Despite the often sensationalist news headlines, the national economy continues to expand, and many third-party logistics (3PL) businesses continue to see an increase in demand. However, increased competition in the industry and rapid technological growth has made it challenging for 3PLs to grow and remain profitable.
Let’s cover how to increase your 3PL profitability with steps you can take starting right now.
Plan and Forecast
This is not a new concept, but its simplicity is often overlooked. One of the most effective ways to increase your 3PL business’s profitability is through proper planning and forecasting. Retail e-commerce sales alone are expected to grow by 50% over the next four years, along with ancillary industries that feed into it, which means that staying abreast of consumer trends and market conditions is critical. Companies that move and adapt quickly during market expansions survive and profit while slow-to-respond companies pay the price for dragging their feet, if they survive at all.
To stay ahead of the competition, it is crucial to analyze market trends and consumer demand patterns continually, relying both on your own inventory reports and third-party analytics as needed. Developing forecasting models to identify which products are most in demand and at what times can help you adjust inventory levels and allocate resources more efficiently.
Customer Retention is Critical
Too often our business attention focuses on new customer acquisition, but what about the customers you have already “won”? Market research shows that the probability of selling to an existing customer is between 60% and 70%, compared to only 5% to 20% for a new customer. Additionally, acquiring a new customer costs anywhere from 5 to 25 times more than keeping an existing one.
To improve your 3PL’s profitability, prioritize excellent customer service and analyze customer accounts to determine where you are making money and where you are losing it. By determining what your top customers have in common, you can replicate your success with them and find more like them.
Service Your Core Business
Similar to customer retention, concentrating on your current core business and a specific direction where you see growth opportunities is an effective strategy to increase your 3PL’s profitability. Once you’ve chosen a direction to grow your business, devote your company resources to being better than any other logistics firm in your chosen segment while you expand.
For example, implementing a 3PL portal can provide existing customers immediate access to your goods, allowing customers to order when it suits them, while also reducing order confusion, and minimizing labor costs. The less time spent on fulfillment allows you to service your core business as you grow to remain competitive, viable, and profitable.
Audit Your Processes for Efficiency
Auditing your current warehouse processes for efficiency can offer significant opportunities for cost savings. Every process in your warehouse should be considered, scrutinized, and tested for inefficiencies, including your equipment, storage arrangement, even pallet management process. While it may seem like a cost-saving measure to squeeze one more year out of outdated equipment, upgrading your equipment can save you time and labor in the long run.
Update Your Standardized Processes
Our supply chain industry has changed more in the past three to five years than it has in the previous 30 years, making it absolutely vital to examine, test, and adjust your standard processes. If you are still using the same processes from years ago, it is likely that they were developed using information and standards that may now be obsolete.
Standard processes are important because they enforce safety and security in the warehouse/distribution center environment. Additionally, they provide a baseline against which improvements can be measured, helping to simplify the onboarding and training of new team members. Relying on standard practices can help speed up the training process and ensure that your workforce performs work in a consistent manner.
Train Your Employees, Again
Similar to maintaining equipment, your employee’s knowledge base and execution is a key factor in revenue generation. While far too many want to squeeze their workers for every useful minute in a day, an educated and trusted employee creates significantly greater value for the company.
Bring tools and technology to simplify their process, streamline the work, and eliminate the middle-management. Bring certified specialists to teach and train on your most effective tools, from inventory software training to warehouse management, and their ability to provide a greater value of work will pay dividends to culture and business alike.
Measure Warehouse Labor Costs to Find Clues to Inefficiencies
Speaking of labor… labor is typically the highest single cost in warehouse operations, but warehouse automation can help reduce labor costs, improve accuracy, and increase throughput. Automated material handling systems can help speed up picking and sorting processes, while robots can handle repetitive tasks like palletizing and packing.
Robots sound outside of your price range? Incorporate 2D scanning and 2D barcodes to quickly capture all the important item information to receive, move, even pick, without needing to manually update systems or counts.
Focus on Sustainability
Sustainability has become an increasingly important issue in the logistics industry. Customers are now looking for environmentally responsible companies to do business with, and 3PLs that can demonstrate their commitment to sustainability are more likely to win new business and retain existing customers.
Beyond common environmental sustainability, implementing sustainable practices provide reduction in company waste. For example, creating a calendar for required site maintenance, equipment servicing, and inventory inspection provides planned downtime, less operational waste, and proper stock accounting.
Develop Strategic Partnerships
Developing strategic partnerships with other businesses in the logistics industry can help 3PLs expand their service offerings, reduce costs, and increase profitability. By partnering with other logistics providers, 3PLs can offer customers a more comprehensive range of services while also reducing costs through economies of scale.
Strategic partnerships can also help 3PLs expand their geographic reach. By partnering with logistics providers in other regions or countries, 3PLs can offer customers a global logistics solution, opening up new markets and increasing revenue potential.
Takeaway
Optimizing a 3PL business for profitability is as competitive as ever, but the availability of tools and solutions is as great as it has ever been. Consider the numbered strategies as possible solutions for your business’ own pain points, narrow down to the most relevant, and start simple.
By implementing these strategies, your 3PL business can increase their profitability, improve customer retention, reduce costs, and position themselves for long-term success in a competitive and dynamic industry. It’s essential to communicate the vision and plans for the future with the team, as it helps them facilitate workflows around achieving the goals. By working together, 3PLs can overcome challenges and capitalize on the opportunities presented by a rapidly evolving logistics industry.
