Third Party Logistics has evolved over the decades to become an essential component of the supply chain industry. Freight Forwarding, Transportation, Warehousing, and Inventory Management are all different logistics services categorised as Third Party Logistics. The provision of warehousing and inventory management services by a Third Party Logistics company requires optimum inventory management system integration between the Third Party Logistics company and its customer organisation. That is, the Third Party Logistics provider inventory management system (IMS) must be properly integrated with the ERP of the organisation being provided with the services. The integration and communication effectiveness of the 2 systems is critical to the customer’s organisational sustainability and continued competitiveness.
In the early evolution of Third Party Logistics industry, inventory management ‘As A Service’ by a Third Party Logistics company was non-existent. As the need for outsourced inventory management became increasingly obvious Third Party Logistics companies added this as a service. However, B2B system integration was not considered critical in those early periods of outsourcing inventory management, this was because inventory reconciliation during those periods were manually completed. With the transformation of the global business industry, the advent of technology, and increased competition, system integration has evolved to be crucial in the success of a Third Party Logistics -customer relationship.
Today the advent of technology has risen to the challenge of integrating the ERP systems of a Third Party Logistics provider and its customer and has since bridged the divide between the 2 parties, shifting from B2B manual inventory transactions communications to an automated system. The benefits of this transformation being reduced business cost, reduced inventory cycle time, increased customer response time, and increased inventory holding accuracy. However, the reality is that— as many organisations have found—a good B2B system integration does not automatically translate into a good B2B inventory system alignment. So while the ERP systems of a Third Party Logistics provider and its customer might be properly and effectively integrated, the inventory system information and reconciliation of the same 2 integrated systems have consistently been found to be poorly aligned or reconciled. Today a good number of leaders and industry practitioners have found this to be a crippling problem within the industry that seriously needs to be addressed.
The cost of poor B2B system alignment or reconciliation has been found to range from lost and dissatisfied customers, lost inventory, opportunity cost, inventory write offs as a result of obsolesces, wrong decision making as a result of wrong data.
In selecting a 3PL provider, understanding your fundamental objectives and sticking to that is essential. If the provision of movement of goods from supplier to your warehouse (point A to B) is the primary object there is no need of including advance inventory management technology in your selection criteria. If it is purely the holding and management of inventory, then the effectiveness of your 3PL warehouse management system becomes essential, and even more how that system communicates with your system and the channel of sharing inventory transactions information is seriously well considering. If it is a combination of the above 2 reasons, then the effectiveness of the 3PL DIFOT, SLA, and inventory management system capabilities all become essential decision making factors. It is important to bear in mind that assigning weights to theses criterion based on your most important objective will help make a final decision as it is not ideal that all the criterion will be 100% matched.