Business Intelligence Helps 3PL Supply Chains Gain a Competitive Edge

The days of third-party logistics companies competing on prices are over. The successful ones now use another factor to gain an edge: analytics.

John Reichert

The days of third-party logistics companies competing on prices are over. The successful ones now use another factor to gain an edge: analytics.

Evidence shows there’s ample opportunity to leverage this kind of information using tech, though, not everyone capitalizes on the chance. According to a Janeiro Digital report, 85 percent of supply chain and logistic professionals expressed that they felt the industry lagged in digital maturity, while half stated they aren’t implementing new technologies.

This technology gap hasn’t stopped some 3PLs from using the vast information at their disposal. In order to succeed with this approach, providers must understand how data informs their supply chains, individual responsibilities and other high-level variables.

A Chain of Information

For 3PL providers, integrating business intelligence into their supply chains doesn’t happen automatically. It requires tending to many issues and using the information gathered to respond to challenges. Providers must deliver in a variety of distribution models, under a single roof and across multiple industry verticals.

These range from hub-and-spoke models for a fully outsourced operation, to regional sites that supplement a client’s geographical reach. Sales channels and products also span a wide range, from high-turn items sold at mass retailers to pricier, low-volume items sold at specialty shops or directly to consumers. In all cases, 3PLs must be prepared to engage with the demands of highly regulated, serialized inventory and adhere to clients’ performance, process and billing policies.

When one considers how difficult it is to navigate all these concerns, it’s no wonder that companies outsource to 3PLs instead of doing the work internally. 3PLs specialize in dealing with business operations that are volatile, complex and often outside their clients’ core competencies. Business intelligence helps bring all of that into focus.

Strengthening Supply

Clients are no longer satisfied merely with quality delivery. Instead, they insist on increased data analytics to help them better understand their markets and performance. For that reason, IT capabilities are now a major factor in 3PL selections.

Given this new reality, it’s important for 3PLs to consider the ways business intelligence can improve supply chains and better serve clients.

1. Forecasting Needs

3PLs should leverage business intelligence to forecast near-term and mid-term operational requirements to ensure necessary resources are available. These predictions need to be as accurate as possible. In particular, it is imperative to accurately prognosticate the quantity and timing of demand for long-lead items, such as building space and equipment configuration.

Good data models achieve this level of accuracy by factoring in a client’s historical performance and other relevant factors. 3PLs should also be aware that when they consolidate forecasts for clients in a single site or region, they can generate timelines for expansion with an increased level of confidence.

2. Maintaining Deadlines and Workloads

Business intelligence can also be a real-time tool that helps meet daily workloads and deadlines. Instead of clients encountering unexpected challenges, analytics can help 3PLs predict incoming orders and forecast priorities for workload balancing.

For example, systems can predict how many orders typically arrive between 3 p.m. and the same-day cutoff time. If a threshold value is hit, the data system automatically alerts management to anticipate that day’s overtime or early completion.

Combine that intelligence with individual performance histories, one can implement an operator incentive plan. Managers can use this system to carry out tasks, such as allowing top performers the first choice to leave early or stay late. Then, once individual preferences are combined with the predicted workload, supervisors can use a proactive labor scheduling plan to build out daily workloads.

3. Fair and Efficient Payroll and Billing

When it comes to client billing, 3PLs struggle with not having enough historical data to accurately create a competitive, yet profitable, billing rate card. When 3PLs have that information, business intelligence can guide a partnership that is fair to both parties. It then funnels this historical data into its system to determine what cost factors to apply.

This is the fairest arrangement because it allows for the most accurate assessment of cost factors. Previously, it was common for contract terms to be locked in for a multiyear period, even if the original assumptions were inaccurate. Today, shared data can assess operations monthly to determine whether any aspects have significantly changed.

Given that automatic oversight, contracts can allow for cost strategies based on key metrics like the average number of order lines, overall SKU count or the percentage of late-day orders. This provides an avenue for a flexible contract that is adjusted automatically and without reverting to a cost-plus model.

4. Implementing a Rapid-Response Team Approach

Analytics can also let 3PLs quickly identify the critical changes needed to meet overall customer demands. For instance, consider a small startup client that releases a new product along with customer demand projections covering the first six months. The client then ships an initial two-month supply to the 3PL. A month into distribution, trend data indicated growth 10-times the original prediction.

The business intelligence system at the 3PL can catch that discrepancy immediately and give the client ample time to increase supply and expedite sourcing. It can also provide additional product near the area where demand spiked and explore promotional opportunities there.

Meanwhile, the 3PL can use the information to alter its fulfillment strategy. It could pivot from a simple pick-and-pack operation to a dedicated rapid shipping line while the demand curve remains unpredictable. In the end, the partnership between the client and the 3PL is strengthened.

These examples show how business intelligence is critical to fulfilling one’s role as a 3PL. Whether that’s in terms of managing planning or payments, responsive analytics can provide the highest quality of supply chain management, giving a competitive edge to both clients and 3PLs and promotes the fairest and most transparent relationship between them.