Executive Briefings

Third-Party Logistics: Warehousing Adds Value . . . and Complexity

Analyst Insight: Simply handling storage and order fulfillment more efficiently than their clients could in-house is not enough. In difficult economic times, 3PLs are being called upon-and are uniquely situated-to take on additional tasks such as kitting, light assembly, and custom labeling, that will ease the burden on their clients' operations.

Although the ultimate ownership of product, and the nature of their customers, may be differ from one 3PL to another, they share the day-to-day concerns of order fulfillment with each other. Across industries, revenue ranges, and supply chain functions, the need to reduce operating expenses is the main pressure driving warehousing professionals to improve their warehouse management performance (cited by 73 percent of all respondents Aberdeen speaks with). But this cannot be addressed in isolation; warehousing 3PLs must also address their customers' demand for value-added services (35 percent) at the same time.

In the face of these pressures, 3PLs have two main goals: improving the efficiency of their own operations (76 percent) and increasing the value-added services they can offer to their clients (31 percent). Of course, these goals are interrelated: improved efficiency frees resources to be put to more productive use. When picking and put-away can be accomplished more quickly, warehouse staff will have time for activities such as kitting and light assembly. For 3PLs not looking to add services, efficiency allows them to complete their required work with fewer resources -- directly addressing the dominant cost pressure.

This is not to say that 3PL warehousing providers are starting with inefficient operations. To the contrary: 3PL respondents to a recent Aberdeen survey outpace their peers across multiple quality-related measures, including pick accuracy, inventory accuracy, and on-time shipment. It is the combination of these results, along with their lower average error-handling costs for both picking and shipping errors, that illustrates the value proposition for 3PL services: the promise of on-time, accurate fulfillment for clients, and a lower cost of operation for the 3PL itself.

The Outlook

When compared to their self-run peers, 3PL respondents report higher levels of planned adoption across the spectrum of available technologies - from business intelligence to slotting to labor management solutions. This paints a picture of aggressive performance improvement initiatives for recent 3PL respondents, which may ultimately benefit not only their bottom lines, but also those of the clients they serve.

Although the ultimate ownership of product, and the nature of their customers, may be differ from one 3PL to another, they share the day-to-day concerns of order fulfillment with each other. Across industries, revenue ranges, and supply chain functions, the need to reduce operating expenses is the main pressure driving warehousing professionals to improve their warehouse management performance (cited by 73 percent of all respondents Aberdeen speaks with). But this cannot be addressed in isolation; warehousing 3PLs must also address their customers' demand for value-added services (35 percent) at the same time.

In the face of these pressures, 3PLs have two main goals: improving the efficiency of their own operations (76 percent) and increasing the value-added services they can offer to their clients (31 percent). Of course, these goals are interrelated: improved efficiency frees resources to be put to more productive use. When picking and put-away can be accomplished more quickly, warehouse staff will have time for activities such as kitting and light assembly. For 3PLs not looking to add services, efficiency allows them to complete their required work with fewer resources -- directly addressing the dominant cost pressure.

This is not to say that 3PL warehousing providers are starting with inefficient operations. To the contrary: 3PL respondents to a recent Aberdeen survey outpace their peers across multiple quality-related measures, including pick accuracy, inventory accuracy, and on-time shipment. It is the combination of these results, along with their lower average error-handling costs for both picking and shipping errors, that illustrates the value proposition for 3PL services: the promise of on-time, accurate fulfillment for clients, and a lower cost of operation for the 3PL itself.

The Outlook

When compared to their self-run peers, 3PL respondents report higher levels of planned adoption across the spectrum of available technologies - from business intelligence to slotting to labor management solutions. This paints a picture of aggressive performance improvement initiatives for recent 3PL respondents, which may ultimately benefit not only their bottom lines, but also those of the clients they serve.