Not all 3PLs are the same. This is particularly true when it comes to the use, or lack thereof, of technology. As the world becomes more technologically advanced, 3PLs are constantly being pushed to utilize and offer more technology to their clients. This is a good thing for 3PLs and their customers, but not all 3PLs are embracing the opportunity to invest in technology and the benefits it provides.
This article will delve into the types of technology you should look for in a 3PL, why these technologies matter, and the benefits they offer.
Types of 3PL Technologies
We’ve all heard about data-driven decision making, insight through technology, and the purported benefits of the various hardware, software and apps available to us. But in this convoluted world of technology, what actually matters for your business when it comes to 3PL operations? Do you know what technology is available to you from a good 3PL and what information to expect from your 3PL partner? If good technology is available to you, do you know how to make sense of and use the data and insight it provides to drive meaningful action and benefits for your company?
The following categorizes 3PL technology into three categories and explains the impacts and potential benefits for your company.
Category 1: Warehouse and Operations Management
Warehouse Management System
A warehouse management system (WMS) is often the “brain” of a 3PL and is largely responsible for managing the flow of information throughout the operation. Many other software tools will be connected to the warehouse management system, as they require information from the “brain” to conduct their more specific function. An example of this is a picking and packing system used by 3PL employees to complete your orders, but as they pick products to fill orders, that information is shared with the WMS so inventory levels can be updated.
There are many warehouse management systems to choose from, and they all offer their approach on how to manage a warehouse. Making sure a fairly robust and modern system that can handle your 3PL requirements is an important box to check if you have a 3PL partner, or are considering working with one.
Order Management Systems
Order management systems are typically focused on the pick and pack functions, or more simply, the process of fulfilling orders. Again, there are many options available. You may find that 3PLs have a specific solution in place that is better at handling clients they prefer. For example, one solution may be better suited to handle clients that have many SKUs and a high order volume while other systems may be better for a small 3PL or warehouse that is only managing a few clients with minimal SKU counts.
Returns are a thorn in the side of most businesses. Challenges arise in getting consumers to follow return order instructions, which makes the process very cumbersome for 3PLs and their clients. In recent years, more returns systems have been introduced in the marketplace. Many of them have a focus on seamlessly connecting consumers, companies, and 3PLs to provide a straightforward, fully automated returns process.
If you don’t have this type of system in your business, it is worth finding out whether your 3PLs of interest can provide this feature. If so, the benefits of deploying this solution can dramatically reduce the cost and headache of product returns.
Category 2: Freight Management
Freight rates will likely continue to increase. Managing this rising cost without eroding your margin is a constant battle; some 3PL technology ecosystems will include freight rate shopping software to identify the lowest freight rate available to you through your 3PL. Here are a couple of key points:
- This type of software is best leveraged when the 3PL works with multiple carriers (e.g. USPS, UPS, FedEx, DHL) because carriers offer different rates to different regions of the world for all weights and sizes of packages.
- You need to be comfortable with your orders going out on any of the available carriers that can meet the delivery time(s) you offer, as selected by your customer.
- Using this type of software doesn’t mean your rates won’t go up over time (carriers often increase rates at the beginning of every year), but it does mean your orders will go out using the lowest-cost option, ensuring you reduce your freight cost as much as possible.
The financial savings this type of software delivers can be substantial when compared to your current setup. It is worth a conversation with any 3PL to see if these savings are available to you.
For many companies, shipping expenses are often in the top-three most costly expenses. Having insight into which carriers and services your orders are being shipped on, where they are in transit, and how much each of those shipments is costing you is incredibly valuable information for you and your customers.
Delivery insight systems allow all involved to capture a robust set of shipment information, which can be analyzed to determine:
- Savings between carriers and services for certain delivery weights and destinations
- Delivery saturation points that may alter which carriers and services you use moving forward
- Real-time information on delivery times, which can be shared with customers to set appropriate expectations
This type of software typically requires full integration with your 3PL so that all pertinent data can be gathered and shared. The benefits of having it are numerous.
Category 3: Client Tools
3PL invoices can be confusing due to the many types of services they may perform and the resulting fees. Having online access to all supporting information goes a long way in helping you understand and reconcile your 3PL invoices. Most of these systems will allow you to conduct analysis within the system or download data that you can arrange and analyze with tools like Excel or Google Sheets.
Key Performance Indicators (KPIs), dashboards, and other analytics tools have risen in popularity in recent years. The ability to quickly and easily see data in a friendly format is valuable. Modern 3PLs offering technology benefits will have this type of system in place to give you a deeper understanding of the data and indicators that matter most. You should expect to have access to real-time inventory, order processing, shipment, and tracking information through these systems, all of which can help you make informed, data-driven decisions.
Order Input and EDI
3PLs should have client portal tools available to their clients to help with manual order input as needed. This can be a fail safe if a client’s order management system isn’t functioning correctly or if a customer calls and needs help placing an order.
Additionally, many 3PL customers sell through retailers, many of whom require order placement and processing information using Electronic Data Interchange (EDI) formatting. There are companies who specialize in providing EDI software that facilitates the connection points between sellers and their retail customers. Some 3PLs will have these systems in place for their clients.
Find a 3PL With the Right Technology Solutions
Technology will continue to grow in importance in the 3PL industry. Some technology solutions will be specific to the 3PL and the benefits it provides in terms of efficiency, organization, and data management. You won’t likely see these, but they’re important nonetheless. Other solutions will be client-facing and range in scope from forecasting and inventory management to billing support and processing order returns. The main takeaway is that if your current 3PL isn’t a robust user of technology solutions and doesn’t have plans to become one, it may be time to consider other options. The benefits, both qualitative and quantitative, are far too significant to ignore.