Editor’s note: RK President Rock Magnan recently penned a commentary for Think Silicon Valley, the City of Fremont Economic Development Commission’s issues blog. The commentary was published recently at the Think Silicon Valley site and can be read below:
June 25, 2019 — A decade ago, third-party logistics firms (3PLs) were primarily oriented toward staffing and running warehouses. They also managed transportation resources for clients to deploy the least expensive and most expedient way to move the client products from supplier to warehouse to storefront (or from supplier to warehouse to manufacturing center). Along the way, a 3PL might also provide value-added services such as inventory management, consolidation and distribution, order assembly, light kitting, returns management, and other related assistance.
Fast forward to today, all of those tasks remain on the 3PL’s plate. However, now the fundamental definition of logistics and supply chain management has been turned on its head with the explosion of e-commerce and all its associated needs.
In the past, the last link in the supply chain was the retail store. In today’s omnichannel world, that store may be the first link, the source where an e-commerce order is pulled, packed, and shipped (or even picked up by the customer).
E-commerce has fundamentally changed warehouse strategies. Construction of warehouse space is at an all-time high as businesses look to source goods closer to the end consumer. Where two- or three-day delivery used to be acceptable, now it’s one-day, and increasingly, same-day. Instead of consolidating orders and shipping them out at 4 p.m. on the UPS or FedEx truck, crowdsourced networks of drivers are making multiple pickups at all times of the day, making local deliveries in the evening and night hours, seven days a week.
And while the retail store is still a basic building block in the solution, goods ordered from a website and shipped directly to the consumer continue to capture an increasingly larger share of the consumer’s wallet. In this model, the buyer expects to be able to follow that order the entire time, from the moment they click on the “complete order” button to shipping out of the source location (warehouse or retail store), and updated ETAs showing progress along the route to the consumer’s door.
What’s the role of the 3PL as this new world of logistics continues to evolve? I’d argue it’s more important than ever.
Here in Silicon Valley, there are hundreds of startup and “incubator” online businesses launching products into the market. They’re connecting with customers via their own websites or a shared commercial platforms like Shopify. Yet once that order is initiated, someone has to do the block and tackling: physically picking the order out of inventory, packing it, preparing it for shipping, and selecting the appropriate transportation resource.
Logistics isn’t their core competency. And as their business grows and they mature beyond the incubator stage, they need a trusted partner to find the space, deploy the personnel, and bring the expertise to manage the inventory and fulfillment of goods as their sales grow. Not to mention handling the often frustrating challenge of managing returns.
These direct-to-customer channels are the largest and most compelling emerging opportunities for 3PLs that can be flexible, fast to implement, and quick to adapt as their clients grow and evolve.
Yet they also require the ability to deal with some risk and think differently about the business model. For these clients, what does the physical footprint look like? How do we price services for clients who aren’t going to sign up for the traditional cost-plus-management-fee contract (a system that allows full visibility of all expenses and helps to identify areas for improvement)? How do you retool your workforce from handling pallets and cartons, to pulling and packing ones and twos? What are the transportation and shipping needs of these clients as they seek to differentiate themselves for quality and speed? How do we put these solutions together, launch them quickly, and ensure the lowest cost?
Incubator startups and mid-stage growth companies are an opportunity for smaller 3PLs to establish longer-term relationships that evolve along with the client’s business. These entrepreneurs are investing all they have in designing, marketing, and manufacturing their product. They have limited capital, if any, to get into warehousing and logistics. The 3PLs who can be flexible, nimble, and resourceful in providing solutions can establish a strong and growth-oriented beachhead, helping these businesses keep their strategic focus while guiding them through logistics growing pains from surges in demand, geographic growth, or adding new products as the business matures.
In our view, e-commerce isn’t the monster that’s going to subsume a mid-sized 3PL’s business. Rather, it’s opened the door to a whole new market of opportunity where, like the strategic investor who gets in early, we can partner with incubators and maturing early-stage businesses to help them grow smartly, prosper, and profit as their products gain traction and acceptance.
ABOUT RK LOGISTICS GROUP — RK Logistics is a premier 3PL provider of full-spectrum, customized supply chain services for the world’s most demanding customers. RK’s manufacturing support, warehousing, order fulfillment and transportation services feature lean practices, ISO-9001 and CA Board of Pharmacy 3PL Certifications, which is unique to a family-owned business. RK Logistics is also a certified minority business enterprise.