The rise of e-commerce presents an opportunity in disguise for logistics companies out to revamp their offerings.
Written by Dennis De Jesus
Logistics is said to be the backbone of e-commerce. And with Filipino retailers and brands focused on dealing with the fierce competition in a crowded ecosystem, their dependence on third-party logistics companies for outsourcing logistics is not surprising at all.
Due to this dependence, along with the fast-changing expectations of personalization, speed, accuracy, and transparency, 3PL companies find themselves at a pivotal juncture. While the shifting landscape might seem daunting for many, this is indeed a crucial opportunity to elevate their role and generate new revenue streams.
And every road that leads to these higher levels invariably starts with digitization.
But, while the Philippines is undergoing a digital evolution, the journey towards successful digital transformation in logistics is still in its infancy. According to the World Economic Forum, the Philippines currently ranks 86th out of 139 countries in terms of readiness for digital transformation.
And the results of this lack of digitization speak for themselves. Rising inflation is squeezing the profit margins of 3PL companies. Moreover, escalating costs of fuel and labor, along with surging commodity prices, are impacting profitability.
3PLs today are also seeing competition from their customers who are venturing into the logistics landscape. Fulfillment services by marketplaces are already here and they are much cheaper, thanks to these platforms’ growing scale and popularity. Some have even opened their fulfillment centers to non-marketplace sellers for any order volume.
So, where’s the silver lining? Well, this situation is a unique chance for proactive 3PLs to avoid playing catch-up and lead the industry. By embarking on their digital journey now, 3PLs can position themselves at the forefront of innovation, setting the pace for the industry and shaping the future of logistics in the Philippines.
Obstacles on the digital journey
Going digital is not just a strategic move for any 3PL business today, it is an imperative decision. Digital transformation is the key to efficiency, staying competitive, and meeting the evolving demands of the industry.
But the journey to digital success is often disrupted by obstacles, some external and some self-imposed. Here are some factors as to why 3PL transformation initiatives struggle to achieve desired results:
• Lack of a framework or direction. Many 3PLs not only have a general ignorance towards digitalization, but also a lack of a roadmap in terms of what needs to be done.
• Fear of costs and delays when implementing new technology. It is a common concern amongst leadership teams that adopting new technology would hamper existing operations and set processes. This is usually because all 3PLs have an established set of systems and workflows.
• Hesitation to build an integrated network. According to global research, the freight and logistics industry has fragmented digital capabilities. And since most of the businesses work with multiple systems, they feel that building something integrated would be very expensive and time consuming. While that is true, they often ignore the SaaS-based technologies available in the market that could simplify this for them.
The result of these challenges is that most logistics companies see transformation as an inconvenience they’re not yet ready to face. Digital transformation comes at a cost, causes a slowdown, requires relearning things, testing, and remarketing.
This is digital transformation
Successful logistics transformation in the Philippines will be a “dual transformation” play, not just the technology refresh of supply chain companies.
• Phase 1: Changing the way current business delivers. The first phase of this transformation journey entails reimagining and optimizing current warehousing and logistics operations. By leveraging technology, logistics companies can amplify productivity, enhance accuracy, and bolster traceability across their operations. Through the implementation of automation and optimization strategies, manual and redundant processes can be streamlined, paving the way for unmatched efficiency.
• Phase 2: Build new business models, creating new propositions. In tandem with operational enhancements, successful logistics transformation entails the creation of innovative business models and propositions. Forward-thinking companies seize the opportunities presented by the evolving supply chain market, anticipating the needs of brands, manufacturers, retailers, and digital commerce platforms.
By leveraging cutting-edge technologies and embracing customer-centric approaches, logistics companies can stay ahead of the curve and carve out a distinct niche in the market. Here are a few prominent ways:
• Automating repetitive processes. Efficiency lies in minimizing manual interventions through automation. By implementing smart, cloud-based warehouse and logistics management solutions, 3PLs can seamlessly integrate various systems and partners, enabling automatic information flow. This reduces reliance on human resources for tasks like order progress updates, inventory management, and onboarding, leading to cost savings, error reduction, and improved efficiency, irrespective of market conditions.
• Streamlining inventory control. Accurate inventory management is crucial for preventing stockouts, overselling, or underselling. Leveraging the right integrations enables real-time inventory tracking, optimizing replenishment processes and warehouse space utilization. Advanced warehouse management systems facilitate precise inventory placement, ensuring faster processing and minimizing errors, ultimately saving time and costs.
• Sharing SaaS technology with clients. To meet client expectations and stay competitive, 3PLs can offer value-added services by providing clients with access to SaaS technology. Custom-branded portals allow clients to manage orders, inventory, and warehouse operations independently, enhancing transparency and efficiency. Additionally, sharing data reports via these portals ensures timely access to critical information, facilitating informed decision-making.
• Adopting scalable technology solutions. Legacy systems hinder scalability and flexibility. Transitioning to cloud-based SaaS technology offers scalability and a wide range of integrations to accommodate evolving business needs. These systems are regularly updated and managed by providers, ensuring seamless connectivity and enhanced functionality, enabling 3PLs to focus on core operations.
• Implementing intelligent multi-warehousing fulfillment. Efficient order routing enhances fulfillment speed and accuracy. By deploying intelligent warehouse management systems, 3PLs that have multiple warehouses can achieve accurate inventory visibility across warehouses and establish rules for optimized order routing. This includes routing orders to the nearest warehouse, the one with the highest inventory, or the most cost-effective delivery route, ensuring swift and efficient fulfillment processes.
At present, many in the country’s logistics sector are yet to undergo a digital transformation. That leaves an open highway to new possibilities and growth for those willing to go down this road. But the window of opportunity is growing smaller every day. In time, only forward-thinking companies will showcase advanced digital maturity in core operations. Followers will make progress in some areas, while laggards will face an uphill battle catching up.
Dennis De Jesus is country manager of Anchanto in the Philippines.