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How E-commerce Is Impacting 3PL Operations

Randy Curran, CEO of OHL, talks about the impact of e-commerce on the 3PL industry today and in the future and discusses how the omnichannel customer is changing logistics operations.

How E-commerce Is Impacting 3PL Operations

E-commerce is dramatically changing the business model for logistics companies that used to mostly ship large orders between customers’ manufacturing and distribution facilities, says Curran. “Today customers are asking us to deliver small orders to stores and directly to consumers, which means we are handling a higher volume of smaller shipments -- 40,000 to 100,000 packages a day.”

Additionally, operations are much less predictable, he says. “The consumer is fickle and when he orders online or through a mobile device instead of going into a store, he might place an order at midnight that is dropped into a warehouse at 3:00 a.m. for fulfillment. It creates a completely different reality.”

These changes are driving a number of alterations in the warehouse, Curran says. “Warehouses have to be much more automated, which means they are much more capital intensive,” he says. “The capital deployed inside a building can be more than the cost of the building itself.” Labor costs also are up because e-commerce demands more 24/7 operations and more pickers and packers. “We have one site with 1,300 people working 24/7,” he says. “It’s a much different world than a bunch of guys moving pallets around on forklifts.”

Today’s customers also are asking for more customized fulfillment services, Curran says. He cites a client in the cosmetics business that sends a gift to customers every month. “So we have people kitting up these highly customized little gift packages, which are different every month.” Similarly, OHL has high-end fashion customers that are very concerned about the presentation of home deliveries. “They want the order to show up with presentation quality packaging or maybe with personalized notes included,” he says. That takes a a lot of extra work and obviously requires more labor.”

At the same time, there still are customers that run their own warehouses and require more standard replenishment operations. “And we may have a situation where a major big-box retailer offers eight times as many products on their website as they carry in the store – so they still need warehouses proximate to the city to carry all the other SKUs they don’t carry in the stores.” And to add more complexity, products that are ordered online can be returned to the store and then sent back to the warehouse. “We now have to be prepared to do all of those things,” Curran says. “We advise our clients not to over invest in any one solution, because we don’t know what the consumer will do in the future.”

Because of this new environment, OHL is becoming more of an IT outsourcing business than an actual warehousing or logistics business, Curran says. “Many of our clients use our systems and rely more on us for IT, in many respects, than for logistics expertise.”

That’s not surprising, says Curran. The biggest problem with omnichannel is having a single inventory store going out in three different directions: to DCs, to stores and to consumers. “Organizing the warehouse and all the systems so you have one SKU going three different ways, instead of three copies of the same SKU, is not easy.”

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