Businesses of all sorts entrust third-party logistics service providers (3PLs) with much of their inventory for a host of reasons. It can help them extend their geographic reach into new markets. It keeps brick and mortar off the balance sheet. Third parties can provide specialized services and technologies that it makes no sense to develop in house. They can give clients the flexibility to scale up or down as business requirements shift.
Today, outsourcing may make more sense than ever. "When you look at the speed of change and the level of uncertainty, specifically when you look at things like omnichannel and e-commerce, growth rates are hard to predict. Leveraging 3PLs makes sense," says Mark Wheeler, director of supply chain solutions - North America for Motorola Solutions, which provides bar-code scanners, mobile computers, and other communications equipment and technology.
That same emphasis on speed, though, means that fast and accurate communication between 3PLs and the customer is crucial.
Bruce Stubbs, director of industry marketing for distribution at Honeywell, which supplies a variety of data capture technologies, adds, "As omnichannel becomes more prevalent, that's driving a lot of pressure in the DC environment. A lot of distribution networks can handle delivery to the box stores. But there are many people who don't have the internal expertise or right infrastructure to handle omnichannel. It takes a different type of operation for picking, packing, and shipping direct to consumer. We've seen a lot of people take that portion of their operations as they move into the multichannel arena and give it to a 3PL."
Those same challenges make close integration between customer and 3PL systems imperative. "When you are operating that much faster and going to direct-to-consumer fulfillment, you have to look at how you handle that integration," Wheeler says.
A WINDOW ON THE SUPPLY CHAIN
Yet despite decades of development of track and trace tools, getting good visibility into inventory that's in the hands of a third party can still be a challenge. "Visibility and control is an area that both parties continue to struggle with," says Adrian Gonzalez, president of Adelante SCM, a research firm that specializes in third-party logistics.
The ideal for a shipper who owns the goods, Gonzalez says, is to have systems that make it appear as if he is managing it himself—having all your goods in a single view. But that's easier said than done, Gonzalez acknowledges. "And the more 3PLs you have, the more of a challenge it becomes. You have multiple relationships to manage, multiple systems to integrate with."
These days, it's pretty common for shippers to be working with multiple providers, according to Gonzalez. For most companies, using a single 3PL for all outsourced operations isn't realistic, he explains. "For years, they have tried to consolidate as much as they can, but at the end of the day, it's like technology—you go with the best of breed."
The question of how many 3PL partners a shipper might have aside, the fact remains that working with one of more 3PLs adds a level of complexity to tracking and managing your goods. So what can shippers do to make the process as seamless as possible?
Gonzalez says there are three key considerations. The first is the technical aspect—the integration of 3PL systems with the customer's internal systems.
"Another element is getting alignment around the key metrics that will be guideposts for making sure on a day-to-day basis, you are moving in the direction you need to be moving in," Gonzalez says. "And those metrics will change over time. The main thing is, you don't want to drown in data. You want to focus a relationship on a core set of metrics aligned with the desired outcomes.
"The third thing is the reality that at the end of the day, it is people that get things done," he adds. "You cannot underestimate the influence of people-to-people relationships."
OUT OF MANY, ONE VIEW
Of those three considerations, historically, it's been that first aspect—the technology—that has proved to be the biggest hurdle, creating problems on both sides. For 3PLs, working with multiple customers once meant employing multiple warehouse management systems (WMS) and transportation management systems (TMS). "We've seen a migration away from that," Gonzalez says. Many 3PLs have developed standard platforms to serve all their customers, making the technology more scalable and manageable.
For businesses making use of multiple 3PLs, the issue can be fragmentation of data. That very real problem leads some companies to assign a lead logistics provider to consolidate and orchestrate information flowing to and from all third parties. But not every company has the resources to do that. "More commonly, the onus is on the shipper to have a technology platform that is able to take information from across trading partners and aggregate the data," Gonzalez says. "The challenge becomes aggregating the data from different sources and making sure it is accurate, timely, and complete. The objective is to have a single view of the supply chain."
The technology to enable that has improved steadily. Stubbs says visibility between the 3PLs and the owners of the inventory can come via linking inventory in the 3PL's possession directly into the customer's WMS, or if the 3PL has a robust enough WMS itself, giving each customer access to its own data through secure nodes in that system. He says several WMS providers specialize in the 3PL market just to provide that kind of visibility.
Best-practice 3PLs, he says, work off advance ship notices (ASNs), which provide information from the client's suppliers on what's actually coming—which may not match what was ordered. "As soon as the ASN is sent by the supplier, it becomes visible to all in the WMS system. It becomes visible to the 3PL, and at the same time, becomes visible to the client. It is all about visibility and having real-time information to act upon."
Of course, the information in any system is only as good as the information provided, and that's where the tools for capturing information as goods move from the yard to receiving to putaway to picking to shipping are so critical. As Stubbs says, "Certainly, you need to be able to capture information not only accurately but in real time and present it to the system of record to provide real-time visibility to balance on hand, shipment status, receipt status, those types of things. That's critical to managing the separate inventory buckets. The way to do that is through electronic capture, whether that be through mobile computing, scanning, or voice. Typically, it's a combination of all of those."
What's likely to make that work much more seamlessly in the future is the use of data capture standards that can provide end-to-end traceability. The development of such standards, at least in theory, would have all parties in a supply chain working with the same sets of data. The goal, Wheeler says, is to have one way of encoding product for an industry that would allow anyone in the supply chain to scan and capture data. A single bar code could work from original source to final destination. "That will be a huge change that a lot of industries can use," he says. Producers and distributors of perishable foods are leading the way, driven by traceability requirements embedded in law. But more industries are certain to follow, Wheeler believes.
That sort of standardization has a ways to go before it sees widespread adoption. For one thing, Gonzalez says, standards are often that in name only, as companies adopt standards and then fine-tune them to their own needs. And Stubbs expects many companies will resist adopting standards, seeing the need to purchase systems and equipment to enable their use as a cost burden. He says widespread adoption of standards is likely to happen only as a result of pressure from either government regulations, as now exist for food shippers, or from big end customers such as Walmart, which is mandating compliance with food traceability initiatives by the end of June. "That should have a domino effect with other retailers," he says.
Greater adoption of technology like bar codes and radio-frequency identification (RFID) tags will also aid in capturing the data needed for tracking and tracing. A survey Motorola conducted last year among 3PLs, retailers, wholesalers, and manufacturers indicated that about two-thirds of goods inbound to distribution centers and plants carry bar codes today. The study projected that the number would rise to 83 percent by 2018. And RFID usage rates are expected to jump to 38 percent from the current 21 percent.
Wheeler expects pressure will mount on suppliers to tag goods as omnichannel and direct-to-consumer business models develop. "As you go to omnichannel and you want a single set of inventory, you almost have to be source tagged," he says. "You want to be able to do no-touch item-level receiving, no-touch order verification. That's somewhat forward looking, but it is definitely a trend."
Should that trend become reality, it promises to provide companies that use 3PLs with an even clearer, more timely view of just what's happening to their inventory.