Sourced New 3PL Partner That Provided Better Strategic & Location Alignment And 26% Savings In 3 MonthsSupply Chain & Operations
- 3PL Strategic Sourcing & Alignment
- Route & Transportation Analysis
- Optimal Distribution Location Selection
- Site & Location Cost Analysis
- In-House vs. 3PL Fulfillment Comparison
- Activity Based Costing
A manufacturer of consumer products grew considerably in the years since selecting their selected a 3rd Party Logistics (3PL) provider. Given this rapid growth, it became necessary to revisit the value, fit, footprint, and overall alignment of the existing 3PL partner and fulfillment locations.
The manufacturer’s current and future requirements were carefully assessed to create a basis for comparison of capabilities and long-term fit. In addition, Amazon vs. direct client/3PL fulfillment costs and benefits were assessed to determine optimal balance for some orders. Route, location, and order density analyses were performed to identify the optimal 3PL / distribution locations given order demand, local facility operating costs, and transportation costs.
3PL costs in isolation made some candidate 3PL partners appear exceedingly attractive, but once all factors including transportation, fit, and other costs were factored in, the projected costs, savings, and favorability changed considerably. Ultimately, the client engaged a new 3PL partner with an excellent long-term strategic fit and optimal location footprint while achieving a 26% total cost savings.
challenge
With hundreds of SKUs, a seasonal trend in sales, robust B2B and B2C fulfillment channels, international sales, a potential location change, and new sales and marketing strategies that relied on certain fulfillment and logistics technological prowess, the optimal selection of a new 3PL required balancing many factors simultaneously. These factors can be categorized into three groups.
- Identify 3PL partner with better strategic fit and cost position:
There was some indication that the cost position of the existing 3PL needed to be revisited and these costs needed to factor in drayage and inbound and outbound logistics costs based on different location options in addition to a given 3PL’s costs. Also, a shift in strategy required the new 3PL partner to provide a higher level of technological sophistication in certain key areas. Screening needed to take this and the candidate’s overall technology posture into account.
- Identify optimal 3PL/fulfillment center location:
The client had a mix of company-owned and 3PL-run fulfillment operations in different parts of the United States. Given the company’s potential plans to develop a regional HQ, multiple locations for a new company-owned fulfillment operation as well as for 3PL-run fulfillment operation.
Simultaneously, 3PL candidates were screened for fulfillment footprints that fit the client’s immediate location objectives as well as those with footprints that enabled expansion or shifts of inventory to a specific secondary region as part of a potential near-term strategy.
- Determine value/ideal balance of Amazon, internal, and 3PL fulfillment:
Given the mix of company-operated, 3PL-run, and Amazon fulfillment, there were potential benefits in revisiting the balance of a subset of products that were occasionally shifted from FBA (Fulfillment By Amazon) to FBM (Fulfillment By Merchant) and thus whether those products should be fulfilled in company-owned facilities vs. 3PL facilities. Comparative costs, locations, and inventory were all necessary factors.
solution
A multi-pronged solution was provided that considered location cost analysis and comparative inbound and outbound transportation costs in addition to candidate 3PL location, strategic fit, and receiving, storage, and fulfillment costs.
- 3PL screening for requirements, strategy, location, and technological fit:
Historical and forward-looking analytics drove a highly reliable SKU-level forecast by calendar day and reduced the mean average forecast error (MAPE) to under 5%. The customized code and techniques were provided to the company’s forecasters to enable them to update the analysis as needed using existing tools.
- Optimal distribution/fulfillment center location analysis:
As a first step in assessing location and transportation costs, orders were assessed based on location, frequency, volume, and aggregate weight of demand. The resulting hotspot analysis provided an initial view into fulfillment/distribution sites based on this one dimension.
- Client-owned location/facility cost comparison:
Location analysis for a potential company-owned regional HQ and fulfillment location considered multiple potential facility/workforce sizes and included:
- Facility Acquisition Costs
- Local Taxes
- Amortization Cost
- Labor & Payroll Costs
- Local Utility Costs
Specific costs for each component were obtained based on tax codes, utility rates, typical salary, wage rates, land/construction or purchase costs for each location. The results provided a valuable and counter-intuitive perspective given the client’s initial assumptions.
- Transportation analysis:
The complete set of actual inbound and outbound routes over multiple years were modeled, replacing the actual inbound destination and outbound origin with each of the potential locations. The aggregate shipments, mileage, weight, projected transportation costs, drayage costs, and other costs were modeled to establish a high-confidence logistics cost comparison for each candidate location.
- Balance of in-house vs. 3PL fulfillment:
An activity-based costing model was created for the client-owned fulfillment facility(ies) and compared with quoted candidate 3PL costs, temp labor impacts, and inventory requirements.
results
The client transitioned to the new 3PL identified and recommended. The benefits included:
- Annual cost savings of 26%
The net result of new 3PL and transportation costs provided a 26% annual cost savings.
- Improved strategic fit, technological fit, and scalability:
Improved fit with new 3PL partner enabled the client to execute a potential new strategy that relied on key technologies and to seamlessly scale as sales volumes increased as anticipated.
- 3PL fulfillment center footprint matched client plans
The selected 3PL partner’s fulfillment center footprint supported either of the client’s potential location change strategies. As a result, the client could focus on pending strategy and location options without the added concern of a required 3PL transition.