A multitude of risks exist when outsourcing logistics operations. Most customers second guess outsourcing their fulfillment operations due to uncertainties and fears. Third-party logistics (3PL) providers have to recognize their pain points and find solutions to alleviate concerns.
Rapid globalization has propelled customers to form partnerships with 3PLs to effectively outsource logistics operations. The global economy depends on the efficiency of logistics.
3PL logistics is diverse and complex. They face a multitude of challenges, and the current supply chain dilemmas only compound the uncertainties.
When partnering with a 3PL, customers have very valid concerns. Taking a proactive approach to alleviate their uneasiness helps to solidify customer relations and form a firm foundation for long-term business growth together.
Why Do Customers Seek a 3PL Partnership?
Customers seek to partner with a 3PL for a variety of reasons during the growth of the business. The decision to seek logistics services is typically not made lightly by businesses, so there are usually underlying concerns that require reassurance from the logistics provider.
Main reasons why customers outsource logistics operations include:
Reports show that ecommerce sales in the U.S. are projected to grow 16.1% to $1.06 trillion by the end of 2022. B2B ecommerce sales will likely top $1.7 trillion in 2022 (a 12% growth rate increase).
Businesses are struggling to meet the demands of high-volume orders. If they cannot meet the urgent demands, then they must outsource to a skilled 3PL or risk losing their consumers to competitors.
Warehouse Storage Demands
With the growing demands of consumers, businesses have started to run out of storage space for inventories. Customers often choose to engage a 3PL warehouse to meet the increased order volumes and more effectively manage inventories.
Outsourcing to a 3PL gives businesses the opportunity to expand their product line without worrying about purchasing or renting additional warehouse space for storage.
Added Delivery Options
Fast and flexible last-mile delivery is no longer a luxury but a necessity that consumers expect. It’s hard to compete against Amazon, so retailers are scrambling to offer excellent delivery services. The last-mile has become an integral brand differentiator that takes center stage over pricing and product choices.
Businesses have to provide delivery options coupled with better service to stay on top in the highly competitive ecommerce marketplace.
Outsourcing is more affordable and effective than managing in-house fleets. Adding vehicles and drivers to create a fleet is out of the price point of most customers, so partnering with a 3PL is the most effective choice.
7 Challenges of 3PLs
The challenges faced by 3PLs cause customer concerns. Fluctuating fuel prices and changing regulations create obstacles that are usually beyond the control of the 3PL. Inferior collaboration and employee shortages are other problems currently occurring in the industry.
1. Increased Fuel Costs
Customers worry about the rising fuel prices because they impact the brand’s bottom line, and logistic companies have the same concerns. Any business with delivery operations has worries about ongoing success when prices increase. The fuel prices account for a substantial portion of the operating costs, and the soaring prices chip away at the profitability of everyone involved.
2. Recruitment Problems
The logistics industry is facing recruitment challenges. 3PL warehouses simply cannot seem to attract new talent. Firms cannot fill vacancies with employees. Many would-be candidates lack the skills or experience needed to meet the job requirements.
The transportation industry has faced huge challenges in the last few years. A rampant driver shortage has become a pressing concern for customers, consumers, and 3PL owners.
Without a trained crew, productivity and efficiency quickly take a nosedive and become extremely problematic for 3PLs. The issues create a chain reaction. Often the 3PL's margins start to shrink due to the inefficiencies which impact customers and then roll on to the consumer.
3. Poor Collaboration
Transportation providers play an integral part in supply chain operations. However, the importance of the carriers is often overlooked, and operational inefficiencies start to mount.
Lack of cooperation between all parties, carriers, shippers, and customers lead to further problems. Having inferior management software or relying on manual processes can all compound the situation. Updating to an innovative warehouse management system (WMS) often restores the 3PL’s edge and reassures customers as communications improve substantially.
4. Government Regulations
Third-party logistics providers transport goods between cities, states, and countries. Adherence to rules and regulations takes centerstage. However, government regulations vary between locations.
3PL companies must remain current and compliant with the changing rules. This huge task presents problems because 3PLs often have inferior human resources, which fail to effectively manage or track the changing regulations. Warehouse management system software can streamline communications and make it easier to stay current.
5. Concerns Over Environmental Issues
As the world becomes more proactive against climate change, a growing awareness of the impact of transportation has evolved. Local and state governments have instigated laws and regulations focused on emission reduction and anti-idling.
Failure to comply incurs substantial fees, which impact the business and its customers. Many worry that further regulatory controls will also chip away at the bottom line for everyone involved in the supply chain.
6. Meeting Customer Requirements
Customers seeking the services of a 3PL have varying requirements. Logistics companies have to strive to meet each one’s particular needs.
Consumer demands and expectations have increased substantially due to services like Amazon that provide fast shipping coupled with real-time visibility.
The growing demand for innovative technology has made it a necessity that 3PLs stay current with state-of-the-art warehouse management software.
7. Subpar Reporting Mechanisms
Mid-sized and large 3PLs often start to struggle to keep track of shipments. The lack of a reliable reporting system causes high labor costs and leads to revenue losses. Manually tracking inventory and shipments is rife with human error. Innovative warehouse management software can quickly restore the efficiency of a third-party logistics warehouse and bolster customer confidence.
Technology to Overcome Customer Concerns
The use of technology, such as WMS software, has quickly become the foundation for modern 3PLs. Any logistics warehouse must invest in technology to effectively compete and meet customer needs.
Software solutions must meet the needs of customers and consumers, integrate with systems, promote real-time communications, and provide full transparency of end-to-end proof of delivery.
Here are just a few ways technology assists 3PLs:
Transparency and Visibility
Customers and consumers demand a 3PL have complete transparency and visibility provided by WMS software. Visibility lets everyone know what is happening every step of the way throughout the supply chain and the last mile, which helps a 3PL better manage all processes such as rescheduling of shipments, avoidance of traffic jams, and any necessary rerouting of missed shipments.
A supply chain that has undergone automation enjoys greater collaborative abilities with customers and consumers. The integration of the entire system improves supplier onboarding and further optimizes deliveries along the last mile.
Improved collaboration helps a 3PL better manage any unexpected events such as inclement weather or other natural disasters. Everyone can benefit from real-time communication for improved strategies and solutions.
Improved Insight Along Every Step of the Way
A fully automated supply chain provides data on all operations, which helps reveal pain points that impact the operational process. Customizable reports provide solutions so a 3PL can examine key performance indicators (KPIs) and work to improve them. Providing real-time visibility improves customer relationships while optimizing day-to-day functions.
The use of modern WMS technology is no longer an option or a luxury but a must have. Any 3PL that fails to embrace software innovations risks losing customers to the competition who are better equipped. Advanced solutions lower operating costs, save time, improve workflow efficiency, and optimize the warehouse functions.
5 Problems Customers Face with 3PLs
Customers face problems with 3PLs and have concerns about the entire process. The most common obstacles encountered when working with 3PLs include:
1. Poor Control
Customers often feel like they have poor control over the logistics functions once they partner with a 3PL. They no longer have direct control over the delivery process, which leads to worries over consumer satisfaction.
The concerns over lack of control are most common in fast-growing small businesses who are new to using a third-party logistics company to meet their warehousing and logistics needs. Handing the reins over to a 3PL for the first time concerns most businesses. A 3PL has to strive to overcome concerns and offer professional reassurance.
2. Rising Costs
One of the main reasons that a customer seeks to outsource to a 3PL is to reduce costs, which means that any hidden fees must be uncovered and examined before making a decision. They can then find ways to compensate for the charges and overcome any redundancies.
A 3PL should effectively negotiate all contracts while addressing and answering customers’ concerns. Customers often do not have the expertise needed to thoroughly investigate the ins and outs of the contract, so they may need to seek the help of an attorney to effectively negotiate the contract in their favor.
Customers will want to negotiate all operating principles between both parties and ensure that an effective exit strategy exists for both sides.
Without putting legal agreements in place, the entire customer experience will suffer.
Customers also have to weigh the potential for any additional costs that could occur during the period of change when a customer transitions from in-house logistics to outsourcing to a 3PL.
3. Concerns Over Standards
Customers who are new to partnering with a 3PL will have no understanding of the processes or core business. They probably will want to ensure that there is a strong focus on their consumer’s needs to continue maintaining their brand’s integrity and reputation.
A 3PL has to address any customer concerns over service and consumer experience so that they know there is no lowering of standards.
4. Confidentiality Breaches
Any outsourcing to a 3PL might cause a breach in confidentiality and expose customers or consumers to a data breach. Exposure of commercially sensitive information could occur.
Data breaches can take place any time, but often happen during times of transition. During contract negotiations, the possibilities of confidentiality breaches should be addressed to the satisfaction of all parties involved.
A professional 3PL will maintain detailed records on all consumers, orders, locations, volume, products, and projected growth. All information must be maintained in a confidential manner. Leading WMS software meets those standards and needs.
5. Over-Reliance Concerns
Many customers experience reservations about over-reliance on a single 3PL, which puts them at an increased risk if the logistics provider should go bankrupt or suffer financial or operational issues.
If a 3PL experiences any stumbling blocks in operations or finances, then they can quickly sink not only their own business but also those of their customers. A monetary loss can send the 3PL’s operations grinding to a halt. This could end up fatally impacting customers as they start to experience consumer loss.
Relying on more than one 3PL helps mitigate the risk and safeguard a contingency plan that focuses on a solid outsourcing strategy.
Common Pain Points for 3PL Customers
Let’s examine the common pain points experienced by 3PL customers when they opt to work with a logistics company. Often a customer will have to go through several 3PLs before they find one that is the perfect solution and meets their needs.
Logistics companies have an endless supply of sales channels that all create their own unique set of challenges. The first thing any 3PL has to do is listen to their customer and then work together to find answers and solutions to the situations. Resolving concerns early prevents them from growing into insurmountable problems that can negatively impact the relationship.
Common customer concerns:
3PL is Unable to Manage Order Surges
Surges happen, whether due to an outstanding sale or seasonal buying. If the 3PL is unable to meet the warehouse space requirements needed to take on more inventory to fulfill orders, then a customer’s reputation may take a negative hit. Not to mention that many 3PLs will handle the surge by bundling orders, which can lead to damage.
Whether a 3PL is handling 100 or 1,000 orders each day, the company must handle the influx with professionalism. Delivery of a customer’s brand is a serious matter and a huge responsibility.
Ideally, the 3PL should provide the following to meet the demands of a surge and changing marketplace:
- Multiple facilities, each for different markets
- 24/7 shipping that includes weekends and evenings
- Flexible temporary labor and overtime labor to meet the added demands
- A complete demand-planning process. Once the customer notifies the 3PL of a possible surge, the planning process to cope should commence immediately
- Constant communication and planning to tailor operations to everyone's needs
- Having the latest warehouse management software in place to ensure consistency and smooth transactions
Poor Turnaround Time
Smaller or inefficient 3PLs may not have the ability to offer same-day fulfillment of orders, which will delay the customer’s products from reaching the consumers. Slow delivery can harm the brand’s reputation.
Nowadays, 3PL companies have to offer speed and quick turnaround times, or they face being overtaken by the competition. Everyone wants to compete with Amazon for timely delivery.
Using WMS solutions and full automation of the picking process, packaging, and shipping ensures that a 3PL can meet the volume and speed demands. A strong focus on rapid turnaround time has become a necessity to stand out from the competition.
Combining technology and equipment with the skills of a 3PL warehouse ensures that goods reach customers quickly and with fewer bumps along the way.
Increased shipping costs that lack transparency quickly frustrate customers. The goal of any customer is to make money on transactions and not end up paying a fortune to ship the goods to consumers.
A 3PL must weigh their rates for profitability while still remaining competitive in the industry. Ideally, the logistics company should create a holistic pricing strategy that includes shipping combined with order fulfillment. Providing fair pricing can quickly assist any business in growing.
During an order surge when a large inventory has to be warehoused, pricing models should rapidly scale to meet the surge. After the surge starts to slow, the pricing model decreases without a need for renegotiations. Customizable solutions help meet everyone’s needs and fulfillment profile.
Order Fulfillment Errors
Errors happen, even to the best 3PLs. Sending the wrong item, shipping to the wrong address, or sending out the wrong quantity will all reflect poorly on the 3PL and their customer. A single mistake can quickly lead to a loss of business.
An experienced 3PL puts several systems in place to ensure that they avoid the majority of errors. An advanced all-scanning environment will track the item and the location when sending orders to avoid mistakes.
A 3PL warehouse should strive to meet the highest standards by performing ongoing quality checks to ensure accuracy. If an oversight should occur, corrective action protocols help smooth things out to ensure an exceptional customer and consumer experience.
The management of the 3PL should do everything in their power to preserve the partnership and satisfy all needs.
Customers frequently have questions and concerns, but they rapidly grow frustrated when faced with a 3PL company that is difficult to reach or fails to respond. A thinly stretched workforce might lack the manpower needed to meet the needs of the customers and consumers in a timely fashion.
Every customer, no matter how big or small, should always receive ample attention and care. They should have the option of reaching out through different points of contact such as:
- By Phone: Ensure that there are ample customer service representatives to handle all calls, daily operations, labeling, filing, kitting, packaging, and shipping. Ideally, each customer should have a customer service representative assigned that offers personalized care.
- In Person: Monthly meetings and quarterly business reviews that cover KPIs like customer service, order accuracy and on-time delivery rates.
- Online: Customized web tools that meet a customer’s needs quickly. Real-time data tools are a treasure trove of information that help streamline daily functions such as inventory and order management.
Customer and consumer engagement are crucial components in easing any concerns and fostering confidence.
Why Customers Should Use a Third-Party Logistics
Ecommerce brands and manufacturers regularly outsource to third-party logistics providers. The increased use of 3PLs provides an undeniable competitive advantage. Despite concerns, customers should examine the following benefits of partnering with a 3PL to ensure success.
Of course, there are risks and concerns any time a brand makes changes, but the benefits of teaming up with a 3PL far outweigh the negatives.
- Saves Time: A partnership with a 3PL frees up time and resources.
- Better Performance: A leading 3PL has the expertise and resources available to carry out all aspects of the supply chain quickly and seamlessly.
- Share Responsibility: As a brand grows, they often start to feel overwhelmed. A 3PL helps share the responsibility to keep consumers happy and stores stocked in a timely manner.
- Meets Demand: A third-party logistics provider can quickly meet the global demands and achieve a competitive advantage.
A Successful Third-Party Logistics Strategy
Any customer seeking to partner with a third-party logistics provider should carry out a SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis to determine the threats and weaknesses that might pose a challenge. The analysis can often ease any discomfort and provide greater insight into possible risks.
Customers should never hesitate in carrying out a selection process by inviting third-party logistics providers to make formal presentations. The information garnered can help create a concise list of potential service providers and make the decision easier on who to pick.
At Extensiv, we know the risks and concerns that customers face when picking a qualified third-party logistics provider. Our WMS software solutions give any 3PL the edge they need to meet all challenges and lower any potential liability to ensure future success. Contact us to learn more about our warehouse management software today!