DC Velocity - May 2015

had come from a technology implementation (most commonly one involving warehouse software). Process was a distant second, cited by 25 percent of the shipper respondents. Trailing behind were outsourcing ( 14 percent), people ( 9 percent), and location ( 4 percent). (See Exhibit 1.)

It was a different story altogether with the 3PLs. Among these respondents, well over half ( 59. 2 percent) credited process improvements with producing the best results.

As for why the 3PLs would choose process over technology, there are a number of good reasons for that, all relating to the nature of the business. For starters, there’s the issue of payback. Third parties that run dedicated facilities for their clients often lease those warehouses for the length of a contract with a customer. Common lease lengths are three to four years. Problem is, the return on investment (ROI) for a technology project may well exceed that. For instance, some types of material handling equipment have historically had a payback period of four to five years. It’s not hard to see why a 3PL would be reluctant to make that investment.

Further, bringing in technology isn’t always an option for 3PLs. For instance, if a 3PL agrees to operate a warehouse that the shipper had built and staffed, the 3PL will inherit the technology already in place. So if the warehouse is already using, say, a warehouse management system (WMS), the 3PL won’t have the opportunity to cut costs by introducing warehousing software.

Although technology projects may not be a slam dunk for 3PLs, process improvements are a natural. Large 3PLs report that continuous improvement programs tend to be high on potential customers’ “want lists” and almost always appear on their requests for proposal (RFPs). These capabilities, according to one top 3PL executive, “are table stakes. You have to be able to show you possess a continuous improvement program to be in the game.”

GETTING RESULTS

All this raises the obvious question, What kinds of results
have these projects produced? To get an idea of the extent
of the savings, the study asked, “How much have your dis-
tribution costs per unit shipped decreased based upon the
implementation of [your] technology or process project?
Please answer for the first full year after the shakeout period
was completed.”
As Exhibit 2 shows, both process changes and technology
implementations produced solid results (the survey sub-
samples weren’t large enough to provide solid data for the
people, location, or outsourcing options). But it’s worth
noting that technology projects performed both better and
worse than process projects—they were more likely to pro-
duce savings of 10 percent or more but also more likely to
result in savings of 1 percent or less.

Interestingly, for both technology implementations and
process programs, we found a correlation between results
and warehouse complexity. The more complex the ware-
house, as measured either by the value of goods shipped
or the percentage of broken-case or full-case picking, the
more likely respondents were to report that their project
had resulted in distribution-cost-per-unit savings of greater
than 8 percent.

As for the initiatives themselves, the most common technology projects were software implementations, rather than material handling equipment or other types of installations. Voice recognition and labor management system (LMS) implementations tended to produce bigger savings than warehouse management systems did. However, it’s