When a major European department store chain decided to move its order fulfilment operations from an external service provider to a logistics partner, it entered into a unique joint venture arrangement.
By Jonas Tersteegen and Gregor Baumeister
We look at this different kind of partnership system in order fulfilment and how important it was to both parties to see the business case of choosing a system solution in partnership.
In 2018, a prominent department store chain decided to restructure its logistics operations. It had bought the services of an external logistics provider but decided to once again perform its logistics operations internally through a joint venture arrangement with a logistics operator.
While it is not so unusual for a company to own its own fulfilment system that is operated by a third-party logistics (3PL) provider, what is unique here is the joint venture partnership that the parties have adopted.
There are, of course, other forms of partnership structures. Sometimes the 3PL both owns the equipment and carries out the operations – particularly if it’s a multi-user warehouse – and gets paid per pallet and so on by each brand. Sometimes the company instals its equipment in a 3PL’s building, but there is no joint venture structure. Or the company owns a certain level of equipment and rents the equipment and services of an external provider to cope with peak times.
Whatever the constellation, a business case will need to be proven for both parties.
The physical operations of this particular joint venture partnership consists of three parts:
The 3PL is the project manager, working closely with an IT supplier, the shuttle system supplier Dematic and the pouch system supplier BEUMER Group to design and integrate the system in the most efficient way. With the many returns the department store experiences, the pouch system is a perfect fit.
The 3PL is responsible for identifying inefficiencies or bottlenecks, recommending ways to optimise the system, as well as guiding the system design process to meet the specific needs of the department store. It is also in charge of testing – working alongside the suppliers – and ensuring peak schedules could be met, as well as maintenance of the equipment.
Dematic, BEUMER Group and other suppliers work with the 3PL to improve on the design, assist with the testing and train the 3PL staff, using their expertise and knowledge of their separate systems and equipment. BEUMER Group also supplies the 3PL with visualisations of standard reports using data analytics to examine the operations of the pouch system and to recommend any improvements.
The 3PL was already working for the department store, but once the joint venture arrangement was settled, it took over from the previous 3PL and now performs all of the store’s order fulfilment operations. The general managers of both companies are involved in the joint venture structure.
The arrangement is convenient for both parties: the department store chain is focussing on its core business to strengthen its market position, while the logistics operator is focussing on the excellence of the store’s logistics operation. Therefore, both parties combine their focus, expertise and excellence in their respective fields of business creating a perfect business solution.
The partnership constellation also makes sense as the department store (traditionally a retail store-only business) has moved more into e-commerce and the 3PL has been able to develop a system to handle omnichannel distribution, delivering to both the chain’s stores and its consumers. For the department chain, this has meant moving its entire e-commerce to the 3PL instead of trying to do it from its stores.
The case illustrates that partnership systems are determined by the kind of knowledge a company has in-house and the type of business model it has adopted.
The joint venture structure has been successful for a number of reasons.
The arrangement has created a closer partnership between the two parties. Their IT systems are integrated through a standardised interface solution, they are more open to each other with greater levels of transparency and they assist each other strategically. They have a great incentive to do so. One party’s success will impact the other party, so the joint venture provides a strong motivation for mutual improvement and mutual success.
For the department store chain, the joint venture has been a greater investment than just hiring a 3PL provider. But the investment in a good system will be more sustainable in the long run. By owning the system, the department store can customise it to its exact requirements and optimise for optimal performance and revenue generation.
For the logistics operator, the arrangement means it doesn’t have to invest in the equipment. And it is a more secure, strategic and long-term partnership.
A joint venture between a retailer and its 3PL logistics operator is a solid foundation to ensure fulfilment operations are a success. It allows the material handling company to leverage the 3PL’s expertise and resources in logistics and order fulfilment, resulting in faster delivery times and improved customer satisfaction. For the 3PL, it can bring its expertise to the operations while not having to invest in expensive infrastructure. The partnership creates a more efficient and cost-effective logistics network that serves the needs of both parties.