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If you've ever read The Economist or flipped through the business section of your favorite newspaper, you've probably heard about the "Amazon Effect" and its impact on global business operations. The term was originally coined for Amazon's disruption of brick-and-mortar retail, but now it's used more generally to describe the rise of e-commerce and how firms across industries are being forced to adapt as a result.
E-commerce has always been growing, but the COVID-19 pandemic took the Amazon Effect to a whole new level. According to this analysis from Digital Commerce 360, e-commerce sales in the U.S. grew by 44% in 2020, nearly tripling the 15% jump we saw over 2019. As more people shopped online to comply with quarantine lockdowns, more companies revamped their supply chains so they could start shipping products safely--leading to one of the largest, most sudden demand spikes the third-party logistics industry (3PL) has ever experienced.
The surge has reinforced the importance of collaboration between finance and operations teams at 3PL companies around the world.
To comply with new safety protocols and to keep serving clients properly--which involves storing and fulfilling orders, getting products from A to B and doing it all as quickly and as cost-effectively as possible--leaders from both business functions need to analyze data together, identify opportunities for improvement and ensure the firm is prepared for both immediate and long-term growth.
The problem, however, is that financial and operational data is often siloed at 3PLs.
Fulfillment rates and capacity metrics might live in an inventory management system, while financial measures--such as labour costs and warehouse equipment expenses--are housed in an ERP/GL. In that scenario, you'd have to pull numbers from multiple data sources and then grapple with offline spreadsheets to calculate cost per unit shipped and other key efficiency metrics. It's manual, time-consuming and prone to human error--making it tough to plan collaboratively with reliable, up-to-date data.
That's why 3PLs need to unify finance and operations with one source of truth for company-wide data analysis.
The Amazon Effect is here to stay, which means the need for 3PLs to keep an eye on the bottom line while also maximizing efficiency is only going to increase. In order to scale successfully in an increasingly demanding industry, 3PLs must embrace digital transformation and make strategic planning more accessible across the business. Bridging the gap between finance and operations will help you do that--but without all the manual headaches that might be holding you back.
Read on to discover how to align finance and operations at your organization, with some context from 3PL finance leaders about why this is so important.
According to Digital Commerce 360's 2020 Fulfillment Report, both FedEx and UPS reported that their total YoY package volumes jumped by 20% in Q2 2020. One company benefiting from this demand spike is Clipper Logistics--a 3PL based in Leeds, England that serves retail clients in the U.K. and Europe.
Nicola Billingham, the firm's Finance Director, says the Amazon Effect and the pandemic surge have led to serious growth for Clipper--but not without surfacing some business planning challenges as well. Forecasting and financial reporting used to be entirely manual processes, which quickly became unmanageable as the company continued to scale.
"We've opened six new sites in the last 12 months, which meant six new sets of reporting to bring into our weekly and monthly analysis," says Nicola. "We already had 30-odd sites in the U.K. alone, so tracking all that data manually and consolidating it with spreadsheets was difficult. We couldn't get meaningful information into the hands of our decision makers fast enough."
But today, after automating data consolidation as part of a wider digital transformation initiative, the planning process at Clipper now looks like this:
"We're getting information quicker and in a more controlled manner," she says. "We really have to think about how to manage the business more efficiently--and now we can help our operations colleagues make decisions about how to do that."
In the 2021 Third-Party Logistics Study, more than half of the 3PLs surveyed said their working relationships with customers will move from "transactional" to "strategic partner" within the next five years. The same study also found that "data analytics" as well as "technology and digital solutions" are the two biggest factors contributing to strong 3PL-customer relationships.
These responses point to the fact that 3PL clients want more access to real-time efficiency metrics. After all, for today's 3PL firms navigating the Amazon Effect, success is about more than just fulfilling your customers' supply chain needs. It's also about proving you're actually managing them well, which means on time, on budget and without any expensive setbacks. Data storytelling can help you get that message across to customers--and that's where customer dashboards really come in handy.
Metro Supply Chain Group, a global 3PL based in Canada, is a best-in-class example of data storytelling done well. After automating data consolidation for both financial and operational reporting, Metro was able to integrate client-level operational metrics (pulled from a data warehouse) with account-specific financials from their own ERP. It's allowed them to build customer efficiency dashboards that are simple and always available, including to internal leaders and to Metro's customers themselves. According to Paolo Mari, the firm's VP of Business Analytics, "It lets us tell the full story beyond just a budget or forecast."
"A lot of our customers want to know about their costs per order, average wage rates and how they're tracking against the budget in their contract. All of these reports are automated and refreshed multiple times per day," says Paolo. "If we're seeing a negative trend, we now have the tools to understand why so we can improve that operation for the customer."
That's what being a "strategic partner" really looks like for 3PLs. As the Amazon Effect and the pandemic continue to drive demand in the industry, Paolo's example at Metro is a strong one that you should follow. Learn more about how you can protect your budget from supply chain disruption.
According to the same study we mentioned in the previous section, "integrated business planning" (IBP) is defined as "bringing together supply planning and demand planning" for 3PLs. This definition speaks to the importance of teamwork because demand planning focuses on financial measures (total revenue, revenue/expenses per customer, etc.) while supply planning focuses on operations (i.e. aligning internal resources to service the expected demand.) The study goes on to cite that just 27% of 3PLs use technology for IBP right now, while only 34% plan to invest in it within the next three years.
Those numbers are pretty low, which further highlights the need for increased collaboration between 3PL finance and operations teams. Even though the Amazon Effect might be forcing you to explore other tech investments--such as robotic process automation, for example--integrated planning solutions that support cross-functional teamwork shouldn't be overlooked as your 3PL business grows. If your finance and operations leaders aren't on the same page, it's harder to come up with business plans that are both financially and operationally feasible. As Penske Logistics VP Andy Moses says in that study, "If you're not planning together, you're really going to have struggles."
Collaborative technology solutions can help you fill that void and empower 3PL leaders with a holistic view of your planning cycle. In addition to supply and demand planning, you'll be able to unify the processes that are most important to 3PLs, including:
With one source of truth for cross-functional planning data, you won't have to sift through spreadsheets to understand how your financial assumptions affect operations (or vice versa.) Consider this example from Paige Williamson, Director of Fixed Assets and Systems at Saddle Creek Logistics--one of the largest 3PLs in America.
"Let's say you're looking at depreciation expenses for forklifts in a capital budget," says Paige. "If you're asking for five more forklifts, are you replacing them? Are you ending your leases and purchasing? That's just another example of the stories we can tell about our business now. You have to be able to understand those stories to guide your business where you want it to go."
The last 12 months has dealt us a lot of curveballs, but one thing is absolutely certain: The Amazon Effect is not going anywhere. Even when the pandemic eases and the world reverts back to some semblance of normalcy, the habits we've all formed from our collective dependence on e-commerce won't just disappear overnight. 3PLs everywhere will continue to grow and scale with an increased demand for reliable, up-to-date data.
A Complete Planning solution can help you unify finance and operations with one source of truth for strategic, data-driven analysis--and that's why they're so important for 3PLs to have in place.
Evan Webster is an experienced sales professional and storyteller with a passion for innovative technology. He currently serves as a Senior Area Sales Manager at Vena and previously worked as a Content Specialist. He continually strives to inspire finance professionals to become strategic business partners and is dedicated to helping them automate and streamline their planning processes so they can make better decisions with reliable, data-driven insights—enabling meaningful growth for organizations across the globe.
