When it comes to warehousing, many companies eventually outgrow the “do it yourself” model and choose to hand the reins over to a third-party logistics (3PL) professional. What’s important to understand, however, is that many 3PLs are capable of a wide array of warehouse services in addition to the basics. Some might surprise you. In this article, we’ll look at some of these value-added services so you can find a 3PL with the capabilities that matter most to your business.
Recap: basic warehouse services
As we discussed in our “3PL warehousing 101” article, there are three basic types of warehousing available to you.
- The DIY method. This is potentially your most expensive option. You can choose to simply go it alone and build or rent a warehouse yourself. From there, you’ll need to staff it, pay for the equipment, the warehouse management system and other technologies.
- The dedicated 3PL model. With this option – known as dedicated or contract warehousing – you pay a 3PL to fully dedicate one (or more) of its warehouses to your operation. Or, you can lease the facility(s) yourself and hire a 3PL provider to run your operations.
- The shared 3PL model. The most common form of modern warehousing, shared warehousing enables you to share space in a 3PL’s warehouse alongside other “tenants.” Instead of the large overhead associated with the DIY and contract warehouse models, you simply pay only for the space and services you require.
With either 3PL option, some or all of the following services may be available to you.
Value-added 3PL warehouse services
Cross docking is a service in which products are unloaded from a truck (or railcar if intermodal) for temporary storage in a 3PL warehouse. The products are then quickly loaded onto another truck for final delivery. Cross docking is a natural cost saver as products can be safely kept in a warehouse – and additional 3PL services can be performed – without incurring storage charges. Products typically remain in a staging area next to the dock doors. By skipping long-term storage, companies can speed distribution by keeping products on the move.
The following are examples of instances in which cross docking can be especially useful.
- The driver is early to a retailer appointment. Most retailers will not accept early deliveries. So, when a driver with a trailer-full of product arrives well before a scheduled appointment, he has two options: wait it out or find a cross docking provider. With the cross-docking option, the driver will unload the product at a nearby 3PL facility. The 3PL will then make the final delivery to the retailer, while the original driver moves on to his next load.
- The driver misses a retailer appointment. Just as drivers can be too early, they can also be too late, whether it’s due to traffic or equipment malfunctions. A new appointment must be then scheduled – often several days out. When this happens, the driver can unload product with a 3PL for cross docking and go on his way. The 3PL then performs final delivery at the new appointment time.
- The carrier is not a preferred logistics partner. Some retailers have ‘preferred’ logistics partners that enjoy privileges like the ability to drop trailers off at a DC without an appointment. To take advantage of this privilege, some carriers without preferred status will cross dock their products with a preferred 3PL. This enables the non-preferred carrier to skip the appointment process as the preferred 3PL simply drops the trailer at the retailer’s DC.
- The trailer is loaded in reverse. Sometimes a trailer will be loaded in a way that conflicts with the driver’s schedule. For instance, the items at the nose of the trailer will need to come out first but are unable to be reached. With a visit to a cross docking facility, the 3PL can unload, organize, reload, and/or palletize product as the driver wishes.
- The load is not acceptable to the retailer. A driver may deliver a load to a retailer DC only to be turned away because the delivery is not up to retailer’s standards. In these instances, the driver can take the trailer to a 3PL cross docking facility for product rework services. The driver or the 3PL can then make the final delivery.
Rework most commonly refers to the reconfiguration of products to make them suitable for delivery to your end customers (e.g., retailers). For example, let’s say your product is manufactured and packaged in China and is shipped to you in North Carolina for distribution here. Unfortunately, however, there is an issue with the product in its current configuration and your customers won’t accept delivery.
When this occurs, you have only a few options. You can ship the products back to China to be reconfigured and then shipped back to the U.S. again – while losing both time and money in the process. Or, you can entrust the reconfiguration of your product to one of many product rework companies in the U.S. These companies can then perform the necessary product or package updates in the U.S., and work with you and/or your end customers to ensure compliance with all requirements.
3PLs that specialize in rework can help you solve a host of problems, including the following examples.
- Replacing a product component
- Inserting and/or replacing an instruction manual into product packaging
- Replacing incorrect or outdated product labeling
- Selling existing products in a new configuration
- Inserting missing parts into product packaging
- Repairing a defect
- Repackaging products (e.g., due to damaged boxes)
Foreign trade zone (FTZ) services
Some 3PL warehouses are authorized to function as foreign trade zones. Located in or near U.S. ports, foreign trade zones are secure areas that are under U.S. Customs and Border Protection (CBP) supervision, though considered outside of CBP territory. Merchandise may enter the U.S. via an FTZ without a formal customs entry, without payment of customs duties or excise taxes, and without a thorough examination.
It is only when the product leaves the FTZ for distribution within the U.S. that these duties, taxes and tariffs are collected. If the product is exported directly from the FTZ to another country, then nothing is collected.
Companies typically utilize FTZs to offset the impact of tariffs and/or simply to pay taxes and duties over time rather than paying them all at once (as they would if product was imported into the U.S. without using an FTZ).
Manufacturing logistics services
Following are some of the key inbound logistics services – also known as manufacturing logistics services – that 3PLs can perform to support the flow of goods into a factory.
Right now, your buyers probably spend a good percentage of their time negotiating with, and procuring goods from, makers of boxes, nuts, bolts, and other consumable parts and materials. While necessary, these activities do little to improve factory output. Third-party procurement services from a 3PL can help.
The way it works is simple: the 3PL procures the materials, stores them, manages the inventory, and invoices you only for the parts you need, when you need them. Naturally, the 3PL would build inventory financing costs into the overall cost of the service, and there would need to be a contractual agreement that guaranteed purchased materials would be used.
By allowing your 3PL provider to purchase non-strategic materials on your behalf, you’ll reap the following rewards:
- Keep your cash longer.
By invoicing you only as parts are used, your 3PL allows you to preserve your capital.
- Reduce your inventory and speed up the cash cycle.
By outsourcing purchasing to a 3PL, you’ll no longer have to “over-buy” to make sure the factory has the raw materials it needs to operate.
- Pay less for supplies.
Your 3PL may be purchasing for multiple customers to achieve economies of scale that you wouldn’t otherwise have on your own.
- Free up floor space taken up by non-strategic parts.
Instead of being a storage warehouse for boxes of parts and materials, your floor space could be used for production only, thereby increasing throughout. When you need these materials, your 3PL will deliver them just in time.
- Free up buyer time to work with tier 1 & tier 2 suppliers.
By reducing time buyers spend with non-strategic suppliers, you’ll free them up to work on more important, larger contracts.
For many manufacturers, pre-assembly of component parts is also required during the production process. This assembly can take up a lot of time (as well as inventory space and manpower). To save a good chunk of this time – and, with it, a good chunk of money – many manufacturers utilize 3PL kitting services.
Kitting, as performed by a 3PL, is the act of taking the individual parts of a product, compiling them together in a “kit,” and then delivering that kit to the production operation for assembly.
You might ask, “what’s the big deal? Why don’t manufacturers just kit their own parts?”
Imagine that you are a manufacturer. You have 2,000 units that need to be assembled in a day, and you have 15 associates to perform this task. How much time would it take each employee to not only perform his or her assembly functions but also search for and compile all of the parts for 133 products (2,000 items divided by 15 associates = 133 items each) prior to assembly? For most companies, the answer is simply “too long” (aka “too costly”).
With kitting services, you remove this wasted time and streamline the entire process. Your associates receive neatly arranged kits containing all of the component parts required for a particular stage in the assembly process. No searching for parts or pre-assembly work required. Your production operation runs simpler, cleaner, and much quicker.
Just in time (JIT) delivery
Historically, manufacturers utilized what’s now referred to as a “just in case” logistics model. With this model, every item that the manufacturing operation could require – from nuts and bolts to packaging materials – was kept on-hand by the manufacturer “just in case” it was needed. This took up large amounts of storage space that was no longer available for production. It was also a very expensive way to operate since items had to be purchased well before they were used.
“Just in time” (JIT) delivery is a lean manufacturing logistics strategy in which materials are kept off-site (e.g., at a 3PL warehouse) and delivered to the manufacturer precisely when they are needed (as determined by demand signals or a pre-determined schedule). These materials can be nuts, bolts, and packaging components, or they can be custom kits that are pre-assembled by a 3PL at a nearby location and delivered as needed.
Vendor-managed inventory (VMI)
So, if the inventory is no longer with the manufacturer, where does it go? JIT is often a component of a larger 3PL inbound warehousing operation for the manufacturer. In this operation, the 3PL will take on the tasks of receiving and storing materials at its nearby warehouse(s), managing the inventory, and delivering products to the plant as needed.
With vendor-managed inventory (VMI), the supplier of the materials retains ownership of the inventory until it is delivered to the manufacturer. 3PLs routinely help to facilitate these arrangements – storing the materials on behalf of the supplier and then performing final delivery. 3PL systems give the supplier secure visibility to the warehouse management system to manage min/max levels.
VMI results in substantial cash flow improvements for the manufacturer who does not pay for the materials until they are needed for production.
Some 3PL warehouses are served by rail and, accordingly, have rail siding to handle incoming or outgoing freight directly between the warehouse and rail cars.
For example, Kanban’s distribution campus in Rocky Mount, North Carolina is served by CSX rail. We’re able to support incoming rail freight from the CSX railway in one of two ways:
- Boxcars can be brought up to one of our warehouse’s four rail doors. They can then be unloaded directly into the warehouse before heading back out.
- Center-beam cars are brought to our rail transload yard. Once in the yard, the products can be loaded onto flatbed trucks which can transport the product inside the warehouse via drive-through doors, or the trucks can head out straightaway and deliver the products to the destination.
For loading of outbound rail, these processes are simply reversed.
Finding a 3PL that can support rail operations can help strengthen your supply chain as rail provides the following benefits.
- reduces your reliance on OTR drivers that can be very hard to come by
- reduces your freight costs significantly versus OTR
- makes your supply chain more flexible by giving you another transportation option
- consolidates large amounts of your products in a specific location – at a relatively low cost – in advance of a major project (e.g., construction)
Food logistics companies like Kanban that are registered with the FDA can enable FDA representatives to inspect your products at their warehouses. Some 3PLs are also able to provide product samples to your quality control team.
At Kanban Logistics, the way that sampling works is as follows. We have customers with nearby manufacturing plants that have trained our team members on their sample-collecting processes. When containers of these products come in and are unloaded, our team members collect the samples and deliver them to the nearby production facility. Their quality control team then tests to ensure that the product is fit for distribution. If it is, our distribution services will proceed as normal. If it’s not, we can quarantine and/or destroy (with certification) the product lots in question.
By having a food logistics company trained in its sampling methods, the manufacturer can avoid timely steps in sending representatives out to us.
As you can see, 3PLs can offer warehousing services that go way beyond simple storage. Be sure to understand the full extent of your chosen 3PL’s capabilities at the outset of the relationship. And, if your warehousing needs extend to North Carolina, be sure to contact Kanban Logistics to learn more about our specific service offerings.