Gartner® Hype Cycle™ for Retail Technologies, 2024
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In 2021, 74% of third-party logistics companies (3PLs) were struggling to find and keep customers. In 2022, that number fell to just 23%.
Numerous factors are contributing to this 3PL boom. For one, warehouse space is in serious demand. Each incremental $1 billion in ecommerce growth requires an additional 1.25 million square feet of distribution space. And with nearly 96% of existing space in the U.S. already in use, rents for lease renewals are increasing at a whopping rate of 25%, according to CBRE data.
At the same time, the warehouse labor situation is only getting worse with each passing year. The U.S. warehouse and transportation industry had a record 490,000 openings in July 2022, a gap predicted to widen. Despite an increase in pay and perks, the physical strain of warehouse work makes it unappealing and unsustainable for an aging workforce. And as boomers continue to retire and global populations shrink, the pool of available workers is becoming increasingly limited.
With warehouse space at a premium and the ecommerce surge and labor challenges showing no sign of slowing, it’s no surprise that over 40% of companies have increased their usage of and reliance on global 3PLs over the past few years. Ahead, we explore three trends that can help 3PLs capitalize on this growth, meet demanding delivery expectations and drive innovation.
It’s like the chicken or the egg dilemma. Do you boost your warehouse automation capabilities as a strategic initiative (and a way to entice new clients)? Or should you acquire the clients first and design your warehouse automation around their needs?
3PLs have traditionally shied away from large-scale investments in warehouse automation, primarily because the payback period was often longer than a client contract. Suppose a client was to switch to a different 3PL after a few years, before any ROI was realized from the automation deployed. And because fixed automation systems lack the inherent flexibility to easily adapt to the process flows of a different client, the 3PL is stuck with an automation system that is barely useful, let alone driving any value.
But automation looks different today. The modular capabilities of Autonomous Mobile Robots (AMRs) running on multibot orchestration platforms enable simple modifications to switch from one client to another. Vertical space utilization maximizes facility use and can be easily changed and reconfigured. And RaaS and SaaS models allow 3PLs to deploy fulfillment automation without a significant upfront investment.
In addition to de-risking that first step into automation, an as-a-service model offers financial flexibility, enables faster deployment and allows 3PLs to achieve ROI in months instead of years.
As an increasing number of retailers turn to 3PLs to provide same, next or two-day deliveries, goods need to move through the fulfillment process quickly and efficiently. Multi-client centers can help 3PLs not only fulfill faster but also reduce labor, space and transportation needs – with an average cost savings of 7-9%.
In “The promise and challenge of multi-client fulfillment for e-commerce,” McKinsey explores the value proposition of two different approaches to multi-client fulfillment. A partially integrated model enables labor sharing across both integrated and client specific functions. Successful operations are dependent on solutions that connect systems, people and automation to facilitate coordinated decision making across clients.
Fully integrated multi-client models have the potential to garner even greater cost savings, flexibility and process optimization through efficient space utilization and resource sharing throughout the entire warehouse. For example, processing inventory across clients at receiving docks increases worker and bot efficiency. Or workers (robot or human) can pick items from all inventory and utilize the same pack stations and packaging materials for all clients.
The fully integrated model typically leverages artificial intelligence and machine learning for decision-making and planning, especially in areas like demand and labor management. Automated solutions, such as assisted picking, goods to person and dock to stock, should run on an AMR multibot orchestration platform that can coordinate bots and software from multiple vendors.
Supply chain disruptions have been a constant since the early days of the COVID-19 pandemic. As a result, the overall coordination and strategic integration of all supply chain vendors and processes has become imperative and companies are turning to fourth-party logistics providers (4PLs) at record-setting rates. The global 4PL logistics market was estimated at $57.65 billion in 2019 and is expected to reach $84.43 billion by 2026, growing at a compound annual growth rate (CAGR) of 5.5%.
Overseeing the entire supply chain and coordinating the activities of multiple 3PLs and service providers, 4PLs take a strategic approach to managing the end-to-end logistics process for their clients.
Increased 4PL-3PL collaboration can help relieve warehousing space constraints, support sustainability initiatives and offer 3PLs a competitive advantage through:
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The original ecommerce experts, 3PLs are playing a significant role in the success of retailers – and in keeping global supply chains moving. Customers want products on their doorsteps as quickly as possible. By seizing strategies like automation, multi-client fulfillment centers, multibot orchestration and 4PL networks, 3PLs can make that expectation a reality with better facility utilization, flexible adaptation and cost efficiencies.