Manufacturers, distributors, and retailers have a long history of using 3PL warehouses as a readily accessible alternative to owning / operating more buildings. Whether seeking short-term capacity, long-term value or requiring some bespoke logistics capabilities, the typical Shipper/3PL relationship is a proven dynamic with plenty of marketing and PR to state as such. Unfortunately, buildings, equipment and labor often command most of the column inches when showcasing these relationship success stories. What about software and technology? What if the Shipper’s strategy around supply chain systems isn’t comprehensive enough to recognize where and how to treat 3PL’s? Should the Shipper use its warehouse management systems and tools, or should they use the 3PL’s? What stance should the 3PL have when considering its in-house systems versus its customer’s? Below we explore a handful of helpful points to think about when looking at a Shipper’s WMS in a 3PL setting versus utilizing the in-house 3PL WMS to support operations.
When To Stick With the Shipper’s WMS
Implementing the Shipper’s WMS into a 3PL site with supporting equipment and tools (RF handhelds, printers, etc.) can often be at odds with the IT organization and the broader business groups (Accounting, Sales, Operations, etc.). From the IT viewpoint, they may not have internal bandwidth or capacity within support contracts to effectively manage what will amount to another fully onboarded Site within the system architecture. On the other hand, 3PL support teams might be challenged to accommodate highly technical or process needs within their own system with a much higher cost implement and potentially some on-going cost to run and support a specialty warehouse operation that disrupts their other lines of business.
Regulatory Process Demands
Shippers operating in food, beverage, pharmaceutical, or similar industries will typically face regulatory requirements that may necessitate continued use of native warehouse systems with 3PL partners. Often these operations will require higher than normal controls and conditions for receiving, storage/inventory management, and fulfillment processes that you will need to be able to prove are implemented effectively. In addition, access and governance of master and transactional data are higher given the general risks to the consumer. Think about when the last outbreak with a meat product or fresh produce happened and how regulators were able to pinpoint not just source but destinations and impacted markets. All of that comes from data quickly supplied for partners, 3PLs included, in those supply chains.
Gaps In System Capabilities and Data
For 3PLs, a common approach to customer acquisition is to keep a standard or simple/focused set of processes so it can spread capacity and labor across all its various customers’ volume without increasing its fixed operating cost. In this model, WMS’s are typically less robust given the straightforward processes required to support. If Shippers can align to these requirements, supporting one or several 3PL’s in its Network can yield quite a bit of value. But if there is less flexibility in the Shipper’s ability to integrate, there’s typically two routes they can take: onboarding 3PL’s with the Shipper’s WMS to mitigate any technical gaps may be the feasible way to go or work with the 3PL resources to customize their systems. Either route is likely to incur higher than typical costs for storage and activities but focusing on utilizing the Shipper’s WMS will keep processes, system capabilities and data integrity consistent across all warehouse facilities and avoid lengthy design and development cycles customizing the 3PL’s systems.
When To Go With the 3PL WMS
Fortunately for most Shippers, the challenges around regulatory and complexity highlighted above aren’t an issue for every organization. Several industries and their associated supply chains live mild manner lives receiving loads, storing inventory, and fulfilling orders. Less complicated operations such as these could still go the route of utilizing the Shipper’s WMS but the greater value proposition is to stick with the 3PL’s system. Focusing on the 3PL’s WMS for their Customers will help keep overall costs down (implementation and ongoing) while being able to onboard and start moving freight faster.
Lower Barrier to Entry
There is a not-so-subtle theme throughout this blog when discussing use of the Shipper’s WMS versus the 3PL system: using the 3PL WMS is generally the better option when the desire is speed and cost. In other words, a key value the 3PL can offer the Shipper with its WMS is a faster time-to-value at a lower price point in exchange for aligning to standard practices and process. What makes this value proposition even more attractive is pairing it with new markets or product/service offerings that inherently carry higher risk overall. Minimizing costly startup and capital expenditures associated with warehouse systems on what might be unproven business models can unlock those opportunities that much faster.
Simpler Integration
While the typical focus on value with 3PL’s can bring with it operational labor and capacity, looking to a 3PL’s WMS to support processes can also bring support for implementing, integrating and maintaining those systems with the 3PL’s technical resources. Outside of collaboration on building core connections to the Shipper’s back-office systems, which would still require engagement with their IT Teams, the 3PL’s IT Teams can now play an outsized role in basic onboarding and configuration, integration with trading partners, and do so with often a broader and better sense of industry standards and practices given the 3PL’s experience with other customers. Furthermore, consider this point in tandem with the cost because it may very well be the case that the already mature WMS in use is the lower cost option, but what if the Shipper’s resources are over-taxed? The 3PL’s WMS to unlock more support bandwidth maybe enough of a tiebreaker to allow the Shipper to net the overall savings, capacity and/or efficiency.
Final Thoughts
There’s no one-size-fits-all approach; the answer is ‘it depends’. And it also needs a lot more considerations than the couple in each direction discussed above… we only scratched the surface! But Shippers looking for speed, simplicity, and cost savings may benefit from using a 3PL’s WMS — particularly in the early stages of the relationship. But those facing regulatory or data challenges might want to aim for long-term control, flexibility, and scalability should seriously consider investing in their own WMS. The right answer usually aligns with both organizations’ growth plans, technical capabilities, and appetite for operational ownership.
