3PLs Accept the Challenges of e-Commerce Fulfillment
Omnichannel fulfillment is the fastest-growing segment of the third-party logistics (3PL) industry. To stay competitive and meet increasing consumer expectations for on-time and accurate deliveries, many e-commerce retailers are tapping 3PL providers to supplement their order fulfillment capabilities. But as 3PL providers inherit many of the same market challenges faced by their retail customers, many are accelerating their transitions to automation and digital technologies.
3PL leaders in this sector are offering a full spectrum of mission-critical supply chain capabilities, including:
- Order management and fulfillment (picking/packing/shipping)
- Reverse logistics (returns)
- Product packaging, assembly and kitting
- Information technology (IT) services
Shouldering the burdens
As 3PLs help companies shoulder the burdens of competing in the e-commerce space, they’re encountering many of the same challenges — while being held to much higher standards.
- Labor shortages — booming e-commerce growth is only making the impacts of labor shortages more acute. In the warehouse and fulfillment sector, this growth is outpacing the U.S. labor pool by a ratio of 6:1. 3PLs have historically been reliant on labor to meet service contracts; they’ll need new strategies to address this shared industry challenge.
- Consumer expectations — service level agreement (SLA) and consumer expectations are increasing proportionately with the growing demands of e-commerce. The table stakes of joining the e-commerce game require faster (even same-day) delivery and low shipping costs to preserve shopping cart sales.
- Contract terms and KPIs — entering the e-commerce arena requires a long-term operational commitment, and many retailers are seeking longer-term contracts from their 3PL partners. Terms of these contracts are holding 3PLs to higher standards and specific SLA and key performance indicator (KPI) metrics, such as: achieving higher order volumes and throughput; ensuring on-time deliveries; and maintaining 99.8 percent order accuracy.
3PL, expand or bust?
For many companies, 3PL outsourcing represents the most viable alternative for dealing with e-commerce fulfillment pressures. Rather than incurring the expense of expansion or establishing all-new distribution center operations, retailers are partnering with 3PL providers to assume responsibilities and related costs.
Forecasters anticipate the development of 225 million square feet of new warehouse space in 2019, and 3PLs will comprise a significant portion of this investment. Meanwhile, warehouse rental rates are on the rise as the amount of available space to rent continues to shrink.
Making the transition to automation
As a result of all these factors, the 3PL omnichannel sector is becoming as competitive as the e-commerce retail market. Leading distribution and fulfillment 3PLs are moving away from traditional transactional relationships to long-term partnerships that suit retailers’ diverse e-commerce objectives. They’re also realizing that labor alone is no longer viable or cost-effective to meet these requirements.
To attract and secure long-term retail contracts, 3PLs must quickly adapt and become more automated. This can be difficult for some 3PLs to embrace, as transitioning represents a significant paradigm shift for an industry that has traditionally relied on mostly manual labor.
My next blog will look at some of the leading automation technologies 3PLs can utilize to meet the terms of their e-commerce retail contracts. Read our white paper to learn more about how 3PLs are making the transition to automation technologies.