-on bet.” Third-party logistics (3PL) warehouses and their clients are particularly sensitive to economic ailments—and their effects on consumer spending patterns—so we have gathered three tips to help you prepare for the worst.
1. Expedite Billing and Payments
As a 3PL, your revenue depends on payments from your customers. This is obvious, and so is the fact that longer billing cycles and slower payments mean less cash on hand to run your 3PL. And, cash is king.
We published a blog at the beginning of February about managing working capital for your 3PL business, which defines working capital as current assets minus liabilities. As a business, you are always going to have liabilities—taxes, payroll, utilities—that usually have concrete deadlines regardless of your actual cash on hand. Therefore, it is essential that you increase your time to collection to decrease your Days Sales Outstanding, i.e., your service fees that you’ve already accrued, so you can keep your working capital positive. (Imagine trying to postpone your employees’ paychecks because you are waiting on a payment from one of your clients… it’s not going to go well.)
Of course, billing and invoicing is extremely complicated for 3PLs. Keeping track of all the billable events that occur within the warehouse, organizing these events by customer, and staying on top of all the unique billing terms for each customer can create a lot of work for your billing team. Compiling these charges into invoices that you can deliver to your customers can take days or weeks, lengthening your billing cycle and making it harder for you to maintain positive working capital.
Luckily, there is technology available to help drastically shorten billing cycles and payments. Extensiv 3PL Warehouse Manager, our warehouse management system (WMS) software platform created specifically with 3PL operations in mind, features a robust billing manager that automates warehouse billing processes. The billing manager not only records every billable event based on transactions logged through the WMS but also calculates recurring storage fees and generates invoices in seconds. Users of our software experience an average of a 75% reduction in billing time, which brings the time to payment that much quicker.
2. Focus on Labor Productivity
The warehouse labor shortage is almost as talked about as inflation, and for a long time, employers have had to try to manage dramatically increasing labor costs to keep their businesses running. Cited in the 2022 Third-Party Logistics Warehouse Benchmark Report, 71% of 3PL companies saw increasing labor costs last year, so chances are you want to prioritize hiring higher quality talent to get the most out of your investments in labor.
Still, according to Supply & Demand Chain Executive, “3PLs and retail supply chain leaders need to continue to invest in talent retention and development.” This starts with onboarding and offering clear career growth pathways to talented applicants and continues through employment with training and development that create greater workplace productivity. As we noted in a recent blog article, worker productivity and labor efficiency are crucial to profitability—if your labor is inefficient, you are losing money because your labor costs eat into your profit margins.
But how do you gauge labor productivity and efficiency? Without the right tools, it is nearly impossible considering all the factors you would have to track: each individual’s performance not just by day, but even more granularly by shift or hour, by task type, by customer, etc. The list goes on. Trying to track what each individual employee does over the course of a shift—much less per hour—requires a massive amount of effort, attention to detail, and time—time that warehouse managers probably don’t have. And that is just the first step in calculating labor efficiency and profitability; next, you have to aggregate and analyze all this data on each of your employees. Even with helpful resources like this Warehouse Profitability Checklist that make this second step more manageable, you may feel overwhelmed before you even get started.
That’s why Extensiv created a Labor Analytics dashboard in 3PL Warehouse Manager. With Labor Analytics connected to mobile scanning technology, you can monitor employee productivity in real time and easily generate the reports needed to calculate labor efficiency and profitability. This level of visibility makes productivity goals quantifiable, trackable, and ultimately, achievable, which is the goal even outside of a recession.
3. Optimize Networks to Protect and Retain Customers
In a recession, finding new customers is tricky; remember, these brands you want to serve are operating in the same economic climate as you, and many would-be customers may not have the ability to invest in outsourcing fulfillment activities if cash is tight. Having a strong customer retention strategy will help your 3PL business stay afloat during these uncertain times.
But where do you start on your customer retention strategy? First, remember that your success hinges on your customers’ success, so knowing not only how to serve your customers but also how to protect—and even exceed—their business goals should be top of mind. This is where building strong relationships with your customer base comes into play. To support your customers’ fulfillment operations, you need to get to know your customers and their unique needs. What types of products do they sell? What are their peak seasons for order volume? Where are their customers (the end consumers) located? What shipping carriers and methods do they use? Are they planning to expand to new markets?
These are just the basics; you should know the ins and outs of your customers’ brands and products because the part two of your customer retention strategy depends on leveraging this intel to serve your customers’ needs. The leading 3PLs do a lot more for their customers than warehouse inventory and ship orders. They facilitate the growth of their customers’ business by answering all the needs of their fulfillment operations.
This is where optimizing networks comes into play. At a very fundamental level, this means shoring up shipping contracts to get the best rates for your customer base with the carriers they prefer. At a more advanced level, this means ensuring you have the correct geographic footprint and support for existing customers and their future goals. For example, if you operate a 3PL warehouse in California and one of your customers that sells surfboards wants to expand to the east coast (I hear they have beaches, too), how would you support that? There are a lot of variables to take into consideration: surfboards are large, heavy, and fairly fragile, making shipping cross-country less than ideal. Instead, you may want to find another 3PL in Florida to partner with in a 4PL network, allowing you to retain the primary customer relationship while sharing the love with another logistics company on the opposite coast.
Traditionally, setting up and maintaining a 4PL network required a lot of time and technical expertise… and a pretty penny, too. Extensiv has solved this problem with Network Manager, a first-of-its-kind platform that enables users of 3PL Warehouse Manager to easily manage inventory across nodes of the 4PL network all within the Extensiv platform hub. With Network Manager, you can expand your geographic reach with little investment to meet the needs of your customers. And if you need help finding a 3PL to partner with, Extensiv hosts the Fulfillment Marketplace where you can search our database of pre-vetted fulfillment partners open to 4PL arrangements. Your customers may not need this level of network optimization yet, but undeniably, giving them the room to grow will aid your customer retention efforts.
Conclusion
Yes, to use a cliché, times are tough, and they may be getting tougher, but all of these tips are important to consider even in the best of times. Customer retention, labor productivity, and managing working capital don’t just become relevant business drivers when the economy goes south, but they may save you from sinking, too.
To learn more about the Extensiv platform, contact us for a free demo.
