The Benefits of 3PL vs. Supply Chain Vertical Integration for Manufacturers
In the ever-evolving world of manufacturing and logistics, businesses must constantly assess their operational strategies to stay competitive and efficient. One of the key decisions manufacturers often face is whether to rely on a third-party logistics provider (3PL) or manage supply chains internally through vertical integration – which essentially brings all logistics operations in-house. Both approaches have their merits, but understanding the benefits of 3PL versus supply chain vertical integration is crucial for manufacturers to make informed decisions.
1. Cost Efficiency
Manufacturers looking to optimize their costs often turn to 3PL providers. By outsourcing their logistics needs, they can leverage the 3PL’s expertise, infrastructure, and economies of scale, thereby reducing overhead expenses. A 3PL can be a single-source provider, negotiating better shipping rates, warehouse costs and transportation fees due to their extensive network and established relationships. In contrast, supply chain vertical integration may involve substantial capital investments in building and maintaining infrastructure, which can be cost-prohibitive for smaller manufacturers.
2. Expertise and Focus
3PL providers are logistics specialists. They bring deep industry knowledge and experience to the table, ensuring that manufacturers can concentrate on their core competencies. This specialized focus allows manufacturers to enhance product quality, innovation and market responsiveness, as they are not distracted by the complexities of supply chain management. On the other hand, vertical integration necessitates diverting resources and attention away from core manufacturing functions, potentially leading to a dilution of expertise.
3. Scalability
Manufacturers often experience fluctuations in demand. A 3PL’s flexibility and scalability can accommodate such changes effectively. When demand is high, they can quickly scale up their logistics operations, and when it slows down, they can scale down accordingly. In contrast, supply chain vertical integration can be less flexible, as manufacturers have already invested in fixed infrastructure, making it challenging to adapt to market dynamics.
4. Risk Mitigation
3PL providers often offer risk mitigation services, including inventory management, supply chain visibility and disaster recovery planning. They are equipped to handle unexpected disruptions, such as natural disasters, labor strikes or supply chain disruptions. Manufacturers that vertically integrate their supply chains may find it challenging to implement robust risk mitigation strategies without significant investments and expertise.
5. Global Reach
For manufacturers with international ambitions, 3PL providers are well-positioned to provide global logistics solutions. They have established relationships and networks across borders, which can significantly reduce the complexity of international supply chains. Manufacturers would have to replicate these capabilities themselves, involving substantial investments and a steep learning curve in the case of vertical integration.
6. Reduced Administrative Burden
Outsourcing logistics to a 3PL can significantly reduce the administrative burden on manufacturers. 3PL providers manage paperwork, compliance, customs and regulatory requirements, saving manufacturers valuable time and resources. In contrast, vertical integration requires manufacturers to handle all these tasks in-house, which can be overwhelming and costly.
7. Focus on Core Competencies
Manufacturers can channel their resources and efforts into what they do best: manufacturing high-quality products. By partnering with a 3PL, they free up time and energy to invest in research, development, and production, rather than logistics and supply chain management. Vertical integration may distract manufacturers from their core competencies, potentially affecting product quality and innovation.
8. Technology and Innovation
3PL providers often invest heavily in state-of-the-art technology and innovation to optimize supply chain operations. Manufacturers who partner with 3PLs gain access to these tools and technologies without the need for large capital investments. In contrast, vertical integration can require substantial investments in technology and R&D to keep pace with industry advancements.
9. Reduced Lead Times
3PL providers are skilled at optimizing supply chain processes, which can lead to shorter lead times for manufacturers. Reduced lead times can result in faster order fulfillment, improved customer satisfaction, and a competitive edge in the market. Vertical integration may not provide the same level of supply chain efficiency, as it may lack the expertise and resources of specialized 3PLs.
10. Flexibility and Adaptability
In a rapidly changing business environment, adaptability is crucial. 3PL providers can quickly adapt to new market trends and technologies, allowing manufacturers to stay competitive. Vertical integration may limit adaptability, as it can be more challenging and time-consuming to change internal processes and systems.
The decision to use a 3PL or pursue supply chain vertical integration should be made with careful consideration of the specific needs and goals of the manufacturing business. While vertical integration may offer more control over the entire supply chain, 3PL providers bring numerous benefits, including cost efficiency, expertise, scalability, risk mitigation and a reduced administrative burden. Moreover, they enable manufacturers to focus on their core competencies, stay competitive in the global market, and access the latest technology and innovation.
If you have questions about which approach is right for your organization, contact us today.
Beyond White Glove Delivery: The Need for a Single-Source Logistics Partner
Over the past several years there has been an evolution of the required services that capital equipment manufacturers, and the supply chain marketplace in general, want from logistics providers. Several big events such as COVID and the resulting supply chain crises have reshaped expectations and created a new normal across the industry.
However, based on what we can indeed see through these murky times, we can note several trends that companies should consider as they begin the new year.
What was normally considered white glove delivery included:
- A team of multiple workers
- A lift gate truck
- Taking the product out of the package or out of its crate
- Setting it in place and hauling away debris
That’s what a typical white glove service required previously. Today, since logistics partners are already scheduled to be on-premise, manufacturers are asking for more such as the performance of additional basic assembly functions, including:
- Connecting and attaching of the accessories
- Simple verification steps, like testing the range of motion of a table
- Being able to confirm that once the unit is powered, specific-colored lights turn on
- And more
These are basic activities that, without the right single-source partner, the manufacturer would have to handle themselves or hire another technical resource. Worse, they might even ask their end customer to perform those tasks, which isn’t ideal.
That’s why today’s manufacturers require a knowledgeable, turnkey partner who not only gets the product where it’s needed, on schedule, but can perform some of those technical value-added services at time of delivery. Such a partner should also have the capacity to coach and train its team of on-the-ground field service resources as needed, to ensure the equipment is operational and ready for use. This kind of enhanced service can be a big win for a manufacturer and its customers.
With such a single-source partner, the manufacturer suddenly has the ability to scale quickly and reduce the amount of administrative involvement and personnel investment they’d otherwise have to perform on their own. It also frees up sales teams from non-revenue building activities.
If you have need for a single resource to handle all your transportation, logistics and field service needs, contact us today to learn more.
In-Depth 3PL Training and Certification is Key to Successful Product Delivery and Installations
For manufacturers, it goes without saying that the proper delivery, installation and setup of your products at a client’s site is not only vital for customer satisfaction, but also for managing the total cost of install. A high successful “first-time install” rate reduces additional field services costs you could incur to correct any processes not performed properly at time of delivery and installation.
Understanding this concept and successfully achieving it, however, are two different things. While you may consider engaging a 3PL or other independent service provider to outsource these functions, you’ll first want to ensure that they have comprehensive training and certification programs developed and actively employed for anyone who handles your products.
Outsourcing to a well-trained and knowledgeable partner should tangibly improve your first-time install success rate. This can ultimately improve the utilization rate of your internal field service engineers by enabling them to focus on revenue-generating activities. A high first-time install success rate can also reduce the amount of administrative time required for placement of an order by preventing unneeded and costly follow up from a delivery/installation issue.
So how do you know that your logistics partner’s training program is compliant? Here are some essentials to look for:
- An online / virtual training and certification platform. A comprehensive online learning portal puts instruction and certification courses into a format that any authorized personnel can access with internet availability at any time and from any location. The COVID-19 pandemic transformed this capability from a “best practice” a year ago to a “must have” requirement today. This means you should expect the teams you employ in the field to become the product experts you need to get the job done effectively the first time.A quality online learning portal will feature a range of multimedia options, including training videos, written instructions, product documentation, online testing, and more.
- Comprehensive training modules that leave no room for error. When your partners complete their training, there should be no reason for “guesswork” on their requirements or interaction with the customer. This ensures they execute the job correctly the first time. In addition to thoroughly understanding your products, they should also understand all the potential downstream touchpoints at the place of installation (i.e. health monitors in a hospital setting) and be able to adapt to unforeseen circumstances. Your partner should have a clear understanding of what simple troubleshooting is expected, or when you should be notified of an issue at the customer site that is not resolvable virtually.
- Input required from the Subject Matter Expert up front. Any good training program requires the manufacturer’s/shippers input in the creation of the Scope Of Work (SOW) prior to product launch to ensure that accurate information and instructions are being communicated to the teams that will be performing these services. It will require a time investment upfront, but it pays off significantly in the medium- to long-term for the sales and service organizations.
- A transparent operation. The online learning portal should not only include the training modules but should also be able to provide records that verify results from tests and certifications received for each of your logistics partner’s employees or agents. It also offers an easy system to prove compliance to any industry regulations, as needed.
- A team with flexibility in the field. Your partner’s training and certification system and processes should be able to adapt to any changes in products and/or end-customer requirements. Their online learning portal should also be able to effectively communicate any updates to field agents and drivers and prompt them for additional training as needed.Most importantly, the teams acting on your behalf should be able to learn from any mistakes the first time. Your partner’s ability to implement changes quickly in the field should be noted as vital to the health and success of the training program.
If you’re looking for a supply chain and logistics partner that has an established training and certification process in place, get in touch to find out more. Contact us today.
