More and more companies are outsourcing their warehouse activities to third party logistics service providers (3PL). Whereas this was first considered as a temporary measure, it now turns out to be a structural trend.
The decision to outsource is - amongst others - based on the reasons as mentioned below; but most of all, it follows from a well-designed business case. Without discussing that topic we’ll point out a few of the reasons to outsource activities.
One of the important reasons for outsourcing can be found in the fact that warehousing is not seen as a core competency; companies do not want their employees to shift focus from their core business to supporting activities.
Next to that, the expectation is that the companies for whom warehousing is a core competency (the 3PL) will achieve higher performance levels on KPI’s like stock accuracy, pick accuracy and delivery reliability.
Also outsourcing will result in a reduction of capital invested in warehouses and warehousing equipment. The funds that are freed up by that can now be invested in the core business.
Last but not least, outsourcing offers the opportunity to increase flexibility and scalability with regard to the warehousing operations; a must in the current market place.
When you decide to outsource your warehouse activities, the 3PL will most likely work with its own warehouse management system. This provides you with optimal leverage of the 3PL’s knowledge and experience.
Process changes, however, also imply that you will have to make changes to your system. You will no longer manage stocks at the warehouse bin level, but are only interested in the stock levels in the warehouse as a whole. In addition you will need to connect to the system of the 3PL: information on activities to be executed will be sent to the 3PL and vice versa. This requires a new way of thinking with respect to inventory management and stock reporting.
An overview of the most commonly seen information exchanges:
Company --> 3PL: outstanding purchase orders
3PL --> company: goods receipts
Company --> 3PL: deliveries to be shipped
3PL --> company: confirmation that items were shipped
Company --> 3PL: notification / authorization that an activity should be executed
3PL --> company: changes in stock status, in- and decrease of stock levels (resulting from internal processes like scrapping and physical inventory
McCoy has two golden rules that should always be adhered to when integrating with a 3PL:
Stock levels in your system and the 3PL’s system should be aligned at all times.
This calls for real-time integration between the systems.
To support this rule, it is also advised to have a regular (daily) comparison of stock levels in both systems, to identify and resolve any differences that might have occurred.
Goods movements are always executed in the system of the 3PL and fed back to your system: so no direct entries of goods movements in your system.
Exceptions to these rules can always occur, but should be well documented and must be subject to strict governance.
McCoy & Partners
At McCoy & Partners we have an experienced team with deep expertise in the area of warehouse management and IT solutions like SAP WM and SAP EWM (Extended Warehouse Management). SAP EWM is SAP’s new generation WMS which offers significant advantages and more functionality compared with the traditional SAP WM.
Moreover, we have supported various customers in different branches in the realization of the outsourcing of warehousing activities, especially on the aspect of system integration with other WMS applications.
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