Partnership is the Key Ingredient to 3PL Innovation

Manufacturers and retailers outsource distribution for a variety of reasons. Cost savings and service level improvements top the list. Flexibility, risk mitigation and access to technology are some of the other benefits they seek.

To achieve all these benefits requires an expert partner with new and better approaches to managing a distribution operation. It requires 3PL innovation.

Types of innovation

3PL innovation comes in different shapes and sizes. In relation to warehouse distribution, most associate it with automation to improve productivity. As labor rates rise, interest in robotics has increased. That’s one of the reasons that Europe – with its higher salary rates for warehouse associates – has outpaced the US in supply chain automation. The labor-savings bang there yields more than the bucks required to automate a process.

In addition to automation, 3PL innovation can also involve data – providing shippers with the real-time information and reporting that allows them to make faster, smarter decisions about inventory, package design, transportation strategies, and other logistics cost drivers.

These days, 3PL innovation also extends to safety-related processes in logistics. For instance, KANE invested in high-speed temperature scanners at each of its facilities to protect our associates and ensure business continuity during the pandemic. This was a smart business investment since the manual alternative was impractical. But it was also the right thing to do from a safety perspective. ROI isn’t the only criterion in a “Go-No Go” decision on technology investments.

Impediments to 3PL innovation

While companies certainly seek ingenuity from 3PL partners, there are natural impediments to 3PL innovation in the logistics outsourcing process. Here are a few:

• Short-term contracts. Given the pace of change, many shippers want a contract term of no more than 3 years. But some innovation – like a multi-million-dollar warehouse automation project – could require a longer 3PL contract period to achieve an investment return.
• Rate-driven approach. Companies whose 3PL selection process is driven by the Procurement Department may want 3PLs to include only the cost for task execution in the quote. But thinking requires time, as well. These companies may balk at the inclusion of industrial engineers in the quote, whose job it is to re-think processes and increase throughput with the same or fewer people.
• Changing retail requirements. In the CPG space, 3PLs are constantly changing up warehouse processes to match retailer needs. New, automated processes can actually limit this ability to change. Machines are designed to automate a process in a particular way. But if, for instance, the customer requires a different pack-out process, the chosen equipment may not be able to flex with the process.
• Distribution network changes. The cost of a customized, build-to-suit distribution or packaging operation could require a 5-to-10-year amortization period. But the number and location of your retail and consumer customers will likely change significantly during that period, requiring a redesign of the network.

Partnership-driven 3PL innovation

Technology. Ingenuity. Investment.

We’ve used all these words to discuss aspects of 3PL innovation. But the most important factor of all – the most important prerequisite for realizing the benefits of innovation – is partnership.

Logistics innovation can be a powerful, game-changing force. It is most powerful when it solves specific customer problems in collaboration with the customer’s team.

In one recent example, pandemic-related social distancing required that KANE reduce the output of a packaging line. To match, and ultimately exceed, the original throughput, KANE made a significant investment to add automated case erectors and case sealers at the end of each line. KANE also added 50 feet of conveyor at the front of the lines, plus custom-made physical barriers along the lines, to return to a fully staffed operation with proper safety protocols. Result: a 26% productivity increase.

At KANE, we are constantly innovating, but always to solve a customer challenge. And our best results are achieved when we work jointly with the customer team to achieve a shared goal.

A close customer-3PL partnership is a key to:

• Fueling innovative thinking
• Speeding approval of needed investments
• Carefully measuring results and determining the ROI

In the end, it’s about culture

If innovation is a key factor in your selection of a 3PL, look for a partner that 1) will invest the time to understand your business and your logistics goals, 2) has a customer-centric culture focused on continuous improvement, and 3) has the engineering, technology and operational expertise to bridge the gap between where you are now and where you want to be.

As logistics professionals, we need to be always looking at the horizon and the new technology that can help us create more efficient operations. But you need to deploy technology at the right time, in the right way.

The right 3PL can help you do both.