Retailers and 3PLs Partner to Optimize Supply Chains

Explore how retailers are enhancing supply chains by outsourcing operations to 3PLs

Retailers, 3PLs, and the Fulfillment Space

As inflation and geopolitical turmoil’s carry over into 2023, the retail fulfillment space has entered a new era that is impacting retail supply chain operations. At the same time, rising gas prices, a lack of available workforce, and shifting consumer expectations are adding complex layers to the industry.

In the new era of global logistics, third-party logistics providers are taking on more roles to ensure that supply chains of the largest retailers to the smallest are resilient, elastic, and flexible.

Why Retailers Use 3PLs For Supply Chain Operations

A third-party logistics provider can handle end-to-end retail operations. From managing inventory and incoming orders to picking, packing, and delivering products, 3PLs take care of strenuous order fulfillment to help retailers run a smooth and profitable supply chain. They are essentially a one stop shop, meaning retail companies do not have to invest in warehousing, technology, or logistics teams.

3PL’s can also scale operational growth for retailers based on sales, profitability, and capacity. By doing so, retailers no longer must spend money or time hiring people, securing supplies, and investing in technology. Instead, they can direct resources to other primary business functions.

Retailers gain a massive competitive advantage when partnering with 3PLs due to 3PL ability to optimize the supply chain. From booking shipments to making sure that bills are paid, 3PLs can take on a retailer’s entire supply chain. Additionally, third-party logistics companies offer retailers the ability to adjust to business needs on the fly. By diversifying services that improve elasticity, 3PLs can manage a single link or the entire supply chain.

Datex Fast Facts

66% of online shoppers expect free shipping on every purchase.

9% of online shoppers want same day delivery.

91% of online shoppers expect delivery within a week.

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Ways That 3PLs Help Retailers

Working with a 3PL provider enables retailers to effectively scale labor, transportation, and warehousing space according to their unique business needs. This can help retail companies expand into new regions and markets with fewer barriers that can have a negative impact on business operations.

Let’s look at area’s retailers can benefit from partnering with a 3PL.

Warehousing

For many retail businesses, warehousing and distribution are not cost-effective. Whether it be a brick-and-mortar location or an online shopping business, retailers depend on the efficient movement of freight to maintain supply chain operations. This is why third-party warehousing and distribution is often the best option for retailers.

3PL’s utilize the latest digital technologies such as the Internet of Things (IoT) and artificial intelligence (AI) to power machines like automated sortation systems and autonomous mobile robots (AMRs). These advanced technologies reduce the risks of handling, packaging, shipping, and other inventory-related mistakes.

Shared Warehouse Spaces

Across the retail industry, it is important for businesses to have scalable and agile supply chains. 3PLs have the ability to quickly adjust warehouse configurations, including locations, according to consumer demand levels. An example of this is the use of shared-space facilities.

By leasing space in a warehouse, retailers only use the space that is necessary. This helps retailers become more elastic by enabling the expansion or reduction of space based on peak seasons. In addition, retailers can take advantage of shared resources such as equipment, staffing, and operating systems. Thus, reducing warehousing costs.

Optimized Inventory Management

Strategic placement of inventory is also an advantage that 3PLs offer to retailers. With a network of warehousing and distribution centers, 3PLs can ensure inventory is stored as close as possible to brick-and-mortar locations as well as online customers. The proximity of products to customers can reduce delivery times and shipping costs. This can be beneficial to meeting customer expectations, which can lead to greater customer satisfaction and customer retention. Amazon has capitalized on inventory placement by having a wide storage and distribution network. Currently, Amazon can ship to 72% of the United States population due to the locations of its warehouses. Furthermore, over 40% of the population is within four hours of an amazon fulfillment center.

A 3PL can eliminate issues such as:

Shipping to the wrong address

Stockouts

Delayed shipments

Transportation

Global shipping rates often fluctuate based on fuel prices and other market forces. Consequently, many retailers without stable transportation services and resources can be negatively impacted. However, from air cargo to trucking transportation, 3PLs maintain strong relationships with a variety of carriers. This enables them the ability to negotiate for discounted shipping rates. For example, an ecommerce retailer can utilize a 3PL provider for flat shipping rates for specific shipping volumes. This can help retailers deliver products direct to customers at lower costs, faster.

According to a recent study, 70% of consumers say that a negative delivery or shipping experience adversely impacts their impression of the retailer rather than the carrier. Issues such as shipping to the wrong address, stockouts, and delayed shipments can drive customers to other businesses. Being able to offer fast and low-cost shipping can ensure that customers are satisfied and continue to purchase from a retailer.

Tracking Technology

Third-party logistics companies can also streamline transportation processes with technologies such as supply chain control towers and sensors connected to the Internet of Things. This tracking technology enables enhanced visibility, giving businesses real-time access to information on incoming shipments and outgoing deliveries.

The use of IoT sensors can be beneficial to grocery retail supply chains as they enable businesses to remotely track and regulate temperatures inside of delivery trucks, preventing food spoilage. Supply chain control towers can be used to alert truck drivers to potential environmental issues or construction and send them on alternative routes. This level of flexibility plays a vital role in both customer satisfaction and retailer profitability.

Labor

Amid volatile market conditions and labor constraints, 3PLs and retail supply chain leaders continue to invest in talent retention and development. In doing so, retailers are moving away from temporary employees and instead are focused on hiring full-time associates. This transition is causing retailers to assess labor laws more stringently. However, 3PL expertise in employment can streamline the process. By hiring more full-time employees from warehouse workers to truck drivers, 3PLs can improve attendance and enhance training. This can lead to improvements in labor productivity and efficiency across the supply chain.

Labor can account for up to 50% of total business costs. Therefore, a major advantage to partnering with a 3PL for retail operations is that they can eliminate the need for a retailer to hire workers.

3PL’s utilize highly qualified shipping and inventory management experts that can handle:

Picking and Packing

Packaging

Shipping

Reverse logistics

According to the Department of Labor, the retail trade sector is expected to make up 8.6% of total employment in 2030.

Supply Chain Specialist Workforce

One of the reasons why 3PLs can enhance scalability is due to the ability to vet and hire supply chain experts at the C-level to oversee supply chain processes.

Several retail companies are utilizing 3PLs to appoint chief supply chain officers. These experts can help retailers diversify their suppliers in the face of inventory challenges. In addition, they oversee the development and implementation of new processes to optimize the supply chain. By building a more resilient supply chain through these efforts, 3PLs help retailers mitigate disruptions and meet the demands of consumers.

For example, a food and beverage company may outsource hiring to a 3PL to bring in a supply chain expert after entering wholesale distribution. Due to the increased production needs, a supply chain officer could expand the businesses distribution network. This could help facilitate a seamless transition into the wholesale retail segment.

According to Cambridge Dictionary, reverse logistics refers to the process of dealing with products that have been returned to the company by customers

Retailers Often Need Reverse Logistics

In today’s consumer culture, a business can increase customer loyalty with a customer-friendly returns process. However, without the ability to mitigate associated costs, businesses run the risk of reducing their profits.

3PL’s offer retailers a way to mitigate return and exchange costs by handling reverse logistics in an efficient way. This is especially beneficial for retailers who have complicated return and exchange requirements. For instance, many fashion retailer’s return policies include processing a return according to customer expectation while simultaneously determining how a product can be reused in retail trade. The expertise in reverse logistics that 3PLs offer can assist fashion retailers with their returns management, maximizing revenue for each transaction.

Enhanced Refund Experience

In many instances, online retailers choose to refund the purchase price of a product to a customer. Roughly 18% offer exchanges. However, supply chain experts feel that regardless of the type of refund a retailer offers, customers demand a seamless experience. In fact, nearly 62% of online shoppers expect an exchange of refund within 30 days of purchase. Additionally, over 25% of shoppers feel that a delay in processing their return can lead to a negative customer experience.

By utilizing a 3PL, retailers can get the returns experience right. This plays a vital role in customer retention, as 92% of customers say that they will purchase from a company again depending on the returns process.

The National Retail Federation estimates returns cost retailers over $100 billion per year.

Top 3PL and Retailers Trends for 2023

As consumer demands drive the need for supply chain efficiency in retail operations, experts feel retailers and 3PLs must stay on top of new and innovative trends to better compete.

Here’s a look at what’s ahead for 3PL retail services in 2023.

Micro-Fulfillment Centers

Micro-fulfillment centers (MFCs) are small-scale storage facilities and order fulfillment centers that are usually located in retail locations or commercial warehousing space that has been repurposed to store and move products. This enables companies to expedite delivery times as well as reduce the cost of transit.

Micro-fulfillment centers can serve a wide variety of retail businesses; however, they typically operate via two models. In the first model, a micro-fulfillment center is configured inside of an existing department store such as Target or Walmart. Orders are picked and packed as well as prepared for shipment directly from the retailer. An MFC located inside of an existing brick and mortar store will typically have 24 to 48 hours of inventory stored. Because of this, a close eye must be kept on inventory levels as the fulfillment center has to be restocked regularly.

Value-Added Services

MFCs also enable online sellers to improve the efficiency of their supply chain and order fulfillment processes. Many micro-fulfilment centers have relationships with last-mile delivery carriers, making it easier to meet Service Level Agreements. This means that if a shipment requires a value-added service such as white-glove delivery, costs are reduced because of the proximity of the products to the customer.

Cloud Integration

3PL’s are becoming the backbone of online store retailing processes because they offer the essential structure and service that internet-based retailers need to take products from warehouses direct to consumers. With proper implementation, cloud resources can transform order, shipping, and storage processes. Data-informed predictions and real-time demand analysis enables visibility into factors like weather patterns and seasonal shopping trends. With these advantages, 3PL providers can quickly identify, respond, and recover from changes in market conditions.

Machine learning is a segment of artificial intelligence that focuses on the use of data and algorithms to imitate the way that humans learn, gradually improving its accuracy.

Machine Learning Trends For Retailers

One of the biggest trends in 3PL retail operations is machine learning (ML). ML applications learn to adjust to supply chain changes automatically by leveraging and combining data collected by warehouse management systems and transportation management systems with actual and predicted outcomes. In doing so, machine learning technologies can:

Accurately forecast upcoming business needs.
Improve inventory control.
Identify consumer needs through appropriate segmentation.
Make product offerings more unique.
Decide on the optimum prices to increase sales.

Machine learning is the leading segment of the global AI market in retail. It is predicted to grow to $31.18 billion in sales by 2028.

Retail Marketers

Third-party logistics companies and retailers are also using machine learning for retail marketing efforts to drive retail sales, increase return on investment (ROI), and improve the customer shopping experience. While machine learning has not totally replaced human retail marketers, it is being used to enable better predictive techniques that target specific consumer segments. ML can be used to analyze:

Email behaviors
Past purchases
Website browsing habits
External data sources

Machine Learning for Retail Marketing

These processes often necessitate a level of speed, accuracy, and efficiency that human retail marketers cannot achieve. With ML, entire sales processes can be implemented autonomously in real-time. This enables businesses to cater to customer’s expectations almost instantly giving them a more personalized experience. For example, ML can be used to automate chatbots that respond directly to customer questions. In another instance, ML can guide customers towards favorable products that they are more likely to purchase based on past order and browsing history.

Major retailers such as eBay, Amazon, and Alibaba have successfully integrated machine learning applications across their entire sales cycle. From storage logistics to customer care services,

ML is helping all types of retail companies account for current and future market trends by:

Boosting operational effectiveness
Cutting inventory costs
Modifying retail operations

Datex Fast Facts

64% of online retail shoppers expect an individualized customer experience

85% of online retail shoppers feel an individualized customer experience is important

Conclusion

From the nation’s top retailers to smaller start-up companies, a wide variety of retail establishments can benefit from outsourcing operations to 3PLs. Logistics companies focus on the most efficient movement of the right amount of product at the lowest possible cost. This can benefit a brick-and-mortar department store or businesses that ship direct to consumers. When partnered with a 3PL, retailers not only leverage 3PL investment in innovation and infrastructure, but also gain access to intelligence and analytics services. This can streamline retail supply chains, leading to increased labor productivity, vital cost savings, and an enhanced customer experience.