Why Innovation is the Key to Reshaping the 3PL Industry and the Customer Journey

In these uncertain economic times, supply chain management is increasingly complex. Consumers exert more control than ever before. With a single click, they can trigger a series of events that impact the entire logistics network, forcing third-party logistics (3PL) providers to adapt in real time.

With concerns over tariffs, geopolitical tensions, labor shortages, rising prices and customer demands, 3PLs must be nimble to remain competitive. 3PLs and their customers face intense pressure to meet rising consumer expectations, as brands compete for loyalty and purchasing power through superior service. To stay competitive, 3PLs must deliver goods faster and more cost effectively with outstanding customer experience, despite escalating operational costs, supply chain disruptions, and market uncertainty. Innovation is essential to overcome these challenges.

The 'Amazon Effect'

Over the past decade, customer delivery expectations have changed significantly, largely driven by Amazon.com. After two-day Prime, now next-day and same-day delivery are becoming the norm rather than the exception.

Traditional methods, especially in the retail space, focused on pushing products in the stores and waiting for customers to come in. In today’s dynamic pulse supply chain, businesses must now anticipate demand fluctuations and ensure their supply chains are agile enough to respond in real time.

In addition, 3PLs now must be good at fulfilling for both business-to-business (B2B) and direct-to-consumer (DTC), helping retailers manage the right level of inventory at their stores and meet their e-commerce sales needs efficiently. The main challenge is that legacy systems that are 20 years to 30 years old are still being used in the 3PL space. Although the market continues to move toward fulfillment and logistics for multichannel, businesses may not be equipped to handle it.

The time to modernize is now. For instance, most companies plan on increasing investment in artificial intelligence (AI) alongside advancements in augmented reality and virtual reality (AR/VR) to enhance automation and cost efficiency. These cutting-edge technologies help streamline operations, reduce costs, and improve service capabilities across multiple processes.

Utilizing the right technology is important, but it's just as critical if not more to have the right processes in place with the right management.

Related story: Triple Win: How Consolidator Relationships Benefit Brands, Retailers, and 3PLs

From Entrepreneurial Roots to Industry Transformation

Change is always difficult, but with the right engagement and communication strategy, it can be managed effectively to ensure both short- and long-term stability. A thoughtful approach — one that accounts for human behavior and adoption along with political, economic and environmental risks — allows businesses to navigate uncertainty while driving sustainable transformation.

An important component to managing change successfully is adopting an entrepreneurial mindset, one that focuses on problem-solving and adaptability with acceleration by early adopters. For me, this mindset was ingrained early on. Coming from a family with four generations of entrepreneurs, I had the opportunity to learn the importance of perseverance combined with the 20 years in large corporations where influencing skills were a must to drive innovation. This foundation shaped my career, leading to two decades overseeing digital transformation in the supply chain space.

With the blend of entrepreneurship and corporate environments, I was constantly hired to launch new things within large companies. That included same-day delivery at FedEx and Amazon’s own home delivery worldwide with start of Amazon Logistics (AMZL) that eventually led to the start of Sunday delivery in the U.S. That was a game-changer that helped even out the volume because Mondays used to be the most congested delivery days due to weekend backlogs. Technology was instrumental in this shift, enabling optimized route planning and selecting the best shipping methods to maintain cost efficiency while fulfilling the promise of fast delivery.

One example of the challenge of balancing cost with customer experience was the launch of Amazon Fresh, where we introduced promised delivery time windows. If multiple customers selected an 8–10 AM delivery window, for instance, separate drivers were needed. The solution was to optimize deliveries through density and volume management, along with route optimization. By strategically bundling package deliveries on routes, we were able to reduce cost significantly.

At FedEx, the lessons learned from leading the development of the first centralized command and control center for local delivery in the U.S. were about the importance of change management and the impact of using the right technology.

Technology had advanced to the point where functions that were previously scattered across multiple locations could be centralized. Route optimization and automation led to a significant reduction in the number of routes needed and the operating cost.

Scaling the Smart Way

Centralizing live management of last-mile logistics operations helps enhance the customer experience by streamlining processes, improving efficiency and leveraging technology-driven solutions. When businesses consolidate logistics functions, they minimize redundancies, allowing employees to focus on specialized roles that boost productivity. Automation and live visibility further improve operations, ensuring faster, more accurate deliveries.

This approach has been successfully implemented across various industries. One such example comes from a fashion rental company offering a "closet in the cloud" service, which faced inefficiencies in fulfillment, logistics and reverse logistics. These challenges led to delays and a suboptimal customer experience.

Advatix conducted an operations health check, identifying opportunities for process improvement and safety enhancements. Implementing XPDEL’s multi-modal logistics solutions reduced reverse logistics' lead times and improved inventory turns. A returns app functionality was developed, allowing customers to select a day and time for scheduled pickup from home, further enhancing the customer experience. These strategic improvements led to a 30 percent reduction in fulfillment and distribution costs.

In another case study, an e-commerce beauty company experienced high growth in the South/Southwest regions, but its 3PL fulfillment centers (FCs) were only on the East and West coasts. This led to longer, more expensive shipping to high-growth areas, potential inventory mismatches, and inefficiencies in the fulfillment process.

A network optimization analysis was conducted to determine ideal FC locations based on shipment data and projected growth. A cost-benefit analysis identified the optimal number of FCs, and a list of potential 3PL providers was developed for a request for proposal (RFP) process. Implementing additional FCs resulted in an estimated 8 percent logistics cost avoidance over two years, with further savings possible if growth continued, along with improved customer satisfaction and reduced inventory mismatches.

Staying Ahead of the Curve

Every few years, a major disruption forces industry transformation. The need for continuous innovation and adaptability in supply chains is constant.

Companies, especially retailers, should consider these pivotal questions:

• What drives their core differentiation? Identifying and steadfastly protecting these unique elements is crucial to maintaining a competitive edge.
• Where are they now, and where do they aspire to be? Establishing a clear road map that outlines their current position and future goals is essential.
• What changes are necessary to reach their ideal state and how to best get people on board? Determining the technological infrastructure required to bridge the gap between their present situation and desired objectives is vital.

To stay competitive in uncertain times, organizations should partner with innovative 3PLs. This investment frees companies to focus on their core business while driving efficiency and growth.

Manish Kapoor is the founder and CEO of Growth Catalyst Group (GCG) Companies, Inc., a global leader in technology-powered supply chains for fulfillment and marketing execution.