Author: Nick Zabikow, Executive Vice President of Global Sales and Marketing, Yojee
Amazon has set high standards for deliveries. With this “Amazon effect”, consumers’ expectations for fast visible deliveries without additional cost have become the new norm.
The digital and e-commerce sectors are booming amidst COVID-19 impact. With the lockdowns, businesses and consumers increased their purchases of goods and services online, growing e-commerce share of global trade from 14% in 2019 to 17% in 2020.
Modern 3PLs have been fundamental in such e-commerce growth. The 3PL industry is dynamic and ever-evolving as it continues to grow. The big players continue to expand and new small 3PLs have been emerging. There are some situations where the large and well-known retailers with expertise in their logistics have entered the market, such as Hello and Amazon.
Major Challenges in Logistics and Distribution
The main challenges that 3PLs are facing are as follows:
- Rudimentary reporting systems – Many small and medium-sized 3PLs use Excel or Google Sheets to track and monitor shipments. This may become a nightmare with multiple shipments and suppliers to keep status and ETA of each shipment updated. Likewise, there is room for errors and inaccuracies with inventory reconciliation.
- Increasing Compliance – Most 3PLs make shipments to countries all around the world. The rules and regulations of each country may be different. Further, regulations can vary even within a country. To add complexity, rules and regulations evolve. These are reasons why increasing compliance poses a major challenge on 3PLs.
- Limited or No Collaboration – End-to-end supply chain involves multiple participants including shippers, carriers, and end-consumers. The lack of collaboration may cause disruptions and inefficiencies in the supply chain.
- Meeting the Shipper’s Specific Requirements – Related to collaboration, another challenge that 3PLs experience is being able to meet the shipper’s requirements on packaging, on-time in-full (OTIF) delivery, customer service, among other aspects. These situations happen when there is a misunderstanding of the processes on the shipper as well as on the 3PL’s end. For instance, not including the 3PL part numbers on the packing slips may delay receiving.
- Inadequate or Lack of Infrastructure – This is common in developing countries where highways are not maintained in proper conditions, internet connectivity is poor and limited, and there is lack of developed modes of transport such as railways and roadways.
- Shifts in E-Commerce Demand – The frequent changes in e-commerce demand create planning challenges for the 3PLs. This turns into challenges for the fulfillment and shipping of orders.
- Technology Advancements – Several 3PLs do not take advantage of technology advancements and keep their operations running with basic technology or simply spreadsheets, causing inefficiencies and inaccuracies.
- Warehouse Capacity – Capacity management is key. The limited or no use of technology capabilities can make this challenge deeper, as space is not properly optimized.
The application of technology can successfully address these challenges with the following:
- More Collaborative Networks – New technologies like artificial intelligence (AI), machine learning, and blockchain enhance collaboration among shippers, 3PLs, and end-customers. These increased collaborative networks streamline performance and improve operational flexibility as well as speed of change. These collaborative supply chain networks are thus more agile and responsive to changes. New technologies allow for vendor managed inventory and real time inventory visibility. Gone will be the days that shippers and 3 PLs e-mail reports back and forth and make calls to know inventory on hand, scheduled receipts, and ETAs.
- Rise of Mobile Apps – Recording inbound and outbound shipments require substantial amounts of paperwork, in particular, for international shipments. The rise in the use of mobile apps throughout the end-to-end supply chain will replace such paperwork. RFID enabled devices allow for holding data. In doing so, all items carry the pertaining information with them.
- Application of Dedicated Technology – 3PLs realize greater profits with investments in technology. Warehouse and Transportation Management Systems lead to greater efficiencies, time savings, and cost reduction. Examples are space optimization and cargo consolidation.
- Use of Big Data – Big data consists of very large datasets, structured and unstructured, that unveils patterns, trends, and correlations. The challenge is not on data storage but on the use of the data. Precisely, the value of big data lies in the insights that you gain. Third-party logistics providers are getting better in unlocking the power of big data. It provides them with the needed visibility which facilitates decision making. In addition, big data can represent new revenue streams, which may turn into a competitive advantage. Some 3PLs have a data science team that provides insights to their customers about inventory optimization, network, and support for seasonal demand promotions, product launches, among other value-added services.
- Supply Chain and Economic Globalization – Considering the world economy and how complex supply chains are, 3PLs can expect to operate with increasing complexity and in an ever-changing landscape.