Unless you’ve been living underneath a rock, you’re aware that our world has been hit with a few years of unprecedented challenges – from a global pandemic to supply chain issues and now inflation. Financial markets are so concerned that more experts are suggesting that a recession is looming over the US markets.
The fulfillment and third-party logistics (3PL) industry has not been immune to these disruptions – experiencing a wild ride over the last year, with intense e-commerce growth followed by warehouse scarcity and employee as well as rent increases that are threatening to cause acute harm to many businesses. To put it in perspective, United States warehouse rental rates have increased 22% from 2020 to 2022, and warehouse labor rates have increased 31% during the same period. While the wave of growth has provided a fun ride the last few years, 3PL growth and expansion may be limited compared to the most recent past.
Let’s face it – doom and gloom are rampant – so there’s no need to beat a dead horse into the ground. Instead, focusing on solutions is the best next step.
Below are ways 3PL warehouses can not only weather the storm but also come out victorious versus the competition when our country eventually finds its way out of this challenging economic environment.
Hold Onto Good Employees
One of the greatest challenges warehousing companies face today is maintaining proper staffing. With a pool of potential employees for warehouse and shipping staff who are prone to jumping ship, finding a degree of stability is critical. 3PL warehouses are challenged with attracting new team members to manage the growth that has come in the industry. But warehouses can’t seem to bring in enough new employees to meet the increased needs, which is why keeping good employees is more important than ever. You must give them no reason at all to leave– whether it’s a timely pay increase, extra PTO, or other bonuses and perks to make their lives easier. Keep in mind that employees are getting more and more used to work from home options, so giving added incentives is necessary to lure them away from their abode. For example, Amazon now contributes to warehouse staff’s educational costs. Not all 3PL’s can provide that level of a perk but getting creative and placing a priority on maintaining high quality staff can make or break the entire operation.
Communicate ‘Big Time’ with Customers
The international business world is extremely volatile, with some companies experiencing hyper growth and others going out of business overnight. As financial pressures mount on businesses, it’s wise to expect that some of your customers will experience financial challenges which could lead to the inability to pay their bills or even continue as customers. One way to battle this challenge is to enforce stricter payment timelines – up to and including requiring them to pay weekly or fund their accounts prior to service. But above and beyond financial measures, communication is key. Maintaining monthly strategy sessions with proactive talks about financial solvency, supply chain issues, and other business challenges will keep the air open, and your company informed. While it may be somewhat uncomfortable asking pointed questions, avoiding massive write-offs is a great trade-off.
See if You Can Help Your Customers Solve Their Problems
3PL warehouses have become a bit of a commodity – most providers offer similar competitive offerings. Becoming a true partner requires a unique value proposition, with true differentiation. By helping customers, such as e-commerce merchants, find ways to grow their sales, 3PL warehouses not only differentiate further from their competitors, but they also create solutions for their customers that impact their own bottom line. From digital marketing to expanding B2B sales channels, 3PL warehouses are in a unique position to utilize the knowledge and relationships of their collective customer base to grow sales for their customers. Whether it’s bringing them in-house resources or introducing them to trusted partners, becoming a trusted advisor has never been more important.
Help Customers Reduce Unprofitable Inventory
Warehouse space is scarce and comes at an enormous premium. Finding ways to better utilize space within your warehouse will allow for increased profitability. One of the best ways to turn dead space into more revenue generating space is to identify customers with slow moving product and creatively brainstorm ways to decrease the footprint. Whether it is liquidating unsellable inventory, creating sales and discounts on certain items to help them move slow moving products, or donating goods for a tax write-off, opening space for more valuable transactions is a strategy that must be employed.
Negotiate Everything and Make it Regular
3PL warehouses utilize a wealth of suppliers, from shipping services to supplies and cartons. Now more than ever, it’s important to establish a regular timeframe of quoting out services and supplies with vendors to ensure you’re getting the best rates across the board. Whether it’s yearly or more frequently, instituting a regular, routine process of supplier price negotiations is healthy and expected. If suppliers will allow you to investigate lower rates in exchange for a guaranteed length of extended service, it is worth considering as well. Common line items aren’t all to pay attention to, as potential savings lurk around the corner of often neglected expenses, such as unnecessary fees that can be uncovered under a freight bill audit. Leave no stone unturned on the expense items and utilize creativity to find hidden cost savings.
Find Ways to Innovate Using Tech
Investing in your 3PL business in a time of inflation may seem counterintuitive, but it might be the most intelligent thing you can do, all things considered. During an economic downturn, most companies are tightening their collective belts and eliminating waste by any means possible to survive. If you can afford to make additional investments while your competitors are maintaining the status quo, once you weather the storm you will come out the other side with an amplified competitive advantage. From technologies that improve the picking and shipping process to adding smart robots for picking, there are a wealth of ways to combat hiring issues, improve picking and shipping operations, and invest in the future. Many companies are taking the opportunity to invest in their own 3PL warehouse management software, improving operations.
Final Thoughts for 3PLs to Consider
Make no mistake about it, a recession or period of high inflation can be extremely challenging or even crippling. Times could be extremely difficult for many businesses. But it’s not a time to panic. Maintaining a level head and being proactive will guarantee the best outcomes for your 3PL business. By giving some thought to your strategies and tactics, you may well separate your company from the pack when all is said and done.
About the author
Will Schneider is the founder of WarehousingAndFulfillment.com, a company that operates as a match-making service for the fulfillment industry. Prior to starting WarehousingAndFulfillment.com, Mr. Schneider gained extensive experience in the logistics industry running two private warehousing and fulfillment companies, and served as the Vice President of netQuote, a real-time quoting service for the insurance industry. In addition to writing informative posts about outsourced fulfillment and shipping services, he is also passionate about helping businesses find the right solutions to improve their overall operations. When not working, Will enjoys coaching youth basketball and spending quality time outdoors enjoying nature.