How Using Technology Gives 3PL Warehouses a Competitive Advantage

Did you know that 90% of Fortune 500 companies use 3PLs?  Today shippers expect 3PLs to provide services related to data management, analytics, network optimization, and inventory visibility and even outsource IT department functions to 3PLs.

Technology is the great differentiator.  It provides solid competitive advantage to businesses in many industries.  According to the 2024 3PL Study, 87% of shippers and 94% of 3PLs believe that “emerging technology adoption is critical to future growth and overall success”.

Third party logistics providers place a higher value on technologies such as warehouse automation, predictive analytics, wearables and mobile technology and find supply chain control towers useful. For years, third party logistics providers have leveraged technology to attract and retain clients.  For these companies, it is more than simply gaining greater control and operational efficiency.  These 3PLs understand that in using technology, they are able to lift the IT burden off their customers, share information, and are valued for this effort.  It sets them apart.  To gain more insight about how 3PLs gain a competitive advantage from technology, read our blog.

Companies report that they invest in technology to enhance visibility, improve productivity and process efficiency as well as to decrease operational costs.  As more supply chain businesses invest in technology, more data is being generated throughout the supply chain.  This provides more information that can be leveraged by advanced technologies including machine learning and artificial intelligence.

Third party logistics providers derive operational value from all this data.  Today, more 3PLs are leveraging real time data to produce dashboards, which aids in automated decision making.  According to the 2024 3PL Study, third party logistics providers report that they find the greatest value in inventory management, route optimization, as well as in freight invoicing and billing.

Technology has increased in importance within the supply chain logistics industry.  3PLs are collaborating with their customers to turn data obtained from newer technologies into usable information to improve service and asset usage, as well as to reduce costs.  97% of all shippers surveyed for the 2024 3PL Study noted that IT capabilities are a “necessary element of overall 3PL provider expertise” yet only 49% reported that they are satisfied with 3PLs’ IT capabilities.  95% of shippers surveyed indicated that their 3PL relationships are “generally successful”.  Shippers indicated that 3PLs “provide new and innovative ways to improve logistics effectiveness and reduce overall supply chain costs”.

Of the technologies that shippers find most critical for their business, TMS and WMS were considered the most vital.  Half of the shippers surveyed indicated that they were searching for data mining and advanced analytics tools.

“The effectiveness of shippers and 3PLs has always boiled down to their ability to create value for their customers and their businesses, as well as for the end customer and consumers.”

-2024 3PL Study

Why 3PLs Invest in Technology

A tech-enabled 3PL is better positioned to grow and scale, provide real time data visibility, and operate more efficiently.  This translates into cost savings for its customers. Leveraging automation, robotics and other modern technologies can reduce the labor burden and boost workforce productivity and accuracy.

The 2024 3PL Study revealed that 3PLs and their customers are already sharing significant volumes of data with their supply chain partners, namely transportation/logistics performance, order history, inventory levels, and supplier performance.  In managing order fulfillment, collaboration and information sharing is necessary.  Customers need to provide insight to 3PLs regarding the orders their customers place and 3PLs must reciprocate by providing shippers with visibility into issues such as on-time and in-full, and fill rate and provide performance metrics at the operational level.

Using warehouse management software is critical for third party logistics providers.  Technology-savvy 3PLs tend to place higher value on warehouse management software that was developed specifically for use by third party logistics providers rather than distributors.  This “better fit” business model WMS tends to be more flexible, and adaptable when dealing with multiple customers and their many diverse needs and requirements.

For cost-conscious lead logistics providers that must pay for source code changes to adapt their warehouse management software to suit customer needs, there is a new option:  low code application platform-based WMS.  This represents a shift in software development.  Low code application platforms, commonly referred to as LCAPs provide a drag-and-drop visual interface and pre-built components, templates, and integrations.  This minimizes the need for programming and hand coding, making the investment less costly, especially over time.

Artificial intelligence (AI), machine learning, (ML), and predictive analytics are emerging technologies in which both shippers and third-party logistics providers have pronounced interest.  3PLs have found that investing in newer technologies helps to foster deeper relationships with their customers. useful in sustaining longer term engagements.

Here are the top reasons why third-party logistics providers invest in technology:

1. Supply chain visibility
2. Automation and efficiency
3. Real-time data-driven decision making
4. Integrations with customer systems, EDI and innovative new technologies
5. Enablement of scalability and flexibility
6. Enhancement of the customer experience
7. Risk management
8. Disruption prevention and risk management

Third party logistics providers tend to be more confident of their abilities to understand, use and leverage technology to their advantage as well as for their customers.  In fact, they often play a central role in identifying and evaluating the potential of emerging technologies, helping them to understand the possibilities of its use and impact on their operations.  Having experience in a range of industry verticals, 3PLs often help to configure technology to meet the needs of an operation and even help with deployment and development.

Here are some of the most popular technology investments, in order from most to least investments already made:

• Warehouse automation and robotics
• Supply chain control towers
• Wearables and mobile technology
• RFID and other advanced sensors
• Advanced predictive analytics
• Unified e-commerce platforms
• Industrial IoT (SMART facilities)

Tech-enabled 3PLs often promote their use of technology by leveraging partnerships with software companies, such as WMS, TMS, ERP, robotics and other vendors.  They emphasize their ability to integrate with other solutions, provide testimonials and case studies to emphasize how well the various technologies work and provide value to their customers.

Using technologies enables 3PLs to automate and optimize operations so that they can offer competitive pricing, a critical selling point.  Making it transparent to potential customers how the technology works and showcasing its benefits tends to build trust and confidence.

Some Tech-Enabled 3PLs Provide IT Services to Their Customers

Some 3PLs offer IT services to their customers.  This has become increasingly popular and saves customers on labor.  It also helps 3PL customers by removing the challenge of hiring, and provides seasoned, knowledgeable professionals to handle the workload, as desired.

Using advanced data analytics, 3PLs process huge volumes of data from a variety of sources.  This aids customers in making better quality, data driven decisions and also helps in optimizing operations.  Third party logistics providers use warehouse management systems to track inventory, manage warehouse operations and often connect to IoT devices and/or RFID.  Centralized data is accessible to customers via cloud-based platforms.

3PLs help customers optimize logistics networks to facilitate efficient routing and keep transportation costs under control by using transportation management systems, route optimization software and supply chain modeling tools.

Some 3PLs act as an extension of the customer’s IT departments.  They may provide top tier support for a particular technology, such as WMS or TMS, build customized reports and dashboards, and handle any customizations.  In addition, they may help clients with RFPs to pursue new business opportunities, handle database tuning, provide managed services for mobile devices and provide other services specifically required by the 3PL or its customers.

Here are some of the ways that 3PLs bill for these services.  For technology-enabled 3PLs, it is critical that they have a powerful, flexible 3PL billing engine built into their WMS that is capable of billing for any requirement, no matter how unique or customized.  (Access the free Datex 3PL Billing Guide here.)

Customers may be billed by:

• Service type, as different services have different costs associated with this work.
• Volume and weight of the goods handled
• The level of complexity of the operation
• The type of customized solution provided

No matter the type of work they do, a tech savvy 3PL needs to be able to track and monitor the services it provides to customers.  By identifying key performance indicators and understanding the value of the effort to each customer, the 3PL can better present the value and benefits of their effort.

Conclusion 

The 3PL business model is one of notable complexity.  Each 3PL logistics company has multiple clients, each with their own concerns, requirements, and expectations. Most shippers value the 3PL business model for its ability to produce cost savings in supply chain operations and logistics processes and more recently, to leverage their technology knowledge to provide cyber security measures.  An integral part of each third party logistics management process involves not only using 3PL core competencies but also leveraging technologies to align and meet each customers’ needs and expectations while keeping operating costs under

The 3PL business model is one of notable complexity.  Each 3PL logistics company has multiple clients, each with their own concerns, requirements, and expectations. Most shippers value the 3PL business m odel for its ability to produce cost savings in supply chain operations and logistics processes and more recently, to leverage their technology knowledge to provide cyber security measures.  An integral part of each thir control.  

Managing distribution centers, fulfillment centers-whatever specialized logistics and warehouse operations, can be done more efficiently and cost effectively using technology.  3PLs are the masters of keeping shipping costs under control and in streamlining processes involving logistics functions seamlessly.  From packing and shipping operations to freight forwarders, 3PLs leverage their core competencies to enable other supply chain business owners to focus on their core operations and strategy as their business grows.

3PLs that invest in technology leverage industry expertise to attract and retain clients.  Nearly 90% of Fortune 500 businesses have outsourced logistics to a 3PL vs. handling warehouse operational and logistics functions themselves.  From packing and shipping, omnichannel fulfillment, returns processing, to reverse logistics, thirdparty logistics providers invest in a variety of technologies to increase efficiency, optimize specialized logistics and warehouse space, implement more stringent cyber security measures, and reduce costs.  By improving performance and keeping warehouse operational costs under control, 3PLs can pass these savings along to their customers, attract new business and grow their companies.

The 3PL logistics business is tough and complicated, one that requires partnership and collaboration, experience, time and money.  Battling labor challenges, ensuring retail compliance, dealing with numerous sales channels, meeting freight shipping needs with multiple shipping options, providing logistics management and specialized logistics is challenging at best, and requires technology for the best performance.

Today, there are a myriad of tools that 3PLs can use to reduce costs and increase efficiency.  For example, 3PLs can use software that enables them to rate shop for freight carriers and keep shipping costs under control.  Cost savings can be realized also by using TMS and route scheduling software.  Advanced technologies such as predictive analytics, artificial intelligence, and machine learning can help to prevent supply chain disruptions and minimize business risks.  

Using warehouse management software with sophisticated functionality can also streamline returns management and reverse logistics, which can be complex and challenging processes.  With return rates of up to 33% for goods purchased online, shippers often outsource fulfillment and returns management to 3PL fulfillment specialists.  3PLs can also use the cartonization functionality of a WMS to reduce labor resources, waste, errors, and packing materials, resulting in considerable cost savings.

Resources:

3PL_2024_Study.pdf