3PLs innovate to keep up with pivoting supply chains

by Jacob Stoller

In February 2020, global logistics provider DSV Solutions opened a 1.1-million-square-foot high-tech facility in Milton, Ontario, the largest multi-client logistics facility in Canada. By December, it had reached capacity.

The extreme demand for space at the new facility demonstrates the growing importance of 3PLs in rapidly changing supply chains. “DSV sees the benefit of this size multi-client building, and the plan is to incorporate this type of scale into our future growth strategy,” says Khadem Alam, head of engineering, DSV Solutions Canada, citing a similar facility currently under construction in Lancaster, Texas. “The technology we’re investing in at our Milton facility is starting to get replicated in other DSV buildings as well.”

Retailers, distributors, carriers, and manufacturers are turning to 3PLs to adapt to an e-commerce landscape where order profiles, skills, and technology are radically different from the past. The quantity of orders processed in a warehouse, for example, could be a hundred times the previous, calling for significant restructuring of order handling, picking, and delivery.

“A new customer joined us in February [2020], just before Covid,” says John McKenna, CEO of Mississauga-based McKenna Logistics. “They said they’d be doing 50 orders a day. I think that number turned out to be around 1,600 orders in a day.”

The challenge is compounded by the already high standards for e-commerce. Consumers expect a wide product range, same-day shipping, competitive pricing, and a buyer interface that’s informative and easy to use.

“The drastic growth of online retail has changed market and customer expectations,” says Alam, “so if you’re a retailer using a 3PL, suddenly you want a service that needs a whole different skill set, because the order profile, the level of accuracy, and the level of work required are very different. That shift doesn’t happen overnight.”

3PLs got a head start filling in gaps that retailers, manufacturers, and other supply chain players can’t take on profitably. “We’ve been adjusting to e-commerce for 10 years,” says McKenna. “Customers were already using us to ship to their retailers. And then they said, ‘while you’re at it, can you do e-commerce too?’ And when they get a listing in costco.ca, they ask, ‘can you do that?’”

Introducing innovation

3PLs’ problem-solving role has provided incentive to adopt innovative approaches, and technology has been an essential component. Kenco Logistics, for example, opened a 10,000-square-foot test facility, Kenco Innovation Labs, in Chattanooga, Tennessee, in 2015. The company has a wide range of technology projects in play, ranging from pilot projects to full implementation, spanning technologies that include automated forklifts, robotic tuggers, automated storage, and augmented reality picking.

“We have 90-plus facilities, and a huge variety of customers with different profiles” says Kristi Montgomery, Kenco’s vice-president, innovation, research and development, “so we are looking at all sorts of different applications.”

New uses for existing tech

The technology is not necessarily new. McKenna’s ability to scale to e-commerce order density was based on the company’s adoption of Zethcon Synapse logistics software six years ago. “We now have the volume to leverage some of the tools that we really didn’t have to leverage before,” McKenna says.

While automation is often associated with cutting jobs, the effort here is to fill in the gaps created by a perpetually tight labour market. “Innovation isn’t about cutting our staff by 30 percent,” says McKenna. “Innovation is about handling the business with the people we’ve got.”

“It’s very difficult to get people to work in our warehouses, and the pandemic seems to have accelerated that,” says Montgomery. “And that’s pushed a lot of our customers to come to us and say, ‘we need to figure out how to be more sustainable, from a business perspective, because this problem is going to continue to be an issue.’ So we’re not really looking to replace people with robotics or automation – we’re trying to fill the gaps in the people we can find.”

Process behind the technology

Applying automation in a human work environment in a way that makes employees more productive is tricky – implementers need a solid understanding of the existing work and how that automation will address the existing gaps. Similarly, ensuring that the existing process is clearly defined and stable is often a preliminary step.

“I always say that if you take a bad process and you add automation to it, all you’ve done is automate a bad process,” says Montgomery.

“The need for scalability really tested us,” says McKenna. “To do more without adding more people, we had to get really refine our business processes. If the business processes weren’t lean, we wouldn’t have been able to scale up.”

Excellence frameworks

Some companies have adopted formal operational excellence frameworks, notably the lean approach that was originally pioneered by Toyota, to refine their processes.

“The heavy lifting is what had to go on behind the scenes around business process improvements – really streamlining our operations,” says William Brandel, CEO of Mississauga based Ingram Micro, which provides supply chain services to the tech sector. “We’ve moved to a complete kaizen mentality. So when you think of lean and process improvements, that’s probably the biggest change for us.”

The effort has yielded surprising efficiency improvements even before technology is applied. “Once you have your controls in place and you’ve defined your metrics and your KPIs, I think that is when you can now start thinking about where technology is going to come into play,” says Brandel.

Operational excellence principles are also widely applied at DSV and at Kenco, whose Kenco Operating System (KOS) methodology has been praised by lean advocates.

Eliminate waste

While lean has many facets, a central tenet is to reduce waste, which is broadly defined as any effort that doesn’t directly add to customer value. A classic and often cited example is the work of a picker. Estimates are that pickers spend as little as 30 percent of their time picking, with the bulk of the remainder spent walking as much as 20 kilometres every day.

Goods-to-person robots eliminate this waste by moving goods from storage to a stationary picker or from that picker to consolidation points. This frees pickers to spend far more of their time doing what they do best, and what customers are paying them to do.

“I can keep people in a very small square footage area,” says Montgomery, “but all of our orders get fulfilled very quickly. And so the productivity increases with the robots, and at the same time, my people are more effective because they are, as they say, in their zone and doing the job that they know how to do well.”

The automation, however, needs to be carefully implemented in the context of the end-to-end process. An employee loading a conveyor, for example, may not get the required information from a robot.

“There’s a robot showing up with a bin that nobody knows,” says Montgomery, “and so there has to be a scan added there at that point. So it’s thinking through those pieces we need to capture that make the process most optimal.”

Automation, however, isn’t just about physical work. Much of the repetitive grunt work in logistics is done in front of a computer screen.

“Everybody thinks about automation in terms of robotics or some mechanical thing,” says Montgomery. “One of the things we’ve found pretty significant success with is robotic process automation (RPA) – snippets of code that run in the background and mimic human interaction with a system.” Typical examples are updating an Excel spreadsheet, eliminating manual inputs into an ERP system, or filling in shipment information through a customer portal.

All these efforts, mechanical or otherwise, not only improve productivity, but make work more rewarding for employees. “People don’t want to have to come in and do a job where they’re just doing repetitive, menial tasks,” says Montgomery. “So how can we help the job be a much better place to be for them?”

The last mile

In Canada, a geographically dispersed population makes last-mile logistics particularly challenging. At the outset of the pandemic, Mohawk Medbuy, a not-for-profit provider of shared logistics services for healthcare, assembled a network of partnerships to bring personal protection equipment (PPE) and other critical supplies to underserved customers.

“There really wasn’t a solid supply chain for long term care, nursing homes, retirement homes, and those kinds of facilities,” says Tony DiEmanuele, the company’s president and CEO.

Getting goods to customers wasn’t the only issue – buyers in these smaller facilities, unlike their counterparts in hospitals, needed a lot of change management and attention, as this was a new way to source and receive product.

“With supply chain systems and data insight being less sophisticated for this group of customers in healthcare, there was a need for the Amazon-like experience,” says Janice Mundell, the organization’s chief marketing officer and senior vice-president, business intelligence. “So we made it simple for people to get what they needed quickly, and supported them with some product sell sheets so they could understand the clinical aspects.”

The experience highlights the critical role of 3PLs in building better supply chains through partnerships. According to Brandel, a heightened spirit of collaboration has emerged in response to the pandemic. “Think of how much more efficient the whole ecosystem can be if companies start to pull together as a team to deliver a really robust experience to their end community,” says Brandel. “I think that’s how people are going to start looking at things differently.”