Editor’s Note: Today’s blog is a guest blog by our friends at 2 Flow. In this blog, they discuss everything you need to know about a 3PL business.

What is 3PL?

There are several definitions of 3PL. These include: 

3PL Services: What is Provided?

3PL Services: What Is Provided?

 
All of your logistics requirements should be taken care of with a full-service 3PL. These services include:

Warehousing

Although many merchants might not have a physical shop, physical goods have to be stored at a specific location. Typically, a 3PL business will take care of your warehousing necessities. In order to efficiently run a warehouse, the 3PL will invest in the necessary technology and space. In general, warehousing by a third party provider is more cost efficient . This is because they are able to spread their overheads over several clients.

Supply Chain Management

To have a successful business, you need to have a well-maintained supply chain . Therefore, if your inbound freight delivery specifications are taken care of, 3PL has done its job!

Order Fulfilment

It’s important to note that order fulfilment isn’t merely making sure that the specified goods reach the buyer. Nothing is done if a business has not fulfilled their orders . E-commerce is often plagued with invalid order fulfilment . The goods that reach the customer must be :

Consolidation Service

Consolidation service is one of the many services delivered by a 3PL provider . Typically, eCommerce suppliers send many small goods to the same, exact location. In this situation, if all the small goods are consolidated into one shipment – the shipping charges are then considerably lowered. A service provider that sends various small packages as one larger package is known as a consolidation service . It is also referred to as a cargo or freight consolidation . 

5 Reasons to Use a 3PL Business

Why Use a 3PL Provider?

 

There are lots of reasons why a company might turn to a third-party logistics provider. Here are the five main reasons :
Reason #1
To provide supplementary supply chain support to test out new regional countries or markets where your company does not currently have a presence . This can be done without having to open a new distribution centre .

Reason #2
Companies with seasonal businesses can use a 3PL provider that allows you to scale your labour, warehousing space and transportation to provide full support during your busy business months while scaling back during slower months .

Reason #3
Using a third party logistics provider that has higher quality technology and processes than your in-house operations  will help realise efficiencies with the management of your inventory and increase on-time performance .

Reason #4
By employing a third party logistics provider, you can take advantage of lower transportation rates that are provided by the 3PL firms . These firms have substantial buying power as a result of their ability to leverage load consolidation , backhaul opportunities and the volume of freight they deal with .

Reason #5
With lower risk, you can quickly build a multi-location distribution network. This can be done without the major capital investment that is often associated with building out your own network . Full support during your busy business months while scaling back during slower months .

Reason #3
Using a third party logistics provider that has higher quality technology and processes than your in-house operations  will help realise efficiencies with the management of your inventory and increase on-time performance .

The Benefits of Using 3PL

The Benefits of 3PL

 

Some of the many benefits of using a 3PL provider include:

With faster shipping times, the relationship you have with your customers is improved. The fast and efficient service your customers receive can, therefore, increase your returning customers. 

Depending on your type of business, 3PL allows you to scale back your operations over varied time frames. For example , if your prime business time is at Christmas, using 3PL will allow you to increase the scale of your business during this busy time period and reduce the size of your operations during the summer months.

3PL service providers have a large resource network in comparison to in-house supply chains . This improved resource network allows your business to be more efficient (as well as save costs) at every part of the logistics process . This also allows the 3PL provider to optimise each step of the supply chain which will allow the overall service to be faster and more effective.

All that is required with 3PL is entering your order, exporting it and importing the 3PL warehouse information . When you use a 3PL provider, you no longer need to invest in several areas of your business . These include billing, training staff, audits,transportation, technology and warehouse space. 3PL providers can help your business avoid expensive 
mistakes – you will have a higher return with lower risk .This can help your business build a global logistical network at a fraction of the cost . 3PL is quicker than in-house fulfilment .

In logistics, software, hardware and equipment are constantly being upgraded.Third party service providers are continuously educating themselves on the latest trends and emerging technologies within the logistics industry . 3PLs employ advanced monitoring and reporting techniques to track and manage your inventory which ensures the most efficient service possible . By outsourcing your logistics services , you have time to concentrate on the other elements of your business .   

The flexibility to respond quickly to varying business environments and peak periods as well as fluctuating market trends without major disturbances to distribution operations is a huge benefit of 3PL . 

Types Of 3PL Providers

If you decide to use a 3PL business, you must decide which 3PL provider suits your needs . The three types of third party logistics providers are :

These companies use their own warehouses , lorries and personnel to operate their business .

These companies offer the managerial and technological aspects needs to operate the logistics functions of their clients. They do this by using the assets of other companies – they do not necessarily own any assets.

These companies are usually either management or asset based. In general, they supplement their services with the specific needs that are required by their clients .
out major disturbances to distribution operations is a huge benefit of a 3PL business.

How To Choose The Right 3PL Provider For You

Choosing The Right Third Party Logistics Provider

 

Choosing a 3PL business can be difficult – there are so many dynamics involved in making sure you have chosen the right provider before you even begin to work together. Before you start your search for a new 3PL business, ensure that you determine your own needs first. By conducting advanced research on your potential 3PLs that fit your requirements, you will ensure that you have the right provider for your business. By gathering information within the below three areas, you will be able to define your needs:

Analyse your accounts and look at your current performance.
Outline your current supply chain costs.
Examine your existing carrier relationships and advances and/or allowances that might be made in the future.

You then need to ask the 3PL provider for a request for information (RFI). The RFI is a detailed plan that the service provider has for your business. The RFI should include a thorough description of the areas to be outsourced. It should include:

•The scope of the contract
This should include the locations, amenities and departments of the 3PL business.

•The level of performance that is required

•Information on volumes involved
Including the warehouse sizes, the number of deliveries and number of items.

•The logistics tasks that will be undertaken
Including warehousing, transportation, etc.

Questions To Ask Your 3PL Provider

What To Ask Your 3PL Service Provider

 

It’s important that you ask your third party logistics service provider the following important questions before making your final decision:

With the emergence of new digital technologies and real time information update and exchange through web-based devices, eLogistics have transformed the traditional methods of transportation and trade logistics with integrated applications and the use of software means to enhance the commercial trading process. Several technologies are being developed to conduct international transactions and keep track of their shipment, while negotiating with freight companies, retailers and suppliers, the following come into play for the effectiveness of eLogistics:

elogistics img 1

Freight Forwarding Management Systems

It is necessary to implement web-based tracking of your shipments which also makes it easier to handle complicated international shipments and keep track of their locations and the time duration which they would eventually take to reach their destination.

Data Interchange in Real Time

The on-going data exchange in real time which involves the transmission of trade and custom documents digitally among different stakeholders of the supply chain and logistics so that all the necessary logistics transportation and make haste to reach their destinations and deliver without causing any delay for the international trade business.

Transportation System

It is necessary to implement effective transportation system and network by large distributors who handle shipments in high bulk volumes for both domestic and international shipment traffic. With an electronic digital system; transit time and duration can easily be calculated, stakeholders can assess an overall transportation strategy to make amendments. In this way, stakeholders can make the best use of the available information and decide upon preferred carriers, trucks or trailers based upon the shipment specifications, destination and freight charges.

Logistic industry experts have termed the use of internet for eLogistics as an effective and efficient medium to exchange information among different stakeholders and thus have increased the productivity of logistics solutions which also reduces the overall additional transportation costs.

Integrating eLogistics for the Supply Chain Process

The use of eLogistics in the supply chain process can transmit and exchange information not only to the carriers but to business managers, suppliers, clients, retailers and freight forwarder. It simplifies complicated processes for handling complicated bulk shipments and consolidates transportation carriers to adapt easier routes and easily track and trace their whereabouts and maintain the communication process for custom documents, bills, certificates, email documents and transportation carrier rate quotations and schedules.

Warehouse Management Processes

ELogistics also simplifies processes for storage, stock keeping, movement and replenishment of the shipment load, keep track of mixed items, locate difficult shipment orders and the reporting and counting of inventory. With proper SKU reference coding and integrating the information software can make it available for other stakeholders with the use of internet.

Ultimately, the impact of internet and eLogistics has made trade and logistics complicated processes much easier and simple for freight management services, where business managers link all important aspects of the supply chain process and make necessary considerations for the best practices in logistics or freight services.

 

Check out the below infographic on the importance of eLogistics.

elogistics infographic

Today’s logistics empire is not your grandfather’s or even your father’s logistics operation. Consumers are expressing an unprecedented amount of power through eCommerce, and in fact, eCommerce logistics is growing increasingly reliant on small parcel and package delivery options daily. Meanwhile, eCommerce is catalyzing significant changes in retail real estate as more companies vie for warehouse space and transportation services to meet a growing number of online orders, explains Alexander Frei and John Morris of Area Development. But, the changes are not limited to warehousing, and you need to understand how they will impact the modern supply chain.

Warehousing Expansion Is a Must.

In 2011, eCommerce represented a fraction of overall retail operations. But, by the end of 2012, eCommerce logistics had grown to 5 percent. Today, eCommerce is the primary driver of small package logistics. More importantly, small packages make up $82.2 billion of the logistics industry, and that number will only grow from here. As a result, more incoming orders and greater order diversity naturally requires increased numbers of warehouses. Fortunately, some shippers have a plan for enhancing warehouse usage.

Warehouses Renew Focus on Inventory Control.

The simplest way of making a warehouse run efficiently is by managing inventory better. At the same time, more warehouses only mean more products can be stored. They do not mean more packages can be sent. So, the only solution to better managing inventory for eCommerce is by changing the internal layout of a warehouse, reports Inbound Logistics.

Employees need to be able to access a variety of products with the shortest travel distance. Consequently, warehouses are creating new picking procedures and using advanced software systems to automatically identify what items should be picked in a given order.

For example, some warehouses are keeping a huge variety of products within small areas of a warehouse, allowing for the rapid picking and packaging into small parcels. The short bin-to-package distance enables workers to pick more products, and in some cases, robotics are being deployed to further enhance the number of picked orders. As a result, warehouses can ship more packages.

Predictive, Real-Time Analytics Are King of eCommerce Logistics Strategy.

 Analytics are critical to helping warehouses and shippers determine the fastest routes to get products to customers. However, actual transportation represents a small portion of areas that need to be analyzed. For example, the location of distribution centers impacts the distance between warehouse and consumer. Yet, warehouses cannot be conveniently located in every region, or can they?

The eCommerce consumer expects free shipping, fast delivery, and hassle-free returns, asserts the Eli Broad College of Business at Michigan State University. Therefore, traditional warehouse and distribution center models are being abandoned in favor of smaller, localized regional centers to handle specific markets. But, this brings back the fundamental problem of small packages that many shippers experience; small package shipping tends to be labor-intensive and costly.

Logistics Providers and Truckers Move to 3PL-Based Operations.

Third-party logistics providers (3PLs) offer significant advantages to shippers and retailers engaged in eCommerce. In addition, many retailers lack the resources and equipment to provide low-cost shipping and returns processes to their eCommerce consumers. As a result, shippers and retailers have turned to 3PLs to provide expanded resources, web analytics, increased visibility of shipments, handling of web orders and web portal needs, and technology-based picking for eCommerce orders, such as robotics and low-energy sensors.

Existing fleets are also stretched to the breaking point. The capacity crunch seems to be only growing worse, and the major carriers have already taken steps to increase rates for 2016 and beyond. Yet, dimensional pricing models are starting to make shipping high-volume, low-weight products costlier than high-weight, low volume products. Unfortunately, the only way to stay competitive with the major carriers is by having access to discounted, negotiated rates through a 3PL.

International Shipping and Fulfillment Processes Are Getting More Complicated.

eCommerce logistics is not just a big deal for shippers and retailers in the U.S. According to Athira A Nair of Your Story, eCommerce in India is expected to be valued at more than $220 billion by 2025. Yet, the whole value of the logistics empire in India as of today is only $300 billion, with an annual compounded growth rate of 12.17 percent until 2020. Consequently, the overall value of the logistics market in India could easily double in size by 2025, and other markets around the world show similar trends, explains Patrick Burnson of Logistics Management. So, the problem starts to arise when more companies seek to keep shipping costs down in an international eCommerce market.

Fortunately, 3PLs have large global footprints, capable of organizing and adapting to the growth of eCommerce logistics across international borders. This will help to avoid customs’ delays and problems when moving across international and geographic boundaries. Since the majority of online sales are shipped via small package, having the ability to convert small package to LTL or to full truckload is essential to keeping up with the demand and pressures of lower prices. In other words, the vitality of a 3PL is necessary if today’s eCommerce businesses hope to survive throughout future growth of online sales and distribution.

eCommerce logistics is only going to continue to influence logistics operations around the globe, and many businesses will unlock huge markets and tap into new resources through the expansion of eCommerce. However, these businesses need to understand the current state of logistics in eCommerce in order to prepare for the ecommerce needs of the future.

We continue our series on the top 5 blogs in our 4 main categories (Freight, Manufacturing, Logistics, and Supply Chain). Our first post covered the Top 5 Freight Management blogs of 2016. Today’s post will cover the top 5 logistics blogs from 2016 so far. I encourage you to scroll through the main four categories blogs or the Cerasis blog in general so you can catch some great content. We try and post one blog post per day in these categories, but we also have sub categories as well. You can view all of our categories by using the drop down menu on the right side of this blog post about halfway down. There is some really great stuff not only by the Cerasis staff, but also a number of guest bloggers.

If you would like to contribute to our blog, which now boasts over 124,o00 readers, let us know by emailing us at info@cerasis.com or saying so in the comments below.

Top Logistics Blogs from the First Half of 2016 So Far

It was clear that the logistics blogs category most top viewed blog posts from the first half of 2016 included many aspects of logistics. From Third Party Logistics, Warehouse information, Technology, and KPIs. It was also evident that many folks wanted more information around KPIs and Metrics, as our top 5 included two posts from this sub-category.

Here are the 5 top Logistics blogs from the first half of this year by page views, with the most list first.

1. [e-Book] The Ultimate Guide to Manufacturing, Supply Chain, Logistics, Transportation, & Freight Metrics & KPIs

Business practices have become synonymous with the application and collection of data for continuous improvement. However, most of today’s data goes unused and represents a lost opportunity to the company. Unfortunately, data lacks value if not properly cleansed, transformed, and applied. Furthermore, some data may be of minimal use without comparison to and identification of trends and collaborations between data from other transactions within a given warehouse or transportation system.

To survive in an increasingly complex, data-driven world, businesses must be ready to implement new “Big Data” solutions to ensure all data is aggregated, analyzed, and stored appropriately. Businesses are often left with questions about the origination of such data. Take a look at how a business can use technology, metrics, and services to improve transportation processes, which range from supplier shipping to route optimization. Get Your FREE eBook Here

2. Warehouse Statistics and KPIs Every Logistics & Warehouse Manager Should Know

When discussing warehouse statistics many key performance indicators are mentioned. Stock movement, order duration times, utilization of equipment and personnel, error rates and many more.

So what are the most important figures needed to run a warehouse?

Depending on the warehouse design and complexity there are at least a hand full of statistics that any manager needs. Read the Full List of KPIs Here

3. Embedded 3PL Relationship: What is it & Why is it Vital to Ultimate Shipper Success?

Like any outsourced partnership to a service and technology provider, such as in a 3PL relationship, it is vital that all sides are on the same page and speaking the same language in the way of goals, desired outcomes, strategy, and execution for whatever the customer and the outsourced provider are trying to achieve. This model, I like to call an “embedded 3PL relationship.” Read More About the Embedded 3PL Relationship Here

4. Current State of the Logistics and Freight Economy

From cloud-based systems to transportation management, the state of the logistics industry is evolving to expand an increasing number of services. Meanwhile, the overall capacity of shipments is climbing higher, reports Jeff Berman of Logistics Management, and the driver shortage is becoming more essential as full truckload shipments decrease. Although an initial view of the logistics and freight industry seems stale, it represents how the flow of goods and services are sprouting and delivering more with fewer resources. Take a look at some of the most compelling factors that are playing into the current state of the industry. Read The Full Post Here

5. 3 Logistics Technology Trends in 2016: Automation Leads the Way

Innovations in technology are changing how the world does business, and technology is dramatically changing how entities in the logistics industry function in nearly every aspect. From increased affordability and efficiency of the transportation management system (TMS) to the application of Bluetooth technology for superior tracking of product movements, 2016 will be the year in which technology becomes an integral, if not the exclusive, part of the shipping process. Now, it’s easy to think of technology as being a manufacturer-only realm. Yet, technology breakthroughs are further pushing the bounds on what we see as normal shipping standards. Let’s take a look at what logistics technology trends will become the dominant factors of the logistics industry for 2016. Read More about the Current Logistics Tech Trends Here

What are your top logistics blogs to read? Let us know in the comments section below!

2015 was a different year for the logistics industry. For the first time in more than 10 years, the Federal Reserve took the initiative to slightly increase interest rates, but the hopes for a robust start to 2016 were quickly dashed. The prices of fuel continued to drop, and growth in the logistics industry slowed to a painstaking crawl of less than So, let’s take a closer look at what findings were released within the 2016 State of Logistics (SOL) report and how they impact current and future logistics processes.

Slow Growth Rate and Low Percentage of GDP.

The logistics industry had become accustomed to a steady compounded annual growth rate (CAGR) of approximately 4.6 percent annually between 2010 and 2014. Yet, the CAGR of 2015 fell by 2 percent. As a result, logistics in the U.S. made up only 7.85 percent of the gross domestic product (GDP) of 2015.

This decline was not solely indicative of problems within the industry. Instead, annual transportation costs rose continued to rise by 5.5 percent. In other words, the industry would have grown by 12.1 percent if inflation had not significantly impacted expenses. In fact, logistics costs were only $1.48 trillion in 2015, compared to $2.15 trillion in 2014. As a result, more logistics operations will be more carefully monitoring their expenditures in the coming months to further the trend.

Compared to global GDP of countries with immature or novice logistics operations, the growth of logistics costs in the U.S. are significantly less. Although the overall GDP percentage of the U.S. logistics industry is not as much as it once was, it has remained relatively stable within a 1-percent margin over the last 10 years. The following graph from the 2016 SOL reveals how logistics as a percentage of U.S. GDP has changed since 2006

Graph of US Logistics GDP Since 2006

Transportation and Storage Cost Insights From the 2016 State of Logistics.

Changes in transportation and storage of inventory costs made up significant portion of the 2016 SOL. Overall transportation costs rose by 1.3 percent between all possible modes. However, less-than-truckload shipping revenue rose 7 percent and small package shipping rose by 8 percent. Meanwhile, full truckload (FT) revenue increased by 3 percent, and intermodal revenue rose 2 percent. However, ocean and rail transport saw significant decreases in previous demand, but these modes still managed to see slight growth of 2.1 percent. Unfortunately, the demand for coal fell nearly 12 percent in 2015, pushing overall demand for shipping down and accounting for the low average of growth in transportation costs.

Inventories are a major issue analyzed by the 2016 SOL as well. While inventories had steadily grown since 2005 at 5-percent annually, growth of inventories in 2015 flattened out. Yet, the inventory cost increased in 2015 by 5.1 percent due to a rise of 42 points in weighted average cost of capital. In other words, even though the actual amount of inventory started to decrease, changes how the growth was calculated resulted in the appearance of a growth of inventory on paper. In terms of physical requirements, inventory levels remained the same as 2015.

Small Package and Express Sectors of Logistics.

As explained by the high-than-average growth rates in small package and parcel shipping in 2015, the parcel and express sector of the industry shows the most promise for continued growth throughout 2016. As of now, the parcel and express sector represents approximately $82.2 billion of the logistics industry. Meanwhile, third-party logistics providers have also entered the equation into how the future of the logistics industry will evolve.

3PLs in the 2016 State of Logistics.

The hallmark of 3PLs within the 2016 SOL is technology, efficiency and advancement. Technology from 3PLs now accounts for 11 percent of all U.S. logistics costs at approximately $196 billion. Moreover, information technology (IT) developments by 3PLs are expected to increase steadily through 2018 at an annual rate of 5.6 percent. Yet, actual investments into IT could easily exceed these predictions as newer technologies are developed and deployed throughout the supply chain. For example, blockchain technology may significantly change the amount of revenue spent on IT needs in the next few years.

The 2016 State of Logistics Report revealed many pain points faced by the logistics industry in 2015, but its insights lack value if not applied to your organization. Due to the FAST Act, the logistics industry will receive a sum of approximately $900 throughout 2016 to help combat rising costs through better roads and infrastructure.

Regardless of current shipping and logistics practices, you need to understand what the findings of the report mean for the industry. In other words, you can leverage the information within the report to create a more productive second half of 2016 and prepare for a better way to meet the needs of customers without increasing costs. For more in-depth information about the contents of the 2016 State of Logistics Report, watch the following video from the Penske Logistics Official YouTube Channel.

 

The benefits of outsourcing logistics processes to a third-party logistics provider (3PL) are well documented. As the world’s economy has become increasingly complex, it has become impossible for a single entity to control all of the warehousing, transportation and administrative tasks that come with shipping and managing inventory. For this reason, more companies are turning to 3PLs to help with cost reductions and overall management of supply chain processes. However, organizations must be careful to ensure they do not overstep their bounds before, during and after selecting a 3PL.

For example, a complete legacy warehouse management system may need to be significantly updated in terms of technology and physical space before integrating with a newer, more comprehensive system. Ultimately, the decision to outsource should not be taken lightly, and company executives need to understand a few facts before outsourcing and a few considerations when selecting a provider. This is the only way to make sure outsourcing benefits a company.

Basic Facts to Understand Before Outsourcing Logistics.

Know What Services You Need to Outsource.

Many 3PLs have extensive offerings, and you need to know what services will and will not improve your existing operation. In other words, you must understand what needs to be improved before considering outsourcing. Create a list of services you offer, and define what services you would like to have. This may include the following:

Omni-Channel Globalization of the Supply Chain Requires More Contacts and Options.

Small to medium businesses routinely operate in local or regional spaces, but as the world grows more interconnected, you need to look beyond your optimal service area. This helps you grow your business, and a 3PL can provide you access to resources that you may have never even considered as needing improvement, explains industry expert, Frank Castiglia. Essentially, a 3PL expands your access to other service providers, and the third-party nature of operations helps all partnered businesses gain a competitive advantage and other benefits.

Don’t Expect More Than Reasonable.

The third core concept involves how a 3PL can reasonably improve your operations. This seems redundant, but many companies fail to realize the limitations of a 3PL. 3PLs have limits, and while some may be able to provide access to fast-track programs for customs processing, there will still be some delays. The key to truly taking advantage of a 3PL is knowing what is and is not reasonable, and if you can make this distinction, you can be ready to start the process of looking for and selecting a 3PL to outsource logistics.

Critical Things to Know When Considering Outsourcing Logistics.

Once you’ve made the decision to outsource, it can feel like a turn-key operation. However, your input is still greatly needed and helpful, and you should look to a 3PL as a new employee, not just a service provider. As a result, you need to consider four aspects of 3PL practices before making a final selection.

3PLs Aren’t Designed for Short-Term Benefits.

The best 3PLs in the world cannot help a financially bankrupt or consumer-ousted organization. As explained by Leslie Hansen Harps of Inbound Logistics, there is no guarantee that outsourcing will be successful, but you will never know if you only stick to outsourcing for short-term gains. Your company needs to understand the benefits of a 3PL are seen in long-term execution. You may not save money in the first few weeks, or even months, but the savings will start to roll in when your inefficiencies have been addressed and your opportunities have been widened.

3PLs Focus on Long-Term, Mutually Beneficial Business Strategy.

Although it may appear holistic and thorough, outsourcing is not a business strategy. It only makes up a portion of your business strategy, and you need to define your own business strategy to be successful. The key to making this work is aligning your business strategy with the long-term strategy of your 3PL. Moreover, you should look for a 3PL that has similar values and strengths that you listed as services you want to offer.

There Are Many Different Types of 3PL Services.

The hundreds, if not thousands, of logistics outsourcing providers. They come in all shapes and sizes, and you must not be willing to ignore any of them. You need to give all 3PLs an equal opportunity to work with your company. This does not mean you have to sign contracts with each, but you do need to pay attention to what services each provider may offer. Look at the whole picture, and select a 3PL that goes just beyond what you actually need. In addition, make sure your partnered 3PL offers one-stop solutions. In other words, you should be able to complete all of your outsourcing requirements with one company that can connect you to other partners if needed.

3PLs Are Ineffective Without Collaboration.

Outsourcing can take much of your burden of work off your shoulders. But, this is not an excuse to stop working for your organization. The 3PL may be effective at managing processes and identifying ways to save, but you have the most power to leverage. You can define what is and is not working for your employees’ sense of direction and ability. For example, a 3PL can provide you with plenty of metrics, but if your employees hate a specific process, you need to let the provider know what is happening. Ultimately, you become a more important part of the supply chain’s chain of command by acting as the bridge between your company and the 3PL. As a result, you must collaborate on both sides of the bridge to ensure all parties gain a positive return on investment for the creation of the business relationship.

Outsourcing logistics is a great opportunity for your company, and it can provide you with a way to grow your business beyond your expectations. However, not all businesses are ready for the expansion and capability granted by outsourcing. Fortunately, you can help prepare your business for outsourcing by understanding where you stand now and how to be realistic in your expectations when outsourcing logistics. Outsourcing logistics makes sense for many businesses, but it would not make sense if your business is incapable of considering what is and is not likely to occur.

 

 

Gainsharing has been a topic of both criticism and acclaim throughout the business world, and the same is true for gainsharing in logistics. Initially, gainsharing seems like an amazing means of growing your business, but it can prove to be exceedingly difficult to manage and even more difficult to profit from.

Gainsharing comes with its share of benefits too, and more logistics services providers are starting to use a newer pricing model, Vested Outsourcing, in place of rigid gainsharing models. Yet, the fundamental ideas remain similar and different concurrently, and as a shipper, you need to understand what gainsharing is and is not, how it can impact your business and what it means for the industry.

What Is Gainsharing in Logistics?

Gainsharing has been around in some form for ages. Basically, one person or organization agrees to split the profits of joint enterprises when a second partner does something to help the first.

Gainsharing in logistics is often used by third-party logistics providers (3PLs) as a pricing model. The initial investment is low as shippers do not have to pay significantly to start taking advantage of the 3PL’s services. However, gainsharing’s basic principle of “splitting the profits,” as explained by Art van Bodegraven and Kenneth B. Ackerman, may make some shippers hate their pricing models when it is time to do the splitting.

Many shippers turn to gainsharing pricing models because they require little initial investment, but the overall cost of a 3PL’s service through gainsharing could easily exceed the reasonable expectations of the shipper. For example, implementing process changes to save 30 percent would mean that the overall cost of the 3PL’s services would be an ongoing 15 percent of future sales. However, this additional growth could be gained from other sources, which is why some are turning to Vested Outsourcing.

Vested Outsourcing transforms gainsharing by making the process more visible and holding both parties accountable. Unlike gainsharing, the level of trust is defined by a continuing focus on improving all profits for the shipper using the services. This may include increasing technology, reducing the time required to complete workflows and managing shipments.

While these pricing models appear similar, they are not the same. In other words, the degree of work completed by the Vested Outsourcing partner is not as minimal as would have been normally seen in gainsharing. Furthermore, Vested Outsourcing uses real-time data to keep performance records and improvements on track and accessible. As a result, the shipper can more accurately determine the overall cost of using Vested Outsourcing services in both short- and long-term scenarios. In gainsharing, the costs are almost always focused on immediate costs and profits, but Vested Outsourcing goes a step further by keeping the partnership together even when the initial profits have been divided.

The Benefits of Gainsharing.

The primary benefits of gainsharing are simple to understand. A gainsharing partner provides a service, technology or methodology for a shipper to use. In some cases, the service provider may help deploy these services, and a quick return on investment is achieved once savings are realized. The provider receives a share of the shipper’s profits, and the growth of both entities increases.

Another benefit of gainsharing is that it would seem to improve accountability. Having two organizations mind data and information would naturally lead to more check points and opportunities to uncover ways to save money for an organization. However, the tendency to “cut and run” with a shipper’s profits make this benefit difficult to achieve. Once the provider has received payment, it is the opportune time to leave the shipper to fend for himself. Unfortunately, these systems and processes are left unattended and unevolved, making the shipper vulnerable to future problems, in this pricing model.

The Drawbacks of Gainsharing.

Gainsharing in logistics is fundamentally an incentive-based pricing model. Yet, incentive-based pricing models have been under scrutiny for being ineffective, explains Supply Chain Digest. For example, an employee may not have incentive to work better and use newer processes if a few other employees simply do not take interest, asserts Joseph O-Reilly of Inbound Logistics. Essentially, all the work falls to those who are most productive, and while an incentive may be achieved, some workers may feel that others can make up for their inept work ethic.

That example just seems wrong, but it is the exact reason that gainsharing has drawbacks. Traditional gainsharing pricing models are not usually capable of monitoring individualized results and providing incentives in a time that makes changes in processes worthwhile. Moreover, gainsharing in logistics has cost and visibility drawbacks. A shipper may spend more on gaining limited benefits from a minor gainsharing approach, and the cost is not easily determined since it relies on final measures of improvement over large time periods.

The only way to guarantee the future of a successful business partnership through gainsharing is by abandoning the primary principles of this pricing model in favor of a mutually beneficial, detailed and written agreement. Additionally, ongoing re-evaluation and a focus on individual incentives are necessary to ensure both parties increase their focus on improving the needs of the shipper. In other words, the gainsharing pricing model loses it characteristic traits and becomes a new, visible and trusted pricing model.

The Big Picture.

Gainsharing in logistics can be both positive and negative for the logistics industry. However, increased demands from customers and stakeholders are transforming how, when and why some shippers may turn to gainsharing pricing models. In addition, the decreased visibility of gainsharing pricing makes them unattractive to many shippers, and if you were to blindly enter a gainsharing agreement, you could end up losing more money than you would if you looked for ways to increase efficiency internally.

Fortunately, you can make sure you do not give up more control if you know how to structure a gainsharing pricing model in a way that transforms it into a lucrative and mutually beneficial scenario. As a shipper, you need to know what the pricing model is, what it’s expected cost will be and how it will continue to benefit your organization in the long term. Ultimately, gainsharing is bad for most businesses, but if you can make sure your investment makes both parties vested in long-term success of your enterprise, you can transform the process into something beyond the limitations of gainsharing, a trusting, mutually beneficial and ongoing partnership for success.

From cloud-based systems to transportation management, the state of the logistics industry is evolving to expand an increasing number of services. Meanwhile, the overall capacity of shipments is climbing higher, reports Jeff Berman of Logistics Management, and the driver shortage is becoming more essential as full truckload shipments decrease. Although an initial view of the logistics and freight industry seems stale, it represents how the flow of goods and services are sprouting and delivering more with fewer resources. Take a look at some of the most compelling factors that are playing into the current state of the industry.

1. Less-Than-Truckload Exhibits Growth Despite Limited Industry Growth.

Moving as much product as possible is critical to continued growth in the industry. However, recent years have seen more shippers turn to less-than-truckload (LTL) and freight consolidation with full truckload (FT) to reduce the number of trucks on the road. Many of these trends were in response to unforeseen surges in fuel costs and regulatory fees, but lower fuel charges over the last year have helped to reduce the urgency to avoid FTs at all costs. Instead, today’s shippers have found the overall savings can be achieved through a renewed focus on using LTL and freight consolidation to enhance the amount of product moving to diverse places.

It would seem as though all FTs are being eliminated, yet this is simply not true. FTs continue to make up a vital part of the industry, especially for shippers who need to move large volumes of product across vast distances. The key to understanding this symbiotic relationship lies in how the behaviors of today’s consumers. As more customers order more products online and through omni-channel solutions, the need to reach a wider market will subsequently increase. However, each customer or retailer may not be able to justify the costs of purchasing a FT of a shipment, which would leave the original seller with a loss. Therefore, the sellers must keep their minds open to how competition among shippers can help the industry grow, even if it is minimal when compared to the records of the past.

2. Shippers Are Facing More Competition.

Competition is a healthy part of any industry. It enables the production to keep prices low by making each entity accountable to the end users. With the expansion of the industry in the past few decades, especially during times of record-breaking growth, as explained by the 2016 Third-Party Logistics Study, more third-party logistics providers (3PLs) have risen.

Emerging markets are driving shippers to consider the political, environmental and consumer-driven demands of new areas. Unfortunately, the focus of shippers has shifted away from any 3PL to the best 3PL. So, the conversation needs to turn toward another aspect of how 3PLs influence the state of the logistics and freight economy, digitization.

3. 3PLs Expand Services Further.

We know Big Data and analytics are game-changers, asserts Russel Reynolds Associates, but what are they actually changing? Some common benefits include:

Major players have used These technologies for years. However, it was not until cloud-computing capabilities dawned that smaller entities could actually influence the market. In other words, smaller players in the market mean larger entities need to focus more on how to squeeze greater profits out a stretched operation. The answer to the problem was already in work when 3PLs began to ponder the ideas of value-added services (4PLs).

Unfortunately, value-added services are something that cannot simply be instilled without work. They involve the use of low-energy, connected devices, which are then paired with the technologies of the Internet of Things, and radio frequency identification (RFID) measures to gain greater visibility, which helps the supply chain learn how to adapt in real time. As a result, supply chain entities can eliminate any fat to reach an unparalleled level of lean and agile processes. Unfortunately, the problem with much of today’s supply chain rests on traditional operations.

When executives in the supply chain were reviewed for capability in the digital supply chain, most respondents fell short. Either they did not understand how their operation was involved in a digital process, or they were incapable of discerning what digitization means. Therefore, the role of the 3PL is starting to encompass teacher and trainer, as well as provider. This will only serve to help the current state of the industry continue on a slow path toward growth. However, the issue of drivers’ needs must also be considered in today’s supply chain.

4. The Demands of Today’s Drivers.

The supply chain of 2016 is not completely operated by robots (at least not yet). So, the biggest question about the state of the industry needs to think about who is getting products from A to B—drivers.

The driver shortage is evident, but the actual number of driver positions is climbing. Shippers are dealing with lost costs on 75 out of 500 trucks without an adequate number of drivers. Having the fleet in place is one step, but how do today’s shippers entice the drivers to come back? Like many occupations, it goes back to satisfaction, appreciation and time.

Shippers are doubling down on efforts to make hauls shorter, which is catalyzing a stronger push toward LTL and intermodal shipping options. Since the number of options has increased, even though capacity while at work has not really changed, more shippers are turning to 3PLs to realize their full potential. For those entities who do work with 3PLs, approximately 93 percent of shippers-client partnerships are reported to be “successful.”

By reducing overall logistics’ costs, supply chain entities can devote more time and resources to creating a driver-conducive environment, which may include shorter drive-times, less time spent waiting on shipments and less stress on the operation. As a result, drivers will be more likely to stay with their current employers throughout 2016.

Think about another aspect of the driver shortage. 47 percent of all workers in the U.S. are female, and only 6 percent of trucks drivers are female. Meanwhile, the average age of today’s truck driver is 47. In less than 20 years, the average truck driver will be retiring. As a result, the need for more drivers is only growing more prevalent. Today’s shippers will need to start making millennials and second-career-goers see how beneficial a career in trucking can be. In other words, a small investment in diversifying truck drivers’ “load-scape” today could be the push the industry to meet the demands of the future.

Logistics and Freight Economy: Putting It All Together.

The logistics and freight industries of 2016 seem stale, but it is actually within the margin of error of record-breaking patterns in the past. The industry is experiencing growing pains, but even with trouble, growth is still occurring. The logistics and freight economy is evolving to include more factors than imaginable, and 3PLs are leading the charge to reclaim a better, more productive logistics and freight industry. By understanding the four major factors that are impacting the current state of the industry, supply chain executives and thought panels will be able to see what focuses can lead to stronger growth in the coming years.

Happy New Year! Since today is the last day of the year before we all get ramped up towards a productive 2016 and after finishing out top 10 most read articles in each of our five main categories (Manufacturing, Supply Chain, Logistics, Transportation, & Freight) we wanted to give you all a treat and list the top 50 most read articles of all time from the Cerasis blog.

When I hit publish on today’s blog, we will have published 659 blog posts on the Cerasis blog, with our very first blog post coming nearly 3 years ago to the day

If you are a regular reader (or heck even if you are not) what you will see from our blog is a focus on education. This is in part due to the fact that as a third party logistics company, focused on efficient and strategic transportation management solutions through technology and services, it is vital for us to educate our shipper customers and our team in order to continually improve and always provide value. 

We have also featured on our blog over 90 guest bloggers featuring voices from experts in all of the five main categories who have talked about such subjects as the Skills Gap, Reshoring, Technology, Innovation, STEM, the Maker Movement, Lean Manufacturing and Supply Chain, the Internet of Things, and much much more. I encourage you to use the search bar to the right or the blog category picker to explore many topics in depth. If you yourself would love to contribute your thoughts to our blog, feel free to contact us with an idea. 

We have also now published an e-book, put out several white papers, and held several webinars. By clicking on the respective links, you can access this information as well. 

50 Most Read Articles of All Time From the Cerasis Blog

We will feature the 50 most read articles of all time from the Cerasis blog by covering the 50th most read counting down to the most read blog of all time. We will simply list the blog title with a hyperlink for easy access. These 50 articles truly cover the gamut of our categories, but what is clear is that people love Infographics and they love trends. 

Without any more words or ado, here are the 50 most read articles from the Cerasis blog of all time!

50. 8 Most Common Reasons Why You May Receive a Freight Claim Declination Letter

49. Lean Initiatives: Understanding at a High Level & The Benefits of 5S

48. 9 Steps to Establish the Lean Supply Chain: A System of Interconnected & Interdependent Partners

47. [INFOGRAPHIC] Top 10 Logistics and Supply Chain Facts of 2014

46. 5 Advantages of Hiring a 3PL Provider for Outsourced Logistics

45. [INFOGRAPHIC] Expert Reveals 7 Supply Chain Trends to Watch

44. Why use a Third Party Logistics Provider and How to Implement a Successful 3PL Project

43. Marketing in Logistics: 4 Elements of the Market Research Phase in a Sound Digital Marketing Strategy

42. 6 Benefits of Logistics Automation in a Transportation Management System

41. What is Kanban and How Can it Aid in Lean Manufacturing?

40. Safety in Manufacturing: Learn the Top 5 Safety Manager Responsibilities & Never Take Safety for Granted!

39. Make Your Life Easier With These 5 Freight Bidding Platforms

38. Voice of The Customer: 4 Common Mistakes & How to Avoid Them

37. The Definitive Guide to Transportation Terminology to Stay on the Same Logistics Page

36. The Rise of Distributed Manufacturing and 7 Advantages over Traditional Manufacturing

35. 6 Effective Problem Solving Steps for Logistics, Supply Chain, Business, or Life in General

34. 3PL Pricing Structure: Part 2 In Third Party Logistics Implementation

33. Manufacturing Trends 2014: Top 10 Predictions from IDC Manufacturing Insights

32. 10 Ideas for More Efficient & Productive Warehouse Operations

31. Top 4 Manufacturing Issues in America – Part 1 of 2

30. Manufacturing Metrics that Matter Most: A Comprehensive Checklist

29. 5 Sweeping Technologies Rapidly Changing Paradigms & Execution of Manufacturing Processes

28. 5 Awesome Infographics About the Trucking Industry

27. The Impact of 3D Printing in the Supply Chain and Logistics Arenas

26. [INFOGRAPHIC] The Evolution and History of Supply Chain Management

25. The Future of Logistics: Are 3PL Companies Ready to Adopt these 4 Emerging Technologies?

24. What is Reverse Logistics and How Is It Different than Traditional Logistics?

23. New Hours of Service Rules Explained With Compliance Date Coming July 1, 2013

22. Non-Asset Based Logistics vs. Asset Based Logistics: What’s the Difference?

21. Transportation Metrics That Matter Most to Track and Improve Performance

20. Freight Bill vs. Bill Of Lading: Knowing the Difference Is Key to Effective Logistics

19. [INFOGRAPHIC] 3 Core Supply Chain Management Trends Gearing Up to Change SCM Forever

18. What are The Elements of a SWOT Analysis?

17. Accounting For Freight Costs: Freight Expense Account vs. Cost of Freight-Sales Account

16. 5 Benefits of TMS (Transportation Management System)

15. The Importance of A Value Proposition Statement for your Business and How to Write One

14. Third Party Logistics Services Explained, The Different Types of 3PLs, and The Various Levels of Outsourcing

13. Logistics Service Level Agreement and Logistics Key Performance Indicators: A White Paper

12. Third Party Logistics Companies: A Checklist When Evaluating Which 3PLs are Best for YOUR Needs

11. 8 Freight Claims Tips to Ensure You Get the Full Amount Paid

10. History & Academic Definition of Supply Chain and Logistics Management

9. E-Commerce Logistics: The Evolution of Logistics and Supply Chains from Direct to Store Models to E-Commerce

8. Bill of Lading: Importance Of, Error Consequences, and Effective Solutions

7. 10 Factors Which Determine LTL Freight Rates

6. What is Transportation and Logistics Management and Are They the Same Thing?

5. What are Incoterms and Common Definitions of Incoterms

4. What is 5S? An Explanation of the Elements of 5S for a Lean Culture

3. What is LTL Shipping (Less-Than-Truckload) and How Did it Come About?

2. 3PL vs 4PL: What are these PLs, Anyway? Layers of Logistics Explained

1. Freight Class: What is and How To Determine LTL Freight Class

We hope you enjoy and continue to enjoy our blog posts and articles! From everyone at Cerasis to our customers and the manufacturing, supply chain, logistics, transportation, and freight community, Happy New Year!

This first post is the first in our series on 3D printing, or additive manufacturing, and its impact on the supply chain and logistics arenas. As more and more stories come out on the main stream use of 3D printing as a way to create supplies to use in the manufacturing process, there is clearly an impact on the supply chain. Today we will briefly cover what is 3D printing, how some view the future implications of 3D printing in general, some applications we’ve come across in various stories, and then a brief touch on the impact of 3D printing use as it pertains to logistics and supply chain applications.

This series could be a two or three part series, but it could be longer. Stay tuned over the next few days for more on 3D printing and the impact on the supply chain and logistics.

First of all What is 3D Printing and What is the Outlook of the Application in Manufacturing?

As we noted in our top issues in American Manufacturing series, 3D printing is a key trend and applications manufacturers are paying attention to over the next decade. Currently around 28% of the money spent on printing things is for final products, according to Terry Wohlers, who runs a research firm specializing in the field. He predicts that this will rise to just over 50% by 2016 and to more than 80% by 2020.

The process of 3D printing, sometimes called additive manufacturing, is a slow procedure in which a printer reads a digital blueprint and methodically drops building material according to a set of instructions, creating a final product that’s built up tiny layer by tiny layer. The printers are capable of producing extremely detailed and intricate levels of design that can be difficult or impractical to create with other methods.

Some are saying that 3D Printing will be “the next industrial revolution” says Doug Angus-Lee, rapid prototype account manager with Javelin Technologies, an Oakville, Ont.-based supplier of the technology.

“The invention or the implementation of the assembly line changed the way manufacturing works and 3D printing is going to change the way manufacturing works in the future. When the web took off, it gave us the tool for everybody … to become a publisher that was something that only a few of the biggest companies in the world were able to do it before that. Well, with 3D printing, we’re all able to be manufacturers.”

The list of materials that can be ingested and outputted by 3D printers is growing, some might say into sci-fi territory. The capabilities of 3-D printing hardware are evolving rapidly, too. They can build larger components and achieve greater precision and finer resolution at higher speeds and lower costs. Together, these advances have brought the technology to a tipping point—it appears ready to emerge from its niche status and become a viable alternative to conventional manufacturing processes in an increasing number of applications.

Should this happen, the technology would transform manufacturing flexibility—for example, by allowing companies to slash development time, eliminate tooling costs, and simplify production runs—while making it possible to create complex shapes and structures that weren’t feasible before. Moreover, additive manufacturing would help companies improve the productivity of materials by eliminating the waste that accrues in traditional (subtractive) manufacturing and would thus spur the formation of a beneficial circular economy (for more, see “Remaking the industrial economy”). The economic implications of 3-D printing are significant: McKinsey Global Institute research suggests that it could have an impact of up to $550 billion a year by 2025.

The promise of a 3-D printing-based supply chain is simple: “Additive manufacturing will democratize the manufacturing process.” So says Ed Morris, director of NAMII, the federally-funded initiative set to define and promote the future of the industry.

3D Printing…..It WILL Affect the Supply Chain

3d printing supply chain“In terms of impact on inventory and logistics,” he says, “you can print on demand. Meaning you don’t have to have the finished product stacked on shelves or stacked in warehouses anymore. “Whenever you need a product,” he explains, “You just make it. And that collapses the supply chain down to its simplest parts, adding new efficiencies to the system.”

Those efficiencies run the entire supply chain, from the cost of distribution to assembly and carry, all the way to the component itself, all the while reducing scrap, maximizing customization and improving assembly cycle times.

Basically, Morris says, it tears the global supply chain apart and re-assembles it as a new, local system.

The traditional supply chain model is, of course, founded on traditional constraints of the industry, the efficiencies of mass production, the need for low-cost, high-volume assembly workers, real estate to house each stage of the process and so on.

But additive manufacturing bypasses those constraints.

3-D printing finds its value in the printing of low volume, customer-specific items, items that are capable of much greater complexity than is possible through traditional means. This includes hollow structures like GE’s fuel nozzles that would normally be manufactured in pieces for later assembly.

This at once eliminates the need for both high volume production facilities and low level assembly workers, thereby cutting out at least half of the supply chain in a single blow.

From there, the efficiencies of that traditional model stop making sense, it is no longer financially efficient to send products zipping across the globe to get to the customer when manufacturing can take place almost anywhere at the same cost.

The raw materials today are digital files and the machines that make them are wired and connected, faster and more efficient than ever. And that demands a new model—a need to go local, globally.

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