3PL Challenges: Leveraging Technology for Success

By BEUMER Group

In this article we take a deeper look at the current 3pl challenges and how you can use technology to gain an advantage in third party logistics. We also explain some of the misunderstandings around batch building and discuss the traps warehouse operators can fall into when determining their picking waves.

To find out more about the pouch sorter system, read our white paper How Pouch Sorter Technology Can Solve Your Omnichannel Challenges here.

The future is bright for 3PL providers

There are any number of reasons e-commerce fashion firms or retailers are outsourcing their needs to 3PLs now more than ever.

With the rapid growth in e-commerce, many businesses are struggling to meet the higher order volumes because they don’t operate at the speed needed to process the orders. But rather than risk losing their customers to competitors, they choose to outsource some of their functions.

And there’s no doubt that the global pandemic has forced companies to pivot operations in order to survive. It has increased the demand for more robust and responsive logistics, with more consumers and businesses expecting just-in-time delivery or products shipped directly to their front doors.

Making the decision to outsource warehousing, supply chain and distribution needs to 3PL allows companies to focus on their core business strengths. A good third-party provider can lower overheads, reduce internal inventories, standardise production goals and increase efficiency.

As such, business has been booming in recent years for 3PL providers and the outlook for revenue from e-commerce is very positive, representing business opportunities for 3PLs.

The future continues to be challenging for 3pl

However, where growth happens, challenges usually also follow and 3PLs face a number of challenges in reaching optimal production performance.

For 3PLs, the following factors are impacting the ability to service their customers:

• Acquiring and retaining customers by meeting expectations: The modern consumer wants cheaper and faster shipping. With multinational companies constantly pushing the boundaries of the delivery experience, faster and cheaper shipping can literally make or break their business. In handling a wide variety of products at scale, many 3PLs are struggling to keep up and are losing clients to providers who have developed creative distribution solutions to reduce delivery costs for their customers and have the resources to tackle these challenges.
• Short-term contracts: Many contracts between 3PLs and fashion brands are short-term, meaning that a 3PL can have a contract with a fashion brand that expires and its next contract is with an electronics brand. Clients’ requirements vary considerably from business to business, and meeting each client’s needs is a challenge facing many 3PL firms. This creates a high need for flexibility in terms of the products the 3PL can handle, as well as a fast return on investment.
• Seasonality: 3PLs are under intense pressure to accommodate massive shifts from season to season. A distribution centre for a fashion retailer, for example, replenishes stock for 1550 shops across Scandinavia, Germany and Poland. Running out of space, dealing with untrained seasonal workers and filling the cracks in processes to accommodate the new peaks—and filling the lows with operations for another customer to ensure there’s always an even flow—is challenging.

• Scalability: Adapting to client growth is a part of the business and scalability is a big challenge for 3PLs moving forward. 3PLs must be able to scale up and down to match the size of the 3PL operation.
• Multi-user capability:  3PLs need to be able to serve more than one customer on the same system. Their WMS must be able to manage multiple customers for inventory, invoicing, handling and so on at the same time, whether the customer is in clothing or household appliances.
• Changing order profiles: The systems employed by 3PL providers are typically designed for an order profile. Changes in the order structure profile can cause detrimental performance effects and this is challenging in conditions where the number of items per order for retail and e-commerce change all the time.
• Returns management: Returns in the fashion industry are the highest of all consumer returns (40-60 percent of all items purchased online are returned), putting a significant and labour-intensive demand on the 3PL provider. There are two models for returns and the setup will depend on the service level agreed with the customer – next-day, or 2-3 day delivery – and how it impacts the returns management solution.
• Storage space: One of the side effects of exponential e-commerce growth is that 3PL providers run out of space. Although real estate prices are not cheap, a 3PL that fails to offer adequate capacity risks damaging its reputation.
• Workforce issues: One of the most significant 3PL challenges is staffing. Attracting and maintaining top talent is one of the biggest issues today. 3PL providers, therefore, are under increasing pressure to invest in automation and, at the same time, must realise a quick return of investment.

The advantages of a 3LP provider being an alternative to another corporate-owned and -operated regional distribution centre will be lost if productivity, throughput and efficiencies promised can’t be delivered.

Fortunately for 3PL providers, these challenges can be overcome by using advanced modern technological solutions to help reduce wasted time, lower operating costs and optimise their every day processes.

Here’s the solution to the 3pl challenges

If the 3PL provider has a manual sorting system, it is forced to scale through sourcing more workers, which comes with a whole host of problems. But with an automated, flexible system solution, the provider can easily scale through system design.

There are many available technological solutions that can help alleviate the challenges 3PL providers face. One of those, the pouch system, lets the provider offer flexibility in the type of items it can handle if it wants to service a range of customer types.

The pouch system works like this:

1. A single item is placed in a pouch
   Each pouch holds a single item (sales unit). This provides ultimate flexibility to combine items to create any required order make-up and item sequence – for both B2C and B2B, for example. Pouches are loaded in ergonomic workstations.
2. The pouch containing the item travels up in the air
   After loading, the pouches are quickly elevated up above head height. The elevated conveying system saves floor space, frees up areas for other logistical tasks and optimises the building’s height by installing it above existing equipment.
3. Once in the air, the pouch travels into a dynamic buffer 
   The dynamic buffer holds items from regular pick waves, returns or even pre-picked items, based on data capture and insights that lead to predictive demand models. From the dynamic buffer, items are retrieved in the fastest way for assignment to specific orders. The process saves time and resources and reduces the number of touches of a product. 
4. The pouches are sorted into batches and then moved into a batch buffer
   Items that are assigned to orders are collected in the dynamic order buffer. As soon as all items belonging to an order are received in the dynamic order buffer, they can be released to a batch buffer.
5. The pouches are released for sorting and sequencing
   When a completed sorting batch is assembled in the batch buffer, the buffer lane is released for sorting. All pouches from the sorting batch are released in one go. The matrix sortation is in most cases a three-step sortation process which enables the building of any sequence of items within a sortation batch. The matrix sortation handles different sortation and sequencing criteria – such as colour, weight and size of item.
6. The pouch travels out of the matrix sortation to a pack buffer
   After sortation and sequencing, and prior to packing, the pouches travel to the pack buffer lanes (for example, if the hub needs to group items by certain shipping criteria such as preparation for last mile delivery, or fast-track items to meet carrier cut-off times) or directly to an unloading station.
   After unloading, the orders are packed
   At the unloading station, pouches will be presented according to the desired sequence, for example, the first pouch carrying the heaviest items will be presented for packing first and the last pouch carrying the lightest items will be packed last.

What the pouch system offers the 3PL provider

The most important advantage of the pouch system is that it’s a single unit handling system. System performance is independent of order structure, so it doesn’t matter how many items are in the order.

The system can also handle all types of orders, so a change of order profile does not impact system performance, unlike the goods-to-person (GTP) system that is designed for a particular order profile.

While other systems such as the loop sorter system also handle one item per carrier, they cannot buffer items over a longer period of time. Capacity lies in inducting and sorting items on the fly, but with no buffer location, these systems are more volatile in peak times.

What a modern sortation system should be able to do

A modern system should provide features that enable 3PL providers to operate in a world of uncertainty and volatility. It should be able to:

• Increase batching sizes: It should increase picker productivity, with workers being able to pick multiple items in one go. The use of a system buffer can increase the batch factor, while simultaneously reducing tote movement in a GTP system by increasing the accession rate and batch factor per tote.
• Increase flexibility: A system should enable flexible reactions to changes in business and customer behaviour. The use of a system buffer allows 3PLs to better handle changing order profiles, easily shift from D2C to B2B and from high to low volumes.
• Flatten peaks to handle volatility: Look for a system that enables the workload to be spread and that require fewer resources. It should allow workers to pre-pick items and store them in a buffer, where they can be immediately available for shipping. And it should be possible to pre-pick items over a longer period of time so that the 3PL provider doesn’t need to hire as many short-term workers.
• Handle returns efficiently: A modern system should move returns directly into the sortation system, eliminating the need for excess storage and picking and making the items available for immediate resale. There are multiple solutions for handling returns, depending on the setup and requirements of the 3PL provider.
• Flexible and extendable design: A system should be extendable and flexible for different product sizes and shapes. Ideally it should be able to be adjusted to specific needs or projects and be used for fragile objects.
• Save floor space: Look for a system that can fit into the existing space and make use of any space available, such as overhead space.
• Lower maintenance and spare parts needed: The system must be designed for minimum maintenance and minimum storage of spare parts.

Realise a faster ROI: The system should lead to reduced performance required of GTP systems, increase equipment optimisation and thereby lower the investment needed.

Conclusion

Significantly heightened demand in online fashion sales may sound like business development opportunities for 3PLs. However, if they fail to provide the service that matches corporate fulfilment standards, 3PLs run the risk of losing customers. To prevent this and stave off competition, 3PLs need solutions that provide flexible and adaptive responses. If they invest in automation at an early stage, their ability to grow, serve more brands and handle a higher volume of goods will justify the investment.

The pouch system and its buffering features can provide 3PLs with the agility needed to react to changing customers types order profiles, while being able to realise a speedy return on investment. No matter what, it’s important to team up with a knowledgeable expert who can help design the right system.