How Can Third Party Logistics Software Turbocharge Retail Profits?

In the beginning, retailers' revenue growth was largely limited by square footage: How many SKUs, how many facings, plus average sale and foot traffic minus COGS and overhead. The internet may have broken that time-tested brick-and-mortar equation, but it also opened up vast new opportunities.While those not burdened with a lease seemed to have the advantage at first, brick-and-mortar retailers who've embraced e-commerce are finding ways to come out on top. Logistics partners and 3PLs help them compete with e-comm-only sources head to head.

Adding a 3PL partner means retailers can expand sales without regard to square footage or foot traffic and without increasing their overhead, as the cost of the vehicles, drivers and even warehousing can be outsourced and paid on an as-you-go basis. 

Two keys to making this new formula work are finding the right 3PL partner and the right 3PL management software.

What Does 3PL Mean?

3PL stands for third party logistics. In supply chain management and logistics, 3PL refers to an organization's use of other companies to outsource warehousing, distribution, delivery, and other logistics services.

Who Uses 3PLs?

Small retailers use 3PLs to expand revenues through home delivery and e-commerce, but large enterprises also use 3PLs. 

A study conducted by supply chain consultants Armstrong and Associates, found that 90% of Fortune 500 companies with operations in the United States have used 3PLs. Larger organizations use 3PLs for flexibility to expand their delivery capacity without increasing fleet size and to control logistics costs. 

Integrating 3PLs

Engaging a 3PL to carry out deliveries is only the first step. For small organizations adding an outside vendor can be difficult — who will tell them what to pick up, where it goes and when it needs to be there? For enterprises, the 3PL has to be integrated into an existing process that may not have been designed to accommodate outside vendors. 

For both, 3PL software is the "middleware," the piece of the puzzle that allows the outside vendor to accept input – orders, schedules, ETAs – from the client while sending results — tracking, proof of delivery and customer communications — back to the client. 

The best 3PLs have already implemented third party logistics software in their own organizations, and are able to seamlessly integrate with the client's internal systems. When evaluating 3PLs, organizations should carefully investigate the 3PL's software and ensure it can both receive and send back the full spectrum of delivery data in a format their system understands. Flexible, bi-directional APIs are a necessity. 

What Are the Benefits of Third Party Logistics (3PL) Software?

Ideally, both the 3PL vendor and the shipper should have complementary software. While it's possible for the shipper to manage a 3PL vendor using software from the shipper's side, both parties get the maximum benefit when they each have a platform that talks to the other. The benefits are enormous: 

• When a 3PL uses software that optimizes not just routes, but also fleet capacity and crew assignments, it lowers costs for the 3PL and the shipper
• Allowing customers to schedule their own delivery windows from a list of pre-optimized time slots reduces not-at-home failures and improves customer satisfaction
• 3PL software that incorporates advanced AI can pinpoint ETAs with 98% accuracy by considering all of the factors — distance, traffic, driver history, service time and more — that affect route timing
• Efficient routing reduces miles driven which speeds up deliveries and cuts fuel burn, reducing costs and carbon emissions
• Granular visibility into each delivery and each route allows both shipper and 3PL to monitor deliveries in real time and take corrective action immediately if something is getting off track
• Automated and 2-way live communications between all parties — customer, shipper, dispatcher and driver — reduce failed deliveries and increase customer satisfaction
• Automated customer satisfaction surveys provide instant feedback to surface delivery issues and highlight areas for potential improvements

All of that adds up to increased customer satisfaction, on-time deliveries and lower costs.

What Is the Best 3PL Software?

Choosing a 3PL partner is more than just looking at the size of their fleet and the on-time percentage they claim; 3PL software is also critical to success for shippers and 3PLs. While there are many logistics software systems available, not all are created equal. In particular, software that is legacy, on-premise software starts off with a disadvantage; you probably pay "per seat," meaning each new driver you boot up costs more money. Those older systems are prone to failures, often hard to integrate and require an IT staff to maintain and update. SaaS systems can avoid all of those issues. You may not always have the same 3PL partner going forward, so platforms with flexible, extensible APIs that talk to a wide variety of industry standard software is critical. And of course, you want something that will give extreme visibility across both your organization and that of your 3PL while also enabling the seamless management of last mile activities.