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The why and the how of automating third-party logistics companies

Sept. 22, 2021

The goals are greater efficiency, productivity and customer satisfaction.

Cimcorp's Derek Rickard

Over the last ten years, third-party logistics companies (3PLs) have demonstrated a growing interest in automation for reducing labor costs and improving operations. The 2019 Third Party Logistics Study found that 3PLs incorporating automation into new facilities have an edge over competitors since automated facilities can provide lower rates. For 3PL customers, this growing interest in automated facilities can improve fulfillment by filling labor gaps and improving order accuracy. Many 3PLs currently investing in automation utilize it for item retrieval and bulk storage, which speeds up processing.

In the past 3PLs inquired about automation on behalf of their customers in the interest of lowering costs; they are now considering automation to help their facilities gain a competitive edge. 3PLs are setting up automation taskforces for customer presentations when bidding on new contracts and paying for their own automation instead of encouraging customers to pay for the project.

Previously, many 3PLs would gauge their customers’ interest in automation and offer to incorporate automation into the contract in a way that would benefit them. By contrast, 3PLs with automated solutions already installed would utilize automation to improve the customer experience without encouraging them to front the costs.

So, what can automation bring to 3PLs today?

A competitive advantage: standing out from the crowd

Automation is an important differentiator since there are so many competitors in the 3PL space. Many 3PLs are competing against other companies that boast the same benefits and range of services as them, meaning that customers will choose the most affordable and most efficient order-fulfillment solution every time. 3PLs with automated picking solutions can turn orders around quicker, more accurately, and these cost savings directly impact customers. 3PLs can highlight these benefits of automation to elevate themselves above their competitors.

Operational consistency: less affected by labor shortages and employee injuries

On the operational side, many 3PLs are struggling to find labor to support their operations, which can affect existing customer contracts. If an operation only has half the people showing up one day and orders cannot be fulfilled, then processing is going to seem incredibly inefficient. Automation can reduce this risk by filling any sudden labor gaps with automated-picking solutions.

Customers measure 3PLs by accuracy, speed and cost, so labor shortages can greatly affect this relationship. Automation can also help prevent labor shortages by eliminating heavy, repetitive and physically distressing tasks for employees. With automation, employees can feel less fatigued and workplace injuries are reduced.

Future operations: considering ROI for tomorrow

If a 3PL is considering automated solutions, they should be confident enough to make this transition for self-serving benefits and not just customer appeal. Some 3PLs may be hesitant to embrace automation since the ROI may be longer than their current customer contracts. Back in 2018, 25% of 3PL providers cited uncertainty in their ROI as the top reason for not pursuing automation. For example, a customer may have a three year contract but the 3PL could not see the full ROI for their automated solution until the five-year mark.

As technology progresses, however, many automated solutions are seeing a shorter ROI, which means they can be embraced with less risk. Flexibility matters! Choosing an automated solution with a modular design enables you to build your automation profile in a pattern that meets your current needs but allows for expansion as your business grows, making the ROI fit better into your business model.

3PL operators must consider how they will remain competitive in one, two or even five years. They need to make sure that their operation differentiate from competitors and still be lucrative. Automation for 3PLs can help provide faster fulfillment speed, cost reduction, and make a more appealing environment for workforces.

Derek Rickard is director of Sales at Cimcorp