The Hidden Benefits of Automation in 3PL
How 3PL companies are using automation to thrive
Third-party logistics (3PL) companies face challenges on all sides, including economic uncertainty, demanding customers, and new low-cost competitors. Many of these companies struggle to address these challenges and remain competitive while others thrive by making strategic investments in technology that help them automate key areas of their operations, increase customer satisfaction, and expand their product and service offerings.
Automation in 3PL warehouses
For many 3PL companies, problems start with inefficient warehouse and distribution center operations. Often hampered by aging technology and limited capital for updated solutions, these companies struggle to remain competitive with issues that include administrative tasks, warehouse utilization and capacity constraints, and fast, accurate fulfillment.
Automation can help increase productivity and alleviate these issues.
✔ Administrative automation
Many administrative tasks can be automated, including invoicing clients, generating emails, and acknowledging when an order has been received, picked, and shipped. Additional administrative tasks can be automated and accessed using customer portals which can reduce or replace manual tasks such as scanning paperwork, returning phone calls, displaying order status, and more.
✔ Space utilization and capacity constraints
Efficient use of warehouse space is a constant challenge for 3PL companies. Space must be optimized to allow for smooth movement of goods, proper organization, and easy access for picking and shipping. As product lines expand and customer demands increase, warehouses often face capacity constraints, leading to inefficient storage and higher operational costs. During peak seasons, the lack of space can become critical.
A flexible automated system that optimizes warehouse space will ensure 3PL companies have the capacity to adapt as their customers’ needs change.
✔ Optimizing utilization for trucking companies
Trucking companies face distinct challenges when trying to maintain both full truckload (FTL) and less-than-truckload (LTL) shipments. Ensuring optimal capacity utilization, route efficiency, and cost management for both types of loads is critical.
LTL shipments often require complex route planning, multiple pickups, and deliveries at different locations. Optimizing routes for partial loads requires efficient load planning to avoid wasted space without disrupting loading and unloading other shipments.
Automating manual administrative processes can help optimize scheduling, tracking, and consolidating loads efficiently as well as reduce the time necessary to manage documentation and invoicing without errors.
Opportunities for automation in warehouses
Automation and technology are key to improving warehouse management and transport operations. However, integrating new technologies with existing systems can be complex and costly. Many 3PL companies operate with outdated legacy systems that are difficult to integrate with modern automation tools. This lack of integration can lead to inefficiencies and higher error rates.
Investing in scalable, modern technology solutions can remedy many of the inefficiencies of warehouse and distribution center operations. Benefits of automation in 3PL warehouses include:
Increased Efficiency
Automation speeds up processes, reduces downtime, and facilitates 24/7 operations.
Improved Accuracy
Automated systems reduce the risk of human error in inventory management, order fulfillment, and shipping.
Cost Reduction
While the initial investment in automation technologies can be significant, the long-term savings in labor costs, warehouse management, and operational efficiency often justify the expense.
Scalability
Automation allows 3PL companies to scale their operations quickly in response to market demand without hiring and training additional staff.
The financial benefits of automation often offset the costs of implementing the new technology. For example, automating just 20% of a manual operation can yield a 25% gain in productivity. This means that you could potentially handle about 25% more work or save an equivalent amount of time, resources, or effort that had been allocated to manual tasks. Automating 75% of the same activity can result in a productivity gain of 300% (your employees can handle three times the work)!
See how automating routine tasks can impact your productivity with our Productivity Gain Calculator.
Increasing the value of your company through digital technology
For 3PL companies, advancements in automation and AI-driven analytics offer operational improvements and substantial financial benefits. By enhancing efficiency, reducing costs, and improving service quality, automation and AI can directly impact critical financial metrics like Return on Investment (ROI) and EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), ultimately increasing the overall value of the company itself.
ROI enhancement through automation and AI
Cost Reduction and Efficiency Gains
Automation and AI-driven analytics streamline various warehouse and distribution center operations, from warehouse and inventory management to order fulfillment. AI can also help optimize transportation modes and routes to minimize costs. These efficiencies lead to significant cost savings and minimize human error, directly improving operational efficiency, which translates to a higher ROI for 3PL companies that invest in these technologies.
Improved Decision-Making
AI-powered analytics tools enable 3PL companies to make data-driven decisions which enhance service levels and reduce costs, further boosting ROI.
Increased Customer Satisfaction
Automation and AI also improve the customer experience by enabling faster and more accurate order processing. Technologies like AI-driven chatbots and automated tracking systems provide real-time updates to customers, enhancing transparency and trust. Satisfied customers are more likely to remain loyal, leading to higher revenue and increased ROI over time.
Increase the enterprise value of your company
Automation and AI provide a competitive edge by enabling 3PL companies to offer faster, more reliable, and more cost-effective services. This differentiation can command a premium in the investment market because investors typically view companies that leverage cutting-edge technologies like AI and automation are more innovative and better positioned for long-term growth. This positive market perception can lead to attractive valuations of the company’s worth or Enterprise Value (EV). When a 3PL company is perceived as more efficient and capable of generating higher profits (increasing EBITDA), it can achieve favorable valuations during mergers and acquisitions or when seeking capital investment.
Impact of automation on enterprise value
Integrating automation into 3PL operations is not just a technological upgrade but a strategic investment that can significantly enhance financial performance. By improving ROI and optimizing the EV, these technologies increase the overall value of 3PL companies, making them more attractive to investors and better positioned for future growth.
Find out how the recurring cost savings resulting from automation can improve the value of your company using our Enterprise Value Calculator.
How automation improves data management and cybersecurity
Automation is revolutionizing how 3PL companies manage data and cybersecurity, helping them increase data accuracy, streamline operations, and fortify their defenses against cyberattacks.
Effective data management
Enhanced Data Accuracy and Consistency
Manual data entry is prone to human error and susceptible to internal fraud. Automation is critical to improving data accuracy across 3PL operations, reducing the risk of mistakes, and ensuring that all stakeholders have access to consistent and up-to-date information. For example, Warehouse Management Systems (WMSs) integrated with Internet of Things (IoT) devices ensure that data is captured in real-time and accurately recorded in centralized databases.
Real-Time Data Processing and Analytics
Automation enables real-time data processing, essential for 3PL companies to make informed decisions quickly. Automated AI-driven data analytics tools can sift through large volumes of data to identify trends, optimize routes, and forecast demand. By automating these processes, 3PL companies can respond to market changes swiftly. For example, AI-driven analytics platforms can automate the analysis of shipping data to predict potential delays, allowing companies to manage logistics and maintain high service levels proactively.
Strengthening cybersecurity
Automated Threat Detection and Response
Cybersecurity is a growing concern for 3PL companies as they handle sensitive data, including customer information, shipment details, and financial transactions. In fact, according to ITPro, 93% of 1,200 CIOs, CISOs, and chief procurement officers surveyed reported direct cybersecurity breaches due to weaknesses in their supply chains. This includes vulnerabilities introduced by third-party vendors, which are a common concern in the 3PL industry.
Automation can significantly enhance cybersecurity by providing automated threat detection and response systems. AI-powered cybersecurity solutions can continuously monitor network activity, identify suspicious behavior, and automatically initiate countermeasures. For instance, an automated system can detect a suspect login attempt from a remote location using conditional access policies and immediately trigger an account lockdown to prevent unauthorized access.
Data Encryption and Secure Data Transfer
Automated systems also improve data security in transit. By automating the encryption of sensitive data, 3PL companies can ensure that information is securely transmitted between systems and partners, reducing the risk of data breaches. Automation can manage encryption keys, rotate them regularly, and enforce strict protocols for data access, making it harder for cybercriminals to intercept or compromise data.
Compliance with Cybersecurity Regulations
Regulatory compliance is another area where automation proves invaluable. Many 3PL companies must comply with industry-specific cybersecurity standards and regulations, such as GDPR in Europe or CCPA in California. Automation helps streamline compliance by automatically tracking and documenting security measures, generating audit reports, and ensuring that all cybersecurity protocols are consistently applied across the organization. This reduces the administrative burden and minimizes the risk of non-compliance penalties.
Regular and Reliable Data Backups and Disaster Recovery
Data loss due to cyberattacks, hardware failures, or natural disasters can devastate 3PL companies. Automated backup systems ensure critical data is regularly and securely backed up to off-site locations or cloud-based storage. In the event of a data breach or system failure, these backups can be automatically restored, minimizing downtime and ensuring business continuity.
To learn how 3PL companies can protect their data, operations, and customers from the growing threat of cyberattacks, download our eBook: Cybersecurity in Third Party Logistics (3PL).
Diversifying the supply chain
3PL companies must adopt strategies that enhance their resilience and adaptability to remain competitive. Two key strategies—flexibility and diversification—have emerged as essential for maintaining operational stability, meeting customer demands, and mitigating risks.
The importance of flexibility in 3PL operations
One-third of the supply chain leaders in Gartner’s recent Antifragile Supply Chain Management Survey claimed their supply chains are “highly unprepared to deal with external uncertainties, such as natural disasters, cyberattacks, and wars.” This means that logistics service providers must center their strategy on flexibility. Having flexible operational processes also requires that their software infrastructure be flexible.
Flexibility in the supply chain lets 3PL companies adapt quickly to changing market conditions, customer needs, and unexpected disruptions. Flexibility can take many forms, from the ability to scale operations up or down rapidly to the capacity to onboard a new customer with personalized processes.
Diversifying the supply chain for risk mitigation
Supply chain diversification involves spreading sourcing, transportation, and logistics activities across multiple geographies, suppliers, and transportation modes. This approach reduces the dependency on a single source or route, mitigating risks such as supplier failures, geopolitical tensions, or natural disasters.
Combining flexibility and diversification for maximum resilience
While flexibility and diversification are powerful strategies individually, their true strength lies in their combination. A 3PL company that is both flexible in its operations and responsive to diversification in the supply chain can quickly be the partner that comes out the winner when the market is faced with disruptions.
By adopting scalable operations, agile technology, and flexible operations, 3PL providers can better manage risks, meet customer demands, and secure their position in the market.
Managing increasing costs: Interest rates, labor, and global costs
3PL companies are under constant pressure to manage the combined effects of high inflation, a shrinking labor market, and elevated interest rates. These factors significantly impact their operating costs and overall profitability. However, 3PL companies are finding innovative solutions to navigate these challenges, ensuring they continue to deliver value to their clients while maintaining financial stability.
Leveraging technology and automation
One of the most effective ways 3PL companies combat the effects of high inflation and a shrinking labor market is by adopting technology and automation. By integrating advanced technologies that allow them to automate part or all of an operational process, 3PL companies can reduce their dependency on labor and improve operational efficiency.
Strategic partnerships and collaboration
In response to high inflation and rising interest rates, many 3PL companies are forming strategic partnerships and collaborations to share resources, reduce costs, and improve service delivery. By working closely with suppliers, carriers, and technology providers, 3PLs can gain access to innovative solutions that help them manage costs more effectively.
For instance, 3PL companies are joining collaborative transportation networks to pool their shipments with those of other companies. This not only reduces transportation costs but also improves efficiency by maximizing the use of available capacity.
Likewise, some 3PL companies are adopting shared warehousing models to counteract the effects of high interest rates on capital expenditures. In these models, multiple companies share warehouse space, reducing the individual costs of facility ownership or leasing.
Dynamic pricing and cost pass-through strategies
Inflation typically means higher operating costs for 3PL companies, including increased fuel, labor, and materials prices. Many 3PL companies manage these rising costs by adopting dynamic pricing models that allow them to adjust their rates in response to changing market conditions.
For example, to minimize the impact of increasing fuel prices, these companies implement fuel surcharges to pass on the increased fuel cost to their customers. These surcharges fluctuate with fuel prices, ensuring that the 3PL company can maintain its profit margins even as fuel costs rise.
Investing in workforce retention and development
While automation and technology can alleviate some of the pressures of a shrinking labor market, the human workforce remains a critical component of 3PL operations. To counteract the challenges of a tight labor market and provide a career path for unionized and non-unionized workers, 3PL companies are investing in workforce retention and development initiatives.
Companies offer enhanced benefits, such as flexible work hours, competitive wages, and career development opportunities to attract and retain talent. These measures help reduce turnover rates and ensure that 3PL companies have the skilled workforce needed to operate efficiently.
As 3PL companies automate more tasks, the workforce must also adapt and move away from processing operations and move instead into managing the exceptions of the automated process.
These companies are also investing in training programs to help their employees handle more complex tasks and operate advanced technologies. This improves job satisfaction and increases overall productivity, making it easier for companies to retain employees and manage costs more effectively.
Expanding services to meet changing demands
Many 3PL companies are expanding their service offerings to meet the changing demands of their clients, including e-fulfillment, cold-chain logistics, specialized storage, cross-dock warehousing, dry storage, and value-added services for manufacturers and distributors.
These are just some ways 3PL companies maintain their competitiveness and continue delivering value to their clients in a challenging economic environment.
Learn how one international 3PL company reduced costs and increased customer and employee satisfaction with a 3PL solution from ArcherPoint.
How ArcherPoint can help you succeed in 3PL
Managing your 3PL company in today’s competitive environment requires flexible, scalable software that can handle your logistics requirements.
ArcherPoint is a leading Microsoft and Boltrics solutions partner. The combination of Microsoft Dynamics 365 Business Central and 3PL Dynamics from Boltrics offers a cloud-based 3PL solution with adaptable workflows, warehouse automation, transportation management, freight forwarding, and more.
Learn more about Business Central and 3PL Dynamics.
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