2023.03.16
Switching to a 3PL & investing in warehouse automation
Significantly reduce costs and risks with a thoughtfully prepared automation business case
Rather than take on the initial costs and ongoing risks of setting up your warehouse automation systems, you may want to consider moving them elsewhere. As part of their end-to-end services, third-party logistics (3PL) providers can invest in automation technologies on your behalf. This significantly reduces costs and risks, making for a more attractive business case.
The 3PL provider, on the other hand, has a vested interest in making this investment. The growth of e-commerce and omnichannel, combined with the need to offer accurate end-to-end fulfillment services, leaves them no choice. If they want to attract high-growth companies entering new marketplaces, they must be able to provide services that live up to customers' expectations: omnichannel, 1-day deliveries, free returns, etc.
Automation is a necessity for third-party logistics providers
Until recently, 3PLs only invested in warehouse automation on behalf of their customers, offering to integrate automation into the service contract. They are now also looking at automation on their behalf to gain a competitive advantage, offering an enhanced customer experience with automated solutions already installed.
Indeed, automation has become a necessity for logistics providers to cope with increased demand, large volume fluctuations due to seasonality and supply issues, staffing challenges, and rising labor costs. Adapting to new buying patterns is also a challenge that automation can address. Whether it's order fulfillment mobile robots or automated warehouse management systems, these solutions help make employees' jobs easier and improve productivity and efficiency. They make omnichannel order fulfillment possible and address all kinds of logistics challenges, such as returns management, for example.
Balancing the warehouse automation investment risk with the right partner
Why is it easier for a 3PL provider to invest in automation?
Besides the fact that their survival more or less depends on automation, logistic providers are in a much better posture to manage the warehouse automation investment risk:
- Negotiating power: For the same reasons, they can provide access to a wide range of qualified carriers operating at pre-negotiated, volume-based rates; 3PLs can negotiate volume rates with automation suppliers by offering this service to multiple customers.
- Experience: With years of testing, learning, and innovating, 3PLs have gained a deep knowledge of how automation technologies might play out. While warehouse automation has gained momentum in recent years, it's not something new. Since the 1970s, logistics providers have been looking for ways to automate warehouse operations. At that time, conveyor belts or driverless transport systems were revolutionary, whereas today, they are considered "standard.” The same goes for robotic picking systems, AI, etc.
- Mitigated risk: Although with contracts lasting 3 to 5 years, large-scale automation investments do not have time to pay off, the risk can be spread over different customers (or shared with one large customer). In addition, the risk can be further mitigated with flexible and scalable automated solutions that can be re-used or extended to new customers.
What are the main benefits of partnering with a 3PL provider for warehouse automation?
- Choosing the right technology mix will become the problem for your 3PL partner. Your contract will be based on the level of service you and your customers will receive, as defined in your Service Level Agreements (SLAs), and not the type of automation implemented by your partner.
- While the return on investment of a warehouse automation project is long and the amortization of the capital is not very flexible, logistics services' cost structure is clearly defined or relies on a demand‐driven pricing model.
- Taking a measured bet on the future by choosing a logistics service provider that offers the right balance between disruptive technological innovations and reliable systems by established providers.
How do you select the right partner?
The right logistics partner will invest in warehouse automation technology on your behalf, that is, automation that can benefit you and your customers. According to your needs and investment risk aversion, there are several options for benefiting from automated systems and spreading the cost:
- The 3PL provider invests on your behalf and passes back an “asset usage fee” to you in the form of upfront CapEx, operating leases, etc.
- You pay for the automation assets upfront, so you don’t incur any financing charges.
- Automation investments are entirely funded by the 3PL provider, and you are charged with operating fees.
By choosing GEODIS, you get a proven, reliable, and forward-looking logistics partner that will adapt to your needs, provide transparent costs and use its expertise to invest in the automation that makes things happen. Our comprehensive, end-to-end logistics services will give the customer focus and cost control you need to make confident forward-looking investment decisions.
Benefit from proven and efficient technologies such as:
- Multishuttle and automated storage and retrieval systems
- Optical recognition
- Warehouse management systems that support analytics, performance reporting, and forecasting
- Picking robots
- And more.
To learn more:
Tell us about your project by speaking to one of our experts!