David Maloney has been a journalist for more than 35 years and is currently the group editorial director for DC Velocity and Supply Chain Quarterly magazines. In this role, he is responsible for the editorial content of both brands of Agile Business Media. Dave joined DC Velocity in April of 2004. Prior to that, he was a senior editor for Modern Materials Handling magazine. Dave also has extensive experience as a broadcast journalist. Before writing for supply chain publications, he was a journalist, television producer and director in Pittsburgh. Dave combines a background of reporting on logistics with his video production experience to bring new opportunities to DC Velocity readers, including web videos highlighting top distribution and logistics facilities, webcasts and other cross-media projects. He continues to live and work in the Pittsburgh area.
What do ice cream, french fries, and fax machines have in common? Not much, unless you happen to be in Tilloy-les-Mofflaines, France. There, you'll find all those products and more housed in the same distribution center.
That DC itself is fast becoming a sort of United Nations of distribution: The ice cream is owned by Haagen-Dazs (a company based in the United States), the french fries are a product of McCain Foods (Canada), and the fax machines are from Brother International (Japan). While it might seem odd for all these products to be occupying the same facility, there's a simple enough explanation: Their makers have all contracted with the same third-party logistics service provider (3PL)—France's FM Logistic—to handle their distribution in Europe.
These three companies are hardly alone in their decision to take the 3PL route. Plenty of foreign manufacturers have done the same, for reasons ranging from costs to the opportunity to avail themselves of the provider's local expertise. As a result, business for 3PLs in Europe has boomed in the last few years. And it shows no signs of slowing. Executives of European 3PL operations who responded to a recent survey by Boston's Northeastern University projected growth of about 15 percent for this year.
Despite what you might expect, this growth is not just being driven by large companies with an established customer base on the continent. "The majority of companies that use 3PL services are not multinationals, but rather, companies looking to get their feet wet in Europe. It is a good way for small companies to get there without having to invest in an asset base," says Jeffrey Rodriguez, senior logistics manager for Craters & Freighters, a nonasset-based logistics service provider.
The 3PL advantage
As for why they turn to 3PLs for distribution on foreign soil, manufacturers cite a number of reasons. But one that appears on nearly every list is knowledge of local markets. Language and cultural differences among European nations often make it tricky for newcomers to navigate the marketplace. The creation of the European Union (EU) has made things easier, but moving products from Germany into France is still not the same as delivering goods from Kansas to Nebraska.
That's where the seasoned 3PL comes in. "It's a matter of core competency," explains John Langley, professor of supply chain management at Georgia Tech. "A 3PL's core competency is that they help companies mitigate their risk with someone who has on-the-ground knowledge of each country and region."
Not only do 3PLs know local markets, but most already have the necessary infrastructure in place, with facilities in prime distribution locations. That's a major consideration in Europe, where land is at a premium. In Europe, prime distribution locations include the Netherlands, Belgium, northern France, and northern Germany—all points from which shipments can easily reach the continent's largest cities within one to two days. These locations also offer the advantage of proximity to ocean ports, such as Rotterdam, Amsterdam, Antwerp, and Dunkirk, and to the superb network of canals, rails, and roads in this part of Europe.
FM Logistic's Tilloy-les-Mofflaines facility is one such example. Located in northern France, the site is within easy reach of the ports of Dunkirk and Antwerp.
Another is Menlo Worldwide Logistics' facility in Rotterdam, the Netherlands. Menlo Worldwide, a global third-party service provider, operates the dedicated facility for one of its clients, NCR, which manufactures items like cash registers, ATMs, self-service checkout stations, and point-of-sale workstations. At the Rotterdam site, Menlo aggregates products manufactured worldwide for shipment to NCR's clients. "The NCR customer is typically a retail chain," explains Michael Chandler, vice president of fulfillment operations for NCR. "The customer does not care where it comes from as long as it shows up as a complete order and not just separate components coming from all over the world." From Rotterdam, he adds, the company can reach most of Western Europe within 24 hours.
At present, 3PLs are pushing their frontiers eastward, expanding their presence in Eastern Europe, where the greatest market opportunities are believed to lie. "There has been a big push eastward by 3PLs," says Robert Lieb, professor of supply chain management at Northeastern University and the author of the university's 3PL study. "Eastern Europe and Russia are targeted as growth areas.
Many 3PLs are establishing operations in Hungary, Poland, Estonia, and other countries such as new European Union members." FM Logistic, for example, is establishing new facilities in Russia.
Getting a toehold
For many companies, another major attraction of using a 3PL is that it allows them to enter new markets with only a minimal capital investment. Essentially, the 3PL can serve as a stepping stone until such time as the company decides to construct its own DC. "It gives them the ability to scale up and minimize the risk until they have the volumes needed to justify building a facility of their own," says Lieb.
But it's not only the newcomers that are using 3PLs to limit the amount of capital they must invest. Companies that have an established presence in Europe are doing it as well. Campbell Soup is a case in point. Up until about a decade ago, it used its own warehouses and fleets to handle distribution on that continent. But as the company's business grew, it opted for a change in strategy. "We started to outsource about 10 years ago," recalls Hans Ernest, the company's vice president of supply chain for Europe. "If you look at our scale of operations, it is significantly smaller in Europe than it is in the United States. We have so much diversity of products, so we try to reduce our costs and invested capital by pushing our logistics activities outside."
Third parties also offer flexibility—an important consideration for a growing company. "Most companies that expand into Europe may not know what their volumes will look like two to three years out," notes Langley. "A 3PL can help companies match capacity to customer needs."
That holds true in the short term as well. For many shippers, a major advantage of using a third party is the 3PL's ability to accommodate peaks in demand. For example, in addition to the dedicated facility in Rotterdam, NCR can take advantage of shared flex space in other Menlo facilities when the need arises.
Beyond that flexibility, using a 3PL may allow the shipper to benefit from economies of scale. Third-party logistics service providers often can find complementary products among their clients' wares that can be stored, processed, and shipped together for maximum efficiency. McCain Foods and Haagen-Dazs, for example, share many of the same customers in Europe. As a result, FM Logistic can pick McCain's frozen food items and Haagen-Dazs's ice cream products and ship them together, allowing the companies to share costs.
Those economies of scale aren't limited to picking and handling. They also come into play with transportation. FM Logistic, for example, is currently developing plans to bring products from several of its food clients together so that they can be pooled and shipped as full truckloads.
On top of that, 3PLs often can leverage their volumes to get better transportation rates. That's been the experience of NCR, which uses Menlo to manage its transportation. Although Menlo often uses its own fleet to provide transportation, the 3PL also contracts out some of its business to other trucking lines. "They have a deep reach into the transportation network, as they represent multiple clients," says Chandler. "That allows them to bring in greater volumes and negotiate better rates with transportation providers."
Not just for distribution anymore
As the Menlo example indicates, 3PLs do more than merely store goods and fulfill orders these days. Many also handle transportation and related services like customs clearance for their clients.
More and more 3PLs are also offering "value-added" services at their DCs. For example, FM Logistic configures the Brother copiers, computer printers, and other office machines stored at its facility in Tilloy-les-Mofflaines to meet the needs of local markets. As anyone who has traveled in Europe knows, there's little standardization among the various countries' electrical systems—for instance, electrical plugs in France have a different prong arrangement from those used in England. To address these variations, FM Logistic workers wire the proper plugs onto the machines and add instruction booklets in the appropriate language before they ship the cartons to the end users.
In fact, Menlo's ability to perform value-added services is what led NCR Corp. to use the 3PL for its European distribution. Menlo's Rotterdam facility provides NCR with light manufacturing capabilities, which range from changing switch settings within a component to the kitting of all of the components—cash registers, scanners, and so forth— needed for a retail store. In these cases, all of the IT-related products needed for a retail operation are brought together, assembled as needed, and then shipped as a unit. "It involves bolting all of the pieces together, mounting the drawer in the cash register, and mounting the scanners— everything from the 700-pound self checkout to a handheld scanner that weighs just a few ounces," says Chandler.
Information please
For all the advantages of using a 3PL for distribution overseas, the decision isn't always a slam dunk. The advantages must be weighed against the main disadvantage of outsourcing: loss of control over your distribution.
"On one end [when you use a 3PL], you share the risk; on the other, you increase the risk," reflects Campbell's Ernest. That is, companies that contract with a 3PL reduce their risks by minimizing the amount of capital they have to invest, but they also increase their risks by ceding control of their distribution to an outside party.
Third parties are well aware of shippers' fears about loss of control. To reassure clients on that count, many 3PLs make it a point to provide comprehensive information about the transactions they perform on behalf of their customers.
New visibility technologies have made that a snap. "Third-party service providers are very IT-oriented," notes Rodriguez of Craters & Freighters. "Inventory status and booking reports can often be accessed online 24/7. There really is no discernable difference now working with someone in Germany or Chicago."
Kuehne + Nagel, a worldwide 3PL based in Germany, provides its customers with continuous updates on its transactions. The 3PL uses a tracking and tracing system to keep clients in the loop, says Ernst Cuppens, the company's director of contract logistics in Belgium. "With our main customers, we have direct EDI [electronic data interchange], which informs the customer every 15 minutes about the status of their orders."
Similarly, Menlo determines what information customers want to see and then generates regular reports providing the desired information. "The client can define what KPIs [key performance indicators] are to be used to measure under the contract, such as shipping on time, order accuracy, etc.," says Gert Askes, Menlo's managing director for European operations. "Real-time information can be provided, but it is costly. Usually clients can simply go to a Web site where information is updated throughout the day. Many clients only need a daily snapshot. If you get a daily report, you have control."
making the right choice
When it comes to choosing a 3PL to handle their distribution in Europe, many shippers go with what they know. Oftentimes, shippers that are already working with a third party in North America simply opt to use the same one in Europe, says Robert Lieb, professor of supply chain management at Boston's Northeastern University.
Take office machine specialist NCR, for example. NCR uses Menlo Worldwide Logistics for its distribution needs both in the United States and in Europe. That has a couple of advantages from NCR's standpoint. First, it's able to build upon an established relationship rather than start over with an unknown entity. Second, by expanding its relationship with Menlo, it gains economies of scale and added leverage when it comes to renegotiating contracts.
But that option isn't always available to companies expanding their operations overseas. Some, for example, cannot find a single provider in Europe that can fulfill all of their needs.
Campbell Soup is one such company. Campbell Soup has built up its business in Europe mostly through acquisitions, and it continues to maintain the local brands in each country. Because its products vary widely from market to market, Campbell Soup typically uses a separate 3PL for warehousing in each country it serves. It also uses a number of transportation service providers across the continent.
Hans Ernest, Campbell Soup's vice president of supply chain for Europe, would like to find one carrier that can meet all of his company's transportation needs continentwide. But at the moment, most carriers do not offer the coverage required. Yet that could change someday soon, he says. There's a shift under way in the European third-party marketplace, with traditional warehousing companies getting into the transportation business and transportation companies providing distribution services. Companies like Campbell Soup may have to be patient, he says, but it's probably just a matter of time before they'll likely get what they're seeking.
For companies that find themselves in need of a new third party, Ernest has some advice on what to look for in a service provider:
"First, look for experience," he says. "Ask yourself: 'How strategic are they and what are their capabilities? What other services are they developing, and how do they plan to expand their operations in Europe?'"
John Langley, professor of supply chain management at Georgia Tech, agrees that service is—and should be—a priority for shippers when choosing a 3PL. But he adds that there's one other consideration that invariably emerges when shippers go to make their choice: price. "Price and service will always be at the top of the list," he says. "That's no different in Europe than elsewhere."
Robotic technology has been sweeping through warehouses nationwide as companies seek to automate repetitive tasks in a bid to speed operations and free up human labor for other activities. Many of those implementations have been focused on picking tasks, a trend driven largely by the need to fill accelerating e-commerce orders. But as the robotic-picking market matures and e-commerce growth levels off, the robotic revolution is shifting behind the picking lines, with many companies investing in pallet-handling robots as a way to keep efficiency gains coming.
“Earlier in this decade and the previous decade, we [saw] a lot of [material handling] transformation around e-commerce and the handling of goods to order,” explains Josh Kivenko, chief marketing officer and senior vice president at Vecna Robotics, which provides autonomous mobile robots (AMRs) for pallet handling and logistics operations. “Now we’re talking about pallets—moving material in bulk behind that line.”
Kivenko explains that whether items are being packaged and shipped directly to a customer’s home address or moved as finished goods to a shipping bay for store delivery, those items are first moved in bulk in some way, often by human hands and with human-operated equipment. He describes warehouses as chaotic environments in which humans move pallets and cartons in multiple ways—up and down, side to side, from receiving to storage, from storage to shipping, or via cross-docking. Automation can help bring order to that chaos.
“What we’re trying to do is relieve some of the pressure [on the] humans [doing] this work,” Kivenko says of companies that develop pallet-handling robotic technologies. “At the end of the day, we’re trying to automate some of those flows, relieve labor pressure, save costs, and keep the goods flowing.”
But automated pallet handling isn’t right for every situation, so it’s important to understand the warehouse conditions required and the protocols and best practices needed to make it a win. Here are some guidelines for applying pallet-handling robots and gaining the most from your investment.
FIRST, UNDERSTAND THE TECHNOLOGY
Pallet-handling robots fall into four general categories, explains Rich O’Connor, vice president of storage and automation for Raymond West Group, a business unit of lift truck manufacturer The Raymond Corp. They include:
Palletizing/depalletizing robots, which are used to load or unload items onto and off of pallets, usually with the use of a robotic arm for picking and placing. Today, these systems are being increasingly integrated with automated storage and retrieval systems (AS/RS) to further streamline pallet handling in the warehouse, O’Connor explains.
Autonomous guided vehicles (AGVs) and autonomous mobile robots (AMRs), which are used to transport pallets within the warehouse. Often outfitted with lift decks or conveyors, or designed to tug or tow items, these robots move pallets from point A to B within a facility. AGVs, which often follow a marked guide-path or wire in the floor, have been around for many years, but the advent of high-performance guidance and vision systems is allowing them more flexibility today, O’Connor says. AMRs are self-guided vehicles that use software and sensors to navigate their way through the warehouse.
Forklift AGVs and AMRs, which can move products both horizontally, from place to place, and vertically, into and out of storage racks. They come in various styles—including stackers, counterbalanced trucks, reach trucks, and even very narrow aisle (VNA) vehicles for use in densely packed warehouses. These vehicles are more complex than those used only for horizontal transport, O’Connor explains. They must be “highly integrated” into the facility’s warehouse management system (WMS) or warehouse execution system (WES) so that they know precisely where to retrieve and deliver pallets within the facility.
Robotic pallet shuttles, which move pallets into, out of, and within dense storage racking. The Raymond Corp. describes such a system as “a standalone, automated deep-lane pallet storage system that utilizes self-powered shuttle carriages to move pallets toward the back or front in a racking channel. Shuttles are motor driven and travel along rails within a storage lane.”
O’Connor and others say that no matter which of these technologies you’re investing in, it’s important to remember that they are all part of a larger system designed to optimize operations throughout the warehouse.
“The expanding role of all these different styles working together is what’s amazing today,” O’Connor says.
SECOND, ENSURE THE TECHNOLOGY IS A FIT
Kivenko, of Vecna, also emphasizes the importance of pallet-handling robots working in concert, particularly AMRs and AGVs.
“The magic isn’t just that the robots are autonomous and driving by themselves. The magic is multiple robots—when you have a [whole integrated] system [in place],” he says. “[It’s] how the fleet operates autonomously and optimizes itself for continuous improvement. That’s where the exponential gains are. [It’s] not just about automating what a worker does; it’s about automating a system.”
But you can’t install these systems in just any warehouse and expect magic. Kivenko and others point to certain conditions that enable the best robotic pallet-handling outcomes, especially when it comes to transportation-based and forklift-type AMRs and AGVs.
“The robots that I sell are large-load machines with very expensive technology,” Kivenko explains. “They move material, generally, in larger facilities. And in order for them to produce a return [on investment]—because that’s the name of the game here—they have to be higher-velocity facilities.”
He says pallet-handling robots work best in large facilities running multiple shifts, usually more than five days a week. Wider aisles allow the equipment to move more freely through the facility and at higher speeds, to optimize efficiency and productivity. Strong Wi-Fi networks and clean, dry environments also help keep equipment running at top performance.
O’Connor agrees that pallet-handling robots are best suited to facilities with multishift operations, where they can ease labor constraints and boost productivity. And he says many customers are willing to extend the typical two- to three-year ROI period to five years in order to achieve those gains. But there is even more to it than that. O’Connor’s colleague John Rosenberger says customers must first step back and analyze their processes to ensure that, even if they have the right facility for pallet-handling AMRs or AGVs, they are moving material in the most efficient way to begin with.
“Many times, we find that the processes in place [are inefficient],” says Rosenberger, who is director of iWarehouse Gateway and global telematics for The Raymond Corp. He emphasizes the importance of analyzing existing data—from an equipment telematics system or similar—to determine the best path toward automation.
“Do you have congestion zones now?” he asks. “They’ll still exist if you automate [those processes exactly].”
THIRD, MAKE SIMPLICITY A PRIORITY
Another basic rule of thumb when implementing pallet-handling robotics: Keep it simple.
Andy Lockhart, director of strategic engagement for global warehouse and logistics process automation company Vanderlande, says that when designing a pallet-handling robotics system, “you want to minimize the processes you [automate]. When you can create [an automated system] that focuses on one task—for example, AMRs delivering pallets from a high-bay [storage rack] directly to the palletizing cell—you can do that efficiently and effectively. When you ask the AMR to do this and this and this … you are adding risk of failure.”
Lockhart’s colleague Jake Heldenberg advises customers to first test their target processes via pilot programs within the warehouse or DC. Heldenberg is Vanderlande’s head of solution design, warehousing, North America.
“If AGVs or AMRs for pallet handling are interesting [to a customer], the best thing to do is pilot one or two in an existing DC,” he says, explaining that the process can help companies troubleshoot, understand integration timelines, and gauge ROI. But pilot programs can add expense to a project, making it unaffordable for some.
“If that’s the case, then the best advice is work with a vendor who has experience integrating [the technology],” Heldenberg says. “Use their experience to benefit your business. You won’t have the same hiccups and challenges you would with a less-experienced vendor.”
Jeremy Van Puffelen grew up in a family-owned contract warehousing business and is now president of that firm, Prism Logistics. As a third-party logistics service provider (3PL), Prism operates a network of more than 2 million square feet of warehouse space in Northern California, serving clients in the consumer packaged goods (CPG), food and beverage, retail, and manufacturing sectors.
During his 21 years working at the family firm, Van Puffelen has taken on many of the jobs that are part of running a warehousing business, including custodial functions, operations, facilities management, business development, customer service, executive leadership, and team building. Since 2021, he has also served on the board of directors of the International Warehouse Logistics Association (IWLA), a trade organization for contract warehousing and logistics service providers.
Q: How would you describe the current state of the contract warehouse industry?
A: I think the current state of the industry is strong. For those that have been focused on building good client relationships over the years, I think it’s a really exciting time. Coming out of all the challenges of the past few years, I think there’s a lot of opportunity for growth and deeper partnerships. It’s fun to see the automation and AI (artificial intelligence) integration starting to evolve [in a way that’s] similar to what we saw with WMS (warehouse management systems) in the early 2000s.
Q: You are now president of your family firm. Is it an advantage having grown up in the business as opposed to working elsewhere?
A: I definitely believe it was an advantage growing up in the business. Whether it’s working with family or someone else in the industry, there’s always an advantage when you have mentors[to guide] you. I’ve been blessed to have several mentors, some in the industry, others just in life, and I’m thankful that they were willing to mentor me and that I was willing to listen to them.
Q: What are the biggest challenges currently facing 3PLs, and how are you addressing them?
A: Labor and legislation are both tough right now. The two seem to have a lot to do with each other, and it can make it tough to find and retain people. So I think we’ll see more and more automation of processes industrywide.
Q: Third-party service providers often must handle a wide variety of products for a lot of different clients. Does this variety make it difficult to invest in automation and other new technologies?
A: It can make things more difficult when looking at certain automation, but it’s in the “difficult” that a lot of opportunities lie. It would be tough to find a single solution that fits every client’s needs, but there are always opportunities to improve in certain areas. It just takes a bit of vision and commitment, and a willingness to invest in your own long-term success.
Q: As a 3PL, what do you look for when selecting the clients you work with?
A: Quality relationships that will last a long time. When both parties are happy and working together in the same direction, everyone wins.
Q: You’ve been a board member of the International Warehouse Logistics Association since 2021. Why is your involvement with this organization important to you?
A: I think it’s important to understand what’s happening in the industry. IWLA is a great resource for staying up to date and getting a solid education when it comes to the latest logistics trends. I also think it’s important to give back and pass along what we’ve learned to those just getting started in the business. As important as it is to have a mentor, it’s just as important to mentor and help others.
“While there have been some signs of tightening in consumer spending, September’s numbers show consumers are willing to spend where they see value,” NRF Chief Economist Jack Kleinhenz said in a release. “September sales come amid the recent trend of payroll gains and other positive economic signs. Clearly, consumers continue to carry the economy, and conditions for the retail sector remain favorable as we move into the holiday season.”
The Census Bureau said overall retail sales in September were up 0.4% seasonally adjusted month over month and up 1.7% unadjusted year over year. That compared with increases of 0.1% month over month and 2.2% year over year in August.
Likewise, September’s core retail sales as defined by NRF — based on the Census data but excluding automobile dealers, gasoline stations and restaurants — were up 0.7% seasonally adjusted month over month and up 2.4% unadjusted year over year. NRF is now forecasting that 2024 holiday sales will increase between 2.5% and 3.5% over the same time last year.
Despite those upward trends, consumer resilience isn’t a free pass for retailers to underinvest in their stores by overlooking labor, customer experience tech, or digital transformation, several analysts warned.
"The 2024 holiday season offers more ‘normalcy’ for retailers with inflation cooling. Still, there is no doubt that consumers continue to seek value. Promotions in general will play a larger role in the 2024 holiday season. Retailers are dealing with shrinking shopper loyalties, a larger number of competitors across more channels – and, of course, a more dynamic landscape where prices are shifting more frequently to win over consumers who are looking for great deals,” Matt Pavich, senior director of strategy & innovation at pricing optimization solutions provider Revionics, said in an email.
Nikki Baird, VP of strategy & product at retail technology company Aptos, likewise said that retailers need to keep their focus on improving their value proposition and customer experience. “Retailers aren’t just competing with other retailers when it comes to consumers’ discretionary spending. If consumers feel like the shopping experience isn’t worth their time and effort, they are going to spend their money elsewhere. A trip to Italy, a dinner out, catching the latest Blake Lively and Ryan Reynolds films — there is no shortage of ways that consumers can spend their discretionary dollars,” she said.
Editor's note:This article was revised on October 18 to correct the attribution for a quote to Matt Pavich instead of Nikki Baird.
A real-time business is one that uses trusted, real-time data to enable people and systems to make real-time decisions, Peter Weill, the chairman of MIT’s Center for Information Systems Research (CISR), said at the “IFS Unleashed” show in Orlando.
By adopting that strategy, they gain three major capabilities, he said in a session titled “Becoming a Real-Time Business: Unlocking the Transformative Power of Digital, Data, and AI.” They are:
business model agility without needing a change management program to implement it
seamless digital customer journeys via self-service, automated, or assisted multi-product, multichannel experiences
thoughtful employee experiences enabled by technology empowered teams
And according to Weill, MIT’s studies show that adopting that real-time data stance is not restricted just to digital or tech-native businesses. Rather, it can produce successful results for companies in any sector that are able to apply the approach better than their immediate competitors.
“ExxonMobil is uniquely placed to understand the biggest opportunities in improving energy supply chains, from more accurate sales and operations planning, increased agility in field operations, effective management of enormous transportation networks and adapting quickly to complex regulatory environments,” John Sicard, Kinaxis CEO, said in a release.
Specifically, Kinaxis and ExxonMobil said they will focus on a supply and demand planning solution for the complicated fuel commodities market which has no industry-wide standard and which relies heavily on spreadsheets and other manual methods. The solution will enable integrated refinery-to-customer planning with timely data for the most accurate supply/demand planning, balancing and signaling.
The benefits of that approach could include automated data visibility, improved inventory management and terminal replenishment, and enhanced supply scenario planning that are expected to enable arbitrage opportunities and decrease supply costs.
And in the chemicals and lubricants space, the companies are developing an advanced planning solution that provides manufacturing and logistics constraints management coupled with scenario modelling and evaluation.
“Last year, we brought together all ExxonMobil supply chain activities and expertise into one centralized organization, creating one of the largest supply chain operations in the world, and through this identified critical solution gaps to enable our businesses to capture additional value,” said Staale Gjervik, supply chain president, ExxonMobil Global Services Company. “Collaborating with Kinaxis, a leading supply chain technology provider, is instrumental in providing solutions for a large and complex business like ours.”