Top 5 stories from Supply Chain Dive

For companies deciding whether to insource their fulfillment operations or outsource them to a third-party logistics provider, there is no one-size-fits-all approach.

Company size, growth trajectory, distribution costs and customer service needs are just a few of the factors businesses need to consider, experts told Supply Chain Dive. Shipping disruptions, demand swings and inflationary pressures have also influenced companies' decisions in recent years.

"You have to have a clear vision of what you're trying to get out of it, and not just thinking with a single-minded cost type of mindset," Jeremy Tancredi, a partner in West Monroe’s Operations Excellence practice, said.

Here are the key reasons why some companies use a 3PL, while others handle their fulfillment in-house.

Outsourcing gives businesses room to grow and save

Tancredi has seen more companies shift to a 3PL-centric model amid the volatile demand environment of the past few years. Emerging, fast-growing companies will likely face challenges insourcing their fulfillment operations due to capacity management issues, he added.

"You don't have the flexibility," Tancredi said. "You're either buying a giant warehouse to grow into and have a lot of wasted space and paid a lot initially, or you're going through this exercise of short-term leases and trying to find a bigger space."

Ninaad Acharya, co-founder and CEO of Fulfillment IQ, said he's seeing more instances of companies outsourcing as of late, save for businesses with particularly unique or complex fulfillment operations. Succeeding in fulfillment means achieving a high throughput and a low cost per unit fulfilled — a tall order when distribution isn't part of many companies' core competencies.

"Sometimes you have the dichotomy of what your organizational culture happens to be as a brand, versus what you have to do inside the warehouse environment," Acharya said. "It's culturally kind of misaligned, and it might not be the core of your business."

The Singing Machine Company shifted from an in-house logistics operation to an outsourced model in 2023 as it sought to avoid rising commercial real estate, labor and supply chain costs. The karaoke products company estimated the change would eliminate $2.8 million annually in fixed rent expense and labor costs.

Natural Dog Company also saw cost savings after outsourcing its fulfillment to a 3PL in Q4 of 2023, CEO Bill D’Alessandro said in a LinkedIn post earlier in 2024. The move will help the company save $750,000 annually on postage alone, and $500,000 from reduced rent and payroll expenses.

"Not only are we saving money, we can now reach 90% of US addresses in 3 days or less," D’Alessandro said.

While D’Alessandro noted in the post that having more control over the company's fulfillment process was helpful a few years ago, outsourcing has been "a huge relief." Other companies considering doing the same have to consider the balance they want to strike in terms of control versus cost savings, he added.

"If you need control, you are probably willing to absorb friction to do your own logistics," he wrote. "If you can standardize your process, using a 3PL will almost always save you money."

Companies tap insourced fulfillment for more control

Insourcing fulfillment operations offers its own upside. Experts say it gives companies more control over the customer service experience, which can be handy in keeping major customers happy. Frost Buddy co-founder and COO Mitch Mammoser said in a LinkedIn post earlier in 2024 that control was a key factor in transitioning to in-house fulfillment after two and a half years with 3PL ShipBob.

"For us, it strictly came down to cost of shipping and labor and having more control," Mammoser wrote.

Tea seller DavidsTea also insourced its fulfillment operations in 2023 following online order delays from its previous provider. The company decided not to go with another 3PL after determining “no other organization could match the entrepreneurial spirit and innovation required to ensure we improve the overall brand experience for our consumers and our own staff,” President, CFO and COO Frank Zitella said on a December earnings call.

While outsourcing fulfillment has helped some companies trim their expenses, those that achieve a large enough operational scale can potentially fulfill their own goods at a lower cost, West Monroe's Tancredi said.

"Volume solves a lot of problems, so if you have enough volume, you can do it at cheaper cost per unit than most 3PLs, assuming you can get that initial investment recouped," Tancredi said.

The pandemic pushed many companies to tap into 3PLs for added capacity, but businesses are now more aggressively targeting cost savings in their supply chain operations, said Bo Thomson, VP of consulting at enVista, a supply chain and enterprise technology consulting firm. That could lead to heightened insourcing activity, at least among the companies with mature or complex supply chains that are typically drawn to insourcing.

"How do you become more efficient? At some point, you're kind of limited," Thomson said. "That's why you see some more people insourcing now.”

When supply chain operations are outsourced, visibility is key.

It's a lesson that VP and Head of Supply Chain Carlos Londono knows all too well in leading Chipotle's sprawling, third-party reliant supply chain.

“We are 100% third party outsourced meaning for all the factories that process our chicken, that process our cheese — whatever it might be — all of those are managed by third party partners of ours,” Londono said.

Chipotle asked each of its suppliers to tag their product with radio frequency identification tags, essentially a smart bar code that can automatically identify and track inventory. While the technology is commonly used in retail, Chipotle is the first restaurant chain to make use of it, Londono said.

In a conversation with Supply Chain Dive, Londono highlighted Chipotle’s efforts to get its RFID rolled out nationally, how the technology is already making a difference in its operations and future plans for better inventory visibility.

RFID integration with suppliers and national rollout

After completing its 200-restaurant pilot in the Chicago area, which proved successful, the company is now working on rolling out its RFID technology nationally.

“What we did is right after the pilot, we started rolling everything out on the supplier level, so making sure all our suppliers have the necessary technology, the software, the printers, the infrastructure to be able to roll it out,” Londono said.

Once that is complete, Londono said the company has a pragmatic way of integrating new technology in its restaurant business which is starting with one restaurant. After kinks are worked out in one restaurant, Chipotle rolls out RFID technology to a group of locations before expanding into a full region.

Londono said Chipotle recently rolled out RFID technology in Southern California, which is working well. The restaurant chain has a schedule where it’s transitioning to different regions.

“Our plan is to have it [RFID] rolled out to all our 3,500 restaurants by the end of the year,” Londono said.

Applying RFID to limited time offers

When it comes to limited time offers like Chipotle’s Chicken al Pastor, the company’s supply chain needs a lot of preparation, usually a year before the item is set to roll out, the executive said.

The restaurant chain has to bring in additional suppliers to make the new item a reality. Londono says each year, even when the limited time offer is repeated, the number of suppliers increases each time around.

“We have to do things like bring in new chicken suppliers, new sauce suppliers, and a variety of other things. So it takes quite a bit of effort,” Londono said.

Information can be very limited in the moment of a launch for new items like Chicken al Pastor. It becomes essential to carefully monitor inventory, and using RFID technology has been a solution to possible data gaps.

Traceability is another aspect the company has been able to improve with RFID, such as knowing where an item traveled through its network, which distribution center it went through and what transportation company was used.

Also, the speed in which restaurant managers receive inventory information once shipment data from the distribution center is sent has been useful, Londono said.

Before the RFID technology was implemented, Chipotle restaurant managers scanned each bar code by hand, taking more time and effort. With the RFID technology, a manager can just stand near a case with the product and the scanner will pick it up immediately, Londono said.

“Wherever we have the opportunity to use technology to either facilitate labor or improve the efficiency and the efficacy of the restaurant crews, we’re all for it,” the executive said.

Next up, new tech and ERP enhancements with Oracle

Chipotle's pursuit of a more tech-forward supply chain goes beyond RFID. The company is currently working on a project, using Oracle’s platform, that it’s calling supplier visibility.

The project — “cobbling” many technologies together — allows the company to see inventory, shipments and supplier information all the way upstream, he said. “We’re continuing to work on it and slowly adding in new suppliers to that project,” he added.

Chipotle is also working to enhance its current enterprise resource planning system with Oracle.

Londono says Chipotle had a master data management system that has run its course and worked really well back in the day, but the company is at a point where it needs a “next level generation” solution.

“Every company, especially if you’re starting to have any meaningful scale, you have to have some kind of centralized enterprise resource planning systems,” Londono said. That is why the company finds it necessary to improve its ERP capabilities.

With its technology team, Londono is trying to figure out what other modules and capabilities it can enable to continue gaining visibility throughout Chipotle's supply chain.

 Automation is at the forefront of many supply chain strategies as logistics companies re-evaluate and strategize their warehouse networks amid a tougher market environment.

“So, as you can imagine, when volumes are a little bit less growth-y, as we've seen through the second half of last year, that's quite often a catalyst for a company to turn around and look at its operations,” GXO Logistics SVP of Strategy and Investments Neil Shelton told Supply Chain Dive in an interview. “The problems of supply chain challenges, wage inflation and supply chain inflation on the whole — that's common across pretty much every industry.” 

But there isn’t one all-reigning solution. Automations partnerships need to be strategic for successful integration and execution.

The best breed of solutions are piloted and deployed based on customer need and fit, DHL Supply Chain VP of Operations Development Omer Rashid told Supply Chain Dive in an email interview.

“We want to leverage digital technology to make our associates’ jobs easier, safer and more fulfilling,” Rashid said. “We also want to access and harness the data from these technologies to bring insights for our customers who can then make informed decisions.”

Evaluating intentional partnerships

The supply chain management industry is currently experiencing a “flywheel effect” between outsourcing and automation, GXO’s Chief Automation Officer Adrian Stoch said during a Feb. 14 earnings call, leading to several strategic, but critically considered, partnerships.

“The need for enterprise digital transformation is leading organizations to re-examine their entire supply chains, because they understand that they need to go through this re-examination to stay competitive for today and increase resilience for the long-term,” Stoch told analysts.

GXO, for instance, has been exploring artificial intelligence applications for several clients to boost warehouse efficiency. Earlier in 2024, the logistics provider partnered with robotics developer Dexterity to streamline operations, like product labeling, for an unnamed beauty brand. GXO also doubled its use of warehouse vision tech in 2023 to reduce errors.

Technology is also a critical part of DHL Supply Chain’s digitalization strategy, which includes 12 focus technologies, Rashid said. For each focus, the logistics company collaborates with partners to co-develop tech for specific use cases that target challenges like unproductive tasks, hard or difficult activities, high-volume peaks and order profile variances.

Use cases for DHL are those that can be scaled across its warehouse network. The company tests, evaluates and develops technology as a proof of concept. Once the solution is successfully piloted, DHL productizes it for scaling, Rashid said.

DHL Supply Chain also secured a partnership with Robust.AI for the pilot and deployment of ‘Carter,’ a robot that offers flexible warehouse material handling. In 2023, DHL Supply Chain extended its partnership with AutoStore, an automated storage and retrieval system used for managing and optimizing inventory.

Rashid added that the company is always looking for new opportunities to collaborate with developers, as there are “numerous use cases in the warehouse that would be ideal for automation such as pallet picking.”

“To date, we have found great success with assisted picking robots, autonomous forklifts, unloading robotic arms, mobile sortation solutions and augmented vision picking devices, to name a few,” he said. 

The role of automation in customer needs

Customer and supplier needs remain the focus of warehouse automation efforts, Rashid said.

In 2023, a significant portion of GXO’s annual contracted revenues came from first-time outsourcing. Shelton partly attributed the increase to growing technology needs, noting that the “supplier base is really looking for someone to act as a guide through what is the right form of technology to deliver the predictability and the performance that our customers are looking for.”

But depending on what type of goods a facility handles, some benefit better from certain partnerships than others, according to Rashid.

For instance, sectors that depend on critical parts and 100% order fill, like spare parts of pharmaceuticals, benefit from tech focused on productivity, inventory visibility and accuracy, he explained. High volume retail or CPG warehouses can justify large scale automation, while e-commerce facilities benefit from order processing solutions.

DHL Supply Chain, specifically, uses tech to solve material handling challenges, which boils down to moving pallets and cases, he added.

Rashid advises supply chain mangers looking to assess their warehouse partnerships:

• Embrace technology and new ways of working
• Understand which partners share the same values and are focused on solving problems versus those who are looking for a home for technology they already have
• Understand that new solutions will not always work as planned and will need close collaboration with your technology partner to evaluate, improve and consistently evolve
• Do not underestimate change management

“The integration of AI and data quality into warehouse optimization is going to be the next big evolution in warehousing,” Rashid said. “Being partner agnostic and being able to bring and orchestrate best of breed solutions and use cases together will provide the best value.”

The U.S. Postal Service is planning large-scale network changes that will expedite transportation for some mail near its major processing facilities while slowing it down for volume coming from rural post offices.

The potential overhaul follows sweeping operational shifts the financially struggling agency has already made in recent years under Postmaster General and CEO Louis DeJoy to reduce costs, some of which have led to on-time delivery issues.

The new batch of changes could challenge small businesses, which often rely on local post offices for shipping, operating far away from the Postal Service's regional processing and distribution centers. However, the agency maintains that even slowed-down volume will still reach its end destination within existing delivery timeframes.

Agency officials outlined the proposal to the public during a virtual presentation in September. Here’s what shippers should know.

What does the Postal Service plan to change?

The crux of the overhaul will occur in the first leg of the Postal Service's transportation process, when parcels move from post offices to nearby processing plants.

The Postal Service is proposing to consolidate its current morning and afternoon dropoff and pickup activities at some rural post offices into one morning transportation route that goes to processing plants.

"This allows us to eliminate that second type of transportation in a lot of cases, or allows us to avoid having to pay those suppliers to wait for those afternoon volumes to be picked up and brought back to the plants," said Stephen Hagenstein, the Postal Service's executive director of logistics modeling and planning, during the presentation.

The change would only affect volume at post offices in ZIP codes more than 50 miles away from the Postal Service's nearest regional processing and distribution center, or RPDC. The agency plans to establish about 60 RPDCs throughout the country under its 10-year "Delivering for America" transformation plan. 

As of May 20, the agency had 13 of these facilities already operating or scheduled to start operations soon.

The afternoon transportation cuts would be an evolution of a pilot program the Postal Service has been running in select areas of the country, known as the Local Transportation Optimization initiative.

The Postal Service has deployed this program in Richmond, Virginia. The agency's Office of Inspector General said in an August report that "service performance decreased significantly in the weeks following implementation," although it noted that a prior audit couldn't isolate the program's impact from other possible operational factors.

How will this affect delivery speeds?

The changes would impact end-to-end volume, or parcels collected by a local post office before going to a processing plant. Destination entry mail and packages, or those injected directly into the Postal Service's distribution facilities by the likes of consolidators, won't see any changes under the proposal, said Keith Weidner, deputy general counsel for the agency, during the presentation.

For end-to-end volume, one additional day will be added for pieces that originate in a ZIP code more than 50 miles from the Postal Service's nearest RPDC.

Parcels from ZIP codes closer to those facilities won't experience that slowdown, and some may even reach their destination faster. The network overhaul will allow the Postal Service to bolster its speeds between originating plants and destination plants, as the agency will be able to bring all its volume into processing facilities earlier in the day, Hagenstein said.

"No longer will we have to wait for those volumes from those far out ZIP codes," Hagenstein said. "We'll have the volume available earlier in the day, and really all we'll be waiting on is that last bit of volume from those offices that are currently within 50 miles. This will enable significant processing benefits, processing efficiencies, and allow us to dispatch into the network earlier."

The majority of market dominant volume — or Postal Service products with no direct competitor — won't see any changes to service standards following the plan's implementation, said Gregory White, executive director of operations, integration and performance excellence. However, he noted that single-piece First-Class Mail products will experience the largest negative impact in service standards.

Even though transit times are slated to change for some shipments, they will remain within the Postal Service's existing delivery timeframes for its Ground Advantage (two to five business days) and First-Class Mail (one to five business days) services, according to officials.

When will the initiative take effect?

Any proposed changes would not be initiated until 2025 to avoid disrupting operations during the November election and the peak holiday shipping season, according to Weidner.

The Postal Service will weigh public feedback before filing a formal request for an advisory opinion from the Postal Regulatory Commission on the changes, Weidner said.

According to an Aug. 22 notice to the commission, the Postal Service said its delivery service standards wouldn't change sooner than 90 days after filing that request. However, it added that it "may implement discrete aspects of the operational initiatives during this period consistent with the fact that they are currently being piloted, but any changes would be limited in scope."

Why does the Postal Service want to make these adjustments?

The proposed changes are projected to save the agency between $2.8 billion and $3.3 billion a year, money it needs to meet cost and service goals while becoming more financially sustainable, Weidner said.

"What this is doing is improving our cost of performance, and therefore putting us in a position where we can better maintain affordable rates for the American people," Weidner said. "But to do that, to cut costs, have affordable rates, we have to change the unsustainable status quo."

The agency reported a $2.5 billion net loss for the third quarter of fiscal year 2024, which ended June 30, extending a trend seen over multiple quarters.

Eliminating some rural transportation is a cost-savings target, as the overall use of the agency's retail network of post offices has declined over the years. The amount of retail volume the Postal Service receives has dropped by about 80% since 1997, Hagenstein said. Maintaining that service for shrinking activity has led to an underutilized and costly local network, he added.

The changes would also enable the Postal Service to be more competitive in certain key portions of its package business, which it believes is crucial to reaching financial stability, according to a notice the agency filed Aug. 22.

Department of Transportation Secretary Pete Buttigieg credited infrastructure spending in helping better absorb supply chain disruptions.

Buttigieg presented keynote remarks and answered questions in a fireside chat with Trucking Dive Senior Reporter Colin Campbell during Industry Dive’s live event on July 24, “Supply Chain Outlook: Trends and Risks To Watch in 2024.”

During the event, he detailed how his agency helped to strengthen public-private partnerships to better withstand snarls disrupting the flow of goods, pursue a policy of zero deaths on roads, and roll out an infrastructure spending influx.

“There are more and more potential sources of disruption,” Buttigieg said, citing attacks on ships in the Red Sea, upcoming labor negotiations and extreme weather concerns, such as record-setting heat. But he added that “our supply chains are stronger, are more resilient, than they were three-and-a-half years ago."

The $1.2 trillion Infrastructure Investment and Jobs Act calls for capital injections across transportation modes, such as roads, bridges and ports. As of June 27, the DOT issued around half of its funding under the 2021 legislation, also known as the Bipartisan Infrastructure Law. Funding has covered 56,000 projects in 4,500-plus communities, the department previously noted.

Buttigieg noted how the bulk of DOT funding is formula funding for states, which decide how to use it. He cited that dynamic as an avenue to help improve truck parking and also suggested that federal efforts can help address inflation.

Funding can address bottlenecks, he continued, referring to onshoring and nearshoring in Mexico. He said given the importance of border-crossing checkpoints on trucking, the country must ensure it has the physical infrastructure to line up with anticipated demand.

Within U.S. borders, he cited how small and big port projects can help fluidity. He highlighted over $335 million in Bipartisan Infrastructure Law funding for the Port of Long Beach that will help link a dockyard to regional and national rail networks. The project will improve fluidity and help with shortages in drivers and chassis, he said.