The complexities of the modern supply chain make it challenging for manufacturers to meet increasingly stringent on-time, in-full (OTIF) levels and manage costs while maintaining focus on growth. With the stakes high – including fines, damage to customer satisfaction, and the risk of business loss – it’s becoming increasingly common for retail suppliers to turn to the singular expertise of third-party logistics (3PL) providers.
The ‘Amazon Effect’
Amazon has reshaped the retail industry by raising consumer expectations in terms of pricing, product availability, and especially delivery speed. Other retailers have had to adapt to these expectations to retain customers, and manufacturers are feeling the heat, both from retailers and consumers. A recent survey reported that 79% of consumers have bought a different brand when their preferred one was out of stock.
As a result, retailers are placing increased pressure on suppliers to meet ambitious OTIF levels. A recent survey of retail buyers reveals that:
- 90% say a supplier’s ability to deliver on time impacts their purchasing behavior
- 66% have ended relationships with suppliers over delivery issues
Retailers Are Enforcing Increasingly High OTIF Levels With Suppliers
Inventory distortion – covering out-of-stocks and overstocks – was estimated to cost the retail industry $1.77 trillion in 2023. Out of necessity, retailers are demanding higher service levels from suppliers.
That’s where having a 3PL partner that can stay on top of the supply chain from end to end comes in. Hitting OTIF targets requires a deliberate strategy designed to address specific issues before they become a problem as well as the agility to adapt and change to address the challenges of today’s supply chains.
Here are three key ways suppliers can increase OTIF levels and manage costs with 3PLs:
1. Outsourced Inventory Management
Keeping a fulfillment center running smoothly amid the increasing complexities and challenges of today’s supply chain is a big lift for any company. When you outsource inventory management with a 3PL, they can leverage a nationwide network of storage locations, enabling you to focus on growing your business. In addition, their ability to lower transportation costs through a strategic footprint that reduces miles can help reduce costs and shorten delivery windows.
You need a 3PL provider that can track everything they handle on your behalf — and every dollar of revenue and cost associated with your program. They should also deliver detailed reports with recommendations on how to optimize your logistics and inventory and lower costs.
2. Driver Utilization
Transportation costs can make or break supplier profitability, so identifying opportunities to minimize hours and empty miles is essential. 3PLs with broad reach and deep supply chain expertise can help identify opportunities to fill empty backhaul miles, improving asset utilization and often offsetting outbound transportation costs with revenue-generating backhauls.
Done right, driver utilization eliminates wasted trips, fills empty lanes, and takes advantage of backhauls. Ideally, you want a 3PL provider with their own private fleet, dedicated fleet experience, and freight brokerage expertise — these providers are usually experienced at developing creative solutions.
3. Outsourced Warehousing
Warehouse management is costly and often complex. Rising costs, lack of inventory transparency, labor issues, compliance, changing business demands, and CapEx requirements all provide challenges. That’s why many manufacturers increasingly outsource warehousing needs to 3PLs so they can focus on business-critical activities.
The right 3PL provider will have their own warehouses for inventory storage and reverse logistics staging capabilities to free up space and labor in your warehouses. They’ll also offer the option to operate your facilities on your behalf, taking non-essential tasks off your hands. Leveraging a knowledgeable 3PL’s staff, technology, network, transportation, and expertise enables manufacturers to cost-effectively meet customer requirements and scale quickly as they grow.
Choosing the Right 3PL
Retailers have many 3PL providers to choose from, but most specialize in just one or two aspects of the key capabilities listed above. You want to partner with a 3PL that offers end-to-end, fully integrated 3PL services strategically focused on improving OTIF, reducing costs, and making logistics more efficient.
Stay on Top of It All
From inventory, distribution, and returns to order management, demand planning, and optimization, get 3PL and warehousing services that will streamline your entire supply chain.
