5 Challenges Third Party Logistics (3PL) Companies Face Shipping Parcels

Many businesses today have decided to focus on their core competencies. According to Jim Collins, in his book, Good to Great: Why Some Companies Make the Leap… and Others Don’t, companies that are good-to-great companies employ the “Hedgehog Concept” which is based on an understanding of the following:

  • What are you deeply passionate about?
  • What can you be the best in the world at?
  • What drives your economic engine?

If each of the above were circles, the Hedgehog Concept would be at the intersection.

If we bring this concept to warehousing product, fulfillment, and shipping, how many companies could claim to be the best in the world at it? Certainly, a few, like amazon.com or Zappos, are world class; however, many companies choose to outsource this function to a third party logistics company (3PL). A 3PL normally performs all the functions of our warehouse shipper but has some unique requirements. Imagine a warehouse on steroids. 3PL’s often ship thousands of packages a day for many different clients. Some have their warehouses divided for a dedicated section for each client with a separate shipping system in each area, like a mini-storage facility. Others have conveyor belts throughout the warehouse brining the packages to a central shipping area. Almost all of them have multiple shipping stations. Here are few of the problems they face:

  1. Since 3PL’s are shipping packages to their customer’s customers, they often charge the freight to their customers account numbers. A 3PL could have hundreds of different account numbers and they need to make sure that packages are shipped correctly. Some do this by having business rules that receive data from the 3PL information technology system to insure that the correct account number is charged.
  2. Because 3PL’s ship for a wide variety of clients, they receive their shipping files in a wide variety of formats. They may get an excel spreadsheet or a file with addresses to ship to or they may get an entire order file with line items to pick. They need a shipping system that can import orders in many formats. They could be flat files, xml, ODBC, or other formats. Flexibility is critical.
  3. I once spoke to the owner of a 3PL that had over 40 free carrier provided systems. I asked him why he was willing to invest in technology when he had free systems. He told me that it was nearly impossible to keep track of all the data for shipping. Imagine running a $100 million corporation and having to ask your vendors for the data to create a monthly financial statement. He had to ask his carriers how much he was spending and try to compile all the data. He wanted consolidated reporting that would provide him with the information he needed to run his business.
  4. Everything that a 3PL does is tracked so that they can bill their customers, so every shipment needs a job number. And there is no room for errors, so job numbers have to be validated.
  5. Speed is critical; the fewer keystrokes the better. 3PLs want automation so they can process parcels as quickly as possible.
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