No Matter How You Slice It, 3PLs Deliver
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Whether shippers outsource their end-to-end supply chain by the pie, or just a portion of it by the slice, third-party logistics providers are meeting new challenges with updated and expanded menus.
As many supply chain professionals have experienced, “U.S.-based supply chains are out of sync,” according to the 2022 State of Logistics Report, produced for the Council of Supply Chain Management Professionals by consulting firm Kearney, and presented by Penske Logistics. Inventory-carrying costs rose by 25.9% in 2021, while transportation costs jumped by nearly 22%, leading to uneven supply chains and inconsistent product availability for consumers.
“The past few years definitely pulled back the curtain on the supply chain function,” says John Brewer, director of distribution and logistics with CKE Restaurant Holdings, the company behind Carl’s Jr. and Hardee’s. Not only have the disruptions been significant, but they’ve been sustained, he adds.
While no single industry can counteract the myriad supply chain obstacles facing most businesses, third-party logistics (3PL) providers have been helping their clients navigate the unprecedented challenges of the past few years in several ways. Companies that partner with logistics providers often gain a real-time view of the many moving parts of their supply chains, says Alexandra Saleh, senior consultant with Clarkston Consulting.
Many logistics providers also provide transparency into end-to-end operations, leading to faster communication when issues arise, as well as improved decision-making.
Moreover, given the current rate of supply chain delays and other problems, a just-in-time inventory strategy often no longer is feasible. Logistics providers, because they often hold more warehouse space than many single shippers do, can help organizations hold greater levels of inventory.
Similarly, U.S.-based companies that have explored alternative manufacturing options—say, producing goods closer to end users, although still outside the United States—can leverage 3PLs to strategically plan how to distribute goods once they arrive stateside.
3PLs Try New Menus
To offer these capabilities, many logistics providers have been changing and adapting. One example is an even greater focus on leveraging both information and hardware.
“Data is a valuable commodity,” says Anne Reinke, president and chief executive officer of the Transportation Intermediaries Association. The more logistics providers and shippers can see into the data to identify the location of their freight and any obstacles ahead, the more effectively they can act.
Hardware has become critical, especially with the warehousing labor shortage, Reinke says. Solutions like RFID or automation help logistics providers use both their facilities and employees more effectively.
Another shift concerns the traditional segmentation between front-end physical and digital marketplaces and logistics providers—both digital and physical.
“As clients look to meet their customers in any channel and offer a delivery promise that is increasingly aggressive, they need logistics partners that can integrate from front-to-back and across channels,” says Scott McConnell, partner with consulting firm McKinsey & Company.
One example he cites is the collaboration announced earlier in 2022 between FedEx and Microsoft to create a cross-platform “logistics as a service” solution focused on e-commerce.
“Some logistics providers are broadening their service offerings through organic and inorganic methods to create relevance in a highly competitive market,” says Matt Comte, operations transformation practice leader with consulting firm PwC.
For instance, some 3PLs offer real estate capabilities, enabling them to provide warehouse capacity faster than most shippers could obtain themselves. 3PLs also are highlighting their ability to attract and keep warehouse workers through their use of leading-edge systems and career paths for logistics professionals.
These shifts are prompting others. The changes many 3PLs are making often require significant financial investments. Continuing to contract with customers yearly no longer makes financial sense for many logistics providers.
“Many 3PLs are looking for shippers to share that risk and enter into longer-term, collaborative arrangements,” says Matthew Beckett, senior director in Gartner’s logistics and customer fulfillment practice.
Momentum is moving toward fourth-party logistics (4PL) provider arrangements in which the logistics partner handles the activities typically covered by a 3PL, while also moving farther up and downstream within shippers’ value chains.
In general, 4PLs are involved in logistics and supply chain strategy, operations, and support. “These tend to be tech-heavy solutions and require a much higher level of integrated partnerships,” Beckett notes.
The following logistics providers and their clients have addressed the challenges of the past few years through collaborative relationships and the effective deployment of technology.
Smoking-Hot Logistics Solutions: Smart Warehousing and Jack Stack Barbeque
Jack Stack Barbeque is a Kansas City institution with six restaurants, as well as catering, banquet, and e-commerce operations. While the company previously handled its warehousing and fulfillment functions internally, it had difficulty getting these functions to perform to financial goals, says Keaton Dorman, director of retail operations.
In part, that’s because the company ships to all 48 mainland states and does about 40% of its volume during the holidays. Prior to connecting with logistics provider Smart Warehousing in mid-2017, “we were buying warehouse space and an entire team for one month each year,” Dorman says. Smart Warehousing, in contrast, is better positioned at filling in the down time.
During the pandemic, shipping orders quickly shot up. The partnership with Smart Warehousing became key to managing the jump in sales.
One example: because Jack Stack was using so much dry ice, Smart Warehousing invested in a dry ice machine for its work with the company. Then, as the cost of dry ice increased during the pandemic, the team at Smart Warehousing identified gel packs—previously a more expensive option—as a newly cost-effective substitute.
Smart Warehousing also helped Jack Stack reduce transportation costs, which had jumped about 25% over the past few years, says Carl Wasinger, chief executive officer and founder of Smart Warehousing.
To do this, the Smart Warehousing team leveraged its Smart Warehousing Information Management System (SWIMS) to analyze data on tens of thousands of direct-to-consumer orders, continually reviewing order velocity down to the stock-keeping unit (SKU) level. By leveraging SWIMS’ machine learning capabilities, Smart Warehousing could intelligently allocate pork, beans, and other products to its 38 warehouse locations.
Also through the SWIMS analysis, Smart Warehousing reduced Jack Stack’s transportation zones, as well as its use of dry ice. The result? A savings in transportation costs of between 8 and 10%.
“Before working with Smart, there was no way we’d have had the capacity” to handle the increase in volume, Dorman says.
Expediting The Drive-Through : Candor Expedite and CKE Restaurants Holdings
CKE Restaurants Holdings, based in Franklin, Tennessee, operates 19 distribution centers and warehouses around the country. These supply about 3,000 restaurants across 44 states.
Early in the pandemic, vendors had trouble filling orders. Before COVID, it wasn’t uncommon to be shorted three to five items on each order; during the pandemic, that number shot up to 30 to 50 items.
At the same time, packaging became difficult to find. “When you’re doing a ton of drive-through, don’t want to run out of packaging,” Brewer says.
Brewer connected with Nicole Glenn, founder of Candor Expedite, based in Plano, Texas, appreciating her “out of the box thinking,” he says. For instance, Candor is one of a few companies that offers sprinter vans—a cost-effective solution when you need to move only a handful of pallets.
In addition, Candor connected CKE with a company offering pallet wraps that go around skids to maintain frozen or chilled temperatures. These allow CKE to place refrigerated or frozen products on regular trucks, increasing the universe of potential trucks by 75%, while also decreasing costs. CKE has been testing the wraps. “It’s going great,” Brewer says.
A New Recipe for Logistics Success: ODW and Plaskolite
In 2018, Plaskolite, a global manufacturer of engineering thermoplastics used in windows, doors, point-of-purchase displays, and other products, made five acquisitions, more than doubling the size of the company. “We weren’t going to be able to take on the logistics functions we needed, with only the logistics department we had,” says Drew Lester, director of supply chain with the Columbus, Ohio-based firm.
The company’s leadership team decided to outsource its freight function. That’s when Plaskolite connected with ODW Logistics, also based in Columbus. Among other initiatives, ODW analyzed every facet of Plaskolite’s transportation function.
For instance, Plaskolite had been doing well in the LTL market, but adding ODW’s access to the truckload and broker networks, “gave us a leg up because we had more intelligence and resources,” Lester explains.
In addition, Plaskolite began consolidating orders—a shift for a company that placed a priority on customer service. “The customer would tell us when they wanted an order and Plaskolite would get it there by then,” Lester says.
However, it had become clear that sending multiple smaller shipments was no longer optimal for either Plaskolite or its customers, given tightened transportation capacity, higher costs, and greater awareness of the environmental cost of transporting many smaller shipments.
Consolidating orders would require a little more flexibility on delivery deadlines, but customers would gain more precise delivery times—all while cutting emissions.
In addition, freight damage on truckload shipments tends to be lower than that of less-than-truckload, and shipping fewer trucks helped counter jumps in transportation costs. “It was a win-win-win all the way around,” Lester says.
When COVID hit, Plaskolite’s orders increased, as the company is one of the largest producers of the barriers often used to separate cashiers and customers in stores and other businesses. At the same time, both truckload and LTL markets were contracting, shifting some shipments to intermodal.
“We would not have been able to navigate that business activity in 2020 without ODW’s support,” Lester says.
The Main Dish: Gebrüder Weiss USA and AT-PAC
AT-PAC, or Atlantic Pacific Equipment Company, leases and sells scaffolding for large projects in global markets. Most of its products are sourced from Asia and move by ships in full containers.
The biggest challenge over the past few years has been the jump in freight costs. “Freight costs went as high as eight times the normal rate during the pandemic, and at its peak freight accounted for as much as 40 to 50% of our delivered cost,” says Patrick Cann, director of international supply chain for AT-PAC.
Generally, AT-PAC would tackle this challenge by leveraging the volume of business it offers, hoping that would bring the steamship lines to the table. During the past few years, however, AT-PAC had to move to spot rates.
“The price, cost, and availability of capacity was at the discretion of the forwarders,” Cann says.
By working with Gebrüder Weiss (GW) USA, AT-PAC obtained a solid mix of pricing and services. As important, its goods would move, rather than sit on the dock waiting for a discounted rate that some other logistics providers would promise, but that wasn’t going to materialize. “The level of service and mix of products from GW is great,” Cann says.
One challenge in working with spot rates for a company like AT-PAC is that a project might be bid out, but then its start would be delayed for several months. The freight rates could change, sometimes significantly.
“We worked with GW to develop educated estimated rates that took into consideration potential supply chain disruptions,” Cann says. “We had to be conservative with such freight estimates, but it helped us to take some risk out of the situation we found ourselves in.”
In addition, when projects were delayed or rates changed, AT-PAC worked with GW and its own customers to ensure no entity was operating in the red. “They’ve been collaborative,” Cann says.
The transparency GW provides also is key. “It’s not just general information on shipments, but on the actual situations,” Cann says. This became even more important during COVID lockdowns in Shanghai, he adds.
AT-PAC is currently implementing GW’s vendor management tool, which offers data visibility and shows how the timing of raw material sourcing, production planning, and supplier delivery performance affects the overall health of the supply chain, says Michael Crandall, vice president of sales with Gebrüder Weiss USA.
While AT-PAC is still implementing this solution, the Risk Chain module is already helpful in notifying AT-PAC of potential geo-political issues that could affect its supply chain, Cann says.
Expanding the Menu: Rakuten Super Logistics and Headlights.com
“Our supply chain has been in a constant state of volatility,” says Jay Tannenbaum, chief executive officer of Headlights Depot, a provider of quality, affordable automotive safety products.
Inconsistent lead times for manufacturing and transit have made the balancing act between out-of-stock and over-stock extremely challenging, he says. In addition, container shipping costs jumped—in some cases, by a factor of five.
“We must make constant adjustments to our sales prices to combat this and maintain a fair margin while still meeting a fair market price,” Tannenbaum says. “Current supply chain challenges are keeping us on our toes.”
Rakuten Super Logistics, a third-party e-commerce fulfillment company, has helped Headlights.com strategically manage inventory across its network of warehouses to optimize space and minimize storage costs.
In 2021, Headlights.com added four fulfillment warehouses to its network; the company is now in nine Rakuten warehouses. “This allowed us to provide better service through reduced transit days as well as lower outbound shipping costs,” Tannenbaum says.
Headlights Depot currently is piloting Rakuten’s Xparcel shipping technology. This solution shops for the best combination of price and service across national, regional, and local carriers to find the optimal shipping solution for every order, says Damien Bradford, director of operations at Rakuten.
Accelerating Delivery Times: Coyote Logistics and SunOpta
Among the logistics challenges facing SunOpta, a provider of plant-based and organic foods, beverages, and ingredients, have been an increase in its transportation base rate that wasn’t fuel-related, as well as a drop in on-time pickup and deliveries.
“Both of these items are significant stand-outs,” says Art Nourot, senior director, logistics, with the Minneapolis-based company.
To help SunOpta meet these challenges, Chris Davis, senior manager of Coyote Transportation Management with Chicago-based Coyote Logistics, and his team remained in continual contact with SunOpta’s carrier network, customer service team, vendors and even end customers.
This way, they could identify issues and propose solutions that would boost service and cut costs, Davis says. They also leveraged Coyote’s market insights and dense carrier network, while collaboratively addressing problems.
“The results include improved service, an expansion of our carrier base, increased intermodal utilization, decreased CO2 (carbon dioxide) emissions, and rate stabilization with some cases of improvement,” Nourot says.
Coyote Logistics also provides a significant level of data analytics that otherwise would be unavailable or very difficult for SunOpta to secure on its own, he says.
New Toppings on the Way
As the volume of e-commerce soared over the past few years, many companies had to take their supply chains to the next level. Often, that required working with logistics partners to consider new solutions to address challenges.
For instance, given the difficulty in finding tractor trailers with lift gates, a shipper might try having its logistics partner meet a regular tractor trailer at the dock and provide help in unloading it. “Consider what other solutions are out there,” advises Nicole Glenn, founder of Candor Expedite.
For all the improvements logistics providers and shippers have made, more is yet to come. Many logistics providers will continue to integrate machine learning or artificial intelligence to recognize the most efficient solution to a problem, says Alexandra Saleh, senior consultant with Clarkston Consulting. This is key for 3PLs, given the enormous amount of raw data received from warehouses, employees, the market, supply chains, and products, among other sources.
As shippers evaluate different logistics providers, they’ll want to consider their technology capabilities and investments, says Matthew Beckett, senior director in Gartner’s logistics and customer fulfillment practice. For instance, a provider should offer the technology needed for visibility and analytics. And given labor challenges, providers need to embrace robotics and automation.
At the same time, relationships remain key. “A lot of industry transportation has been commoditized,” says John Brewer, director of distribution and logistics with CKE Restaurants Holdings. “But transportation isn’t a widget. There are humans all along the way.
“When your ox is in a ditch,” he says, “it’s the relations and the people that will help you pull it out.”