3PL Logistics Services and Supply Chain Management Services

The challenges faced by supply chains are multifaceted: coordinating the arrival of supplies in factories; bringing together all the necessary parts and assembling them into consumer-ready products; as well as distributing finished products across oceans, highways and airways to arrive in the correct locations in the right quantities, colors and styles to satisfy consumer demand. All of this must be done at the lowest possible cost. Compounded by delays and mistakes that can be made along the way due to bad weather, communication breakdowns, accidents, strikes, customs inspections or simple human error, some challenges can quickly become catastrophes. In order to prevent mishaps and manage day-to-day supply issues, companies hire supply chain managers and utilize advanced data systems. In many cases, supply chain services are outsourced altogether. The Coronavirus epidemic, which resulted in massive shortages of workers, shipping services and warehouse space, emphasized how vital 3PL services are to the world economy.

Third-party logistics companies (known as 3PLs) have assumed a vital role in the supply chain to the extent that 3PL services have been one of the fastest growing of all business sectors. 3PL firms provide, on an outsourced basis, a seamless link between suppliers and freight services on the providers’ end (the firms selling parts or components to the client), along with inventory management, warehousing and distribution on the client’s end (the client is typically the final manufacturer or assembler of a product).

On a more basic level, logistics services are sometimes defined as tasks added onto regular transportation activities, including freight forwarding, which is the handling of freight from one form of transport to another. Within logistics, the transportation managers determine the most viable mode of transport (by train, truck, boat, plane or a combination thereof). Warehouses offering special services store the inventory of client companies and ship the stock out on an as-needed basis. Supply chain management (SCM) software tracks and/or allows communication between the different parts of the logistic services and the entire supply chain.

Many freight and parcel shipping companies have created subsidiaries in the 3PL sector to provide their customers with turnkey logistics services. Deutsche Post AG (the owner of DHL), UPS and FedEx have all made logistics acquisitions as they battle for market share. DHL Worldwide Network, one of the largest providers of logistics services in the world, made several strategic acquisitions in order to offer domestic and international supply chain management from beginning to end, with services including freight forwarding, warehouse management, transportation planning and information technology. However, the industry has not consolidated to the point where there is no longer room for small or start-up companies. Many regional or specific service specialists have found a great deal of success in their own niche markets.

The rapid growth of 3PL is a global phenomenon. In China, for example, UPS, FedEx and DHL all maintain extensive 3PL networks throughout the country. In fact, as the world’s reliance on Chinese manufacturers expanded, 3PL service operators enjoyed booming business. UPS, FedEx and DHL are offering supply chain management services for foreign companies that purchase large quantities of Chinese goods. Competition among the carriers in the Chinese market is fierce.

SPOTLIGHT: Supply Chain Evolution in the Global Apparel Industry

The global apparel industry faces unique challenges in logistics, sales forecasting and manufacturing. For one thing, logistics software must be able to account for the incredible variety that is found in textile goods, such as weave, fiber, color, texture, quality, style and size. Many early efforts to implement data systems met with failure.

Another factor that compounded the problem was the mercilessly fickle demand found in apparel consumers worldwide. Consumers might create demand for a particular shirt one week, for example, and then just as quickly abandon that fashion. This makes it difficult for manufacturers and retailers to maintain the correct amount of stock. Some trendy garments in lower price categories might be sold for only a few weeks at full price, then at 30% to 40% discounts, and after that the price can plummet to a discount of 70%.

Today, advances in computer software and improved models for manufacturing and supply have advanced to foster a high level of efficiency in the apparel industry. Major improvements have aided faster time-to-market so that retailers can turn over new fashions as quickly as possible. Meanwhile, manufacturers and distributors are working more closely with retailers in order to monitor and react to demand with greater speed and efficiency. It is now common to see garments move from the factory floor in China to the retail rack in America in 30 to 45 days.

A leader in quick apparel turnaround is Zara, an international retailer owned by Spanish textile conglomerate Inditex Group. Zara takes no more than five weeks to get new designs into stores from its manufacturing facilities. While it does buy some clothing and materials from Asia (usually unfinished), about one-half its merchandise is manufactured in-house at its central facilities in Spain. Finished pieces are delivered by truck to European outlets and by air to stores in other parts of the world.

Taking logistics to a new level, Amazon.com is cutting out an expensive and time-consuming step in fulfillment by placing staff directly into some of its major suppliers’ warehouses. At Proctor & Gamble (P&G), for example, an area within P&G’s main distribution center is set aside strictly for Amazon orders, where Amazon employees box, label and ship items directly to customers. Amazon calls the practice Vendor Flex. This practice eliminates the need to ship the products first to Amazon’s own facilities and then on to Amazon’s end customers. It allows Amazon to better compete with discount stores by cutting prices and affords the online retail giant the ability to sell household staples such as diapers and paper goods which would otherwise be too cheap or bulky to justify the costs of intermediate shipping and warehousing. Even better, Amazon can schedule regular shipments, so customers never run out of necessary items. However, competing retailers are complaining. It remains to be seen whether or not this type of logistics practice becomes widely popular.

The Uberization of the Trucking Industry

Historically, trucking was arranged as needed via telephone, fax, and sometimes email. Now, advanced, digital platforms for arranging and managing shipments are having a significant effect on the trucking industry. Venture capital and corporate investment has been very high, creating many well-funded firms providing on-demand freight connection services, including Uber Freight in the U.S., Sennder in the EU and Manbang (“Full Truck Alliance”) in China. Uber also launched a new division called Powerloop in 2018 that connects small and medium-sized carriers with fully loaded trailers. The company has leased hundreds of trailers and made them available to carriers for a modest daily amount in order to encourage participation in this platform. Brewer Anheuser-Busch was one of Powerloop’s first customers.

One of the biggest goals at Sennder and similar platforms is to make trucking more efficient by cutting back significantly on the number of miles that truckers are forced to drive with empty trailers. Empty trucks occur when truckers have dropped off a load but have to travel a good distance to pick up the next load. This can add up to 10% or even 20% of their total mileage. Sennder and similar platforms use powerful algorithms to connect shippers with nearby trucks, while digitizing all of the related paperwork and payments.

Delivery services can set themselves apart from competitors if they offer additional options such as installation and/or setup in addition to delivery. Called “white glove” service, this is usually offered when working with large items such as mattresses and beds, furniture, appliances and electronics.

As a result of logistics and supply backlogs in recent years, some major companies have acquired or established their own logistics units. This includes Amazon’s now massive fleets of trucks and aircraft, as well as direct chartering of entire container ships by companies such as Walmart and Home Depot, enabling these firms to eliminate middlemen and speed up final delivery.

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