By Dick Friedman
Some so-called distributors of construction, rehab, and industrial products don’t own or lease warehouses or delivery vehicles. These entities do business in very non-traditional, low-cost ways—ways that could evolve into more competition for traditional electrical distributors.
Some alternative distributors store products in what used to be termed “public warehouses” but are now termed 3PLs. A modern 3PL uses a form of ERP system for receiving digital information and directions from customers about impending product receipts, sales orders to pick and ship, which method of shipping to use, and what and when to count. The ERP is also used to send information about receipts, shipments, and counts to customers and to transmit invoices to them. It is also sometimes used to transmit to the involved manufacturer an acknowledgement of a receipt and to transmit to the customer a notice of an upcoming delivery.
A WMS is also used by modern 3PLs, with hand-held RF guns used to capture data about receipts of customers’ products, put-away, picking, packing; loaded orders, and products counted. A WMS also precisely tracks the locations and quantities stored there, transmits data to RF guns about picking; determines which truck or outside carrier to use, and generates labels. Some WMS interface with the computer systems of carriers used by the 3PL, to arrange for pickup and receive information about a completed delivery.
A well-known example of a 3PL is UPS and FedEx, which for years have stocked distributors’ products and shipped them, using labels with the name of the distributor. Amazon Business offers storage space and warehouse services that amount to being a 3PL.
The reason that a distributor, alternate or otherwise, uses a 3PL is not just cost savings, although the fees charged for storage and services are much less than the costs of owning/renting and staffing their own warehouse. For distributors that deal with widely fluctuating levels of sales orders and/or inventory levels, using a 3PL avoids having to employ more warehouse workers than needed on average, pay for overtime, and/or pay for more storage space than needed on average. Another reason for using a 3PL is that many distributors cannot afford to own the sophisticated ERP and WMS systems used by 3PLs; systems so advanced that the functions are not available in cloud systems.
When an alternative distributor uses a 3PL, the distributor is usually responsible for arranging for the transportation of product from manufacturers to the 3PL, although some 3PLs will make those arrangements. Some 3PLs use their own trucks to deliver product to local customers of the distributor, but most have arrangements with common carriers to pick up and deliver product locally and beyond their trading. Of course, the 3PL charges the distributor for making inbound and outbound transportation arrangements.
Not all alternative distributors use 3PLs; some rent warehouse space from companies that own or rent an entire warehouse. These distributors can utilize truckload and LTL common carriers (e.g., UPS, FedEx ground, USPS) for deliveries, or in some metro areas, utilize package delivery companies that specialize in low-cost, same-day delivery (including Uber and Lyft).
Outsourcing the delivery function avoids the cost of owning and operating trucks and employing drivers. And it can sometimes provide flexibility, such as when something needs to be delivered immediately but the company trucks are all out and won’t return for several hours. On the other hand, a distributor has little control over an outsourced delivery service.
There aren’t many distributors that do business without a warehouse or delivery truck, but there are some that use cloud computing and outsourced delivery. In the future there will be more distributors who save money and gain flexibility by outsourcing the storage, delivery, and data processing functions. Some of them could be electrical distributors.
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Friedman has helped electrical distributors reduce warehouse mistakes that lose sales; increase warehouse productivity; select the most cost-effective ERP system and cloud service while avoiding the problems and pitfalls, and obtaining a protective contract. He is a Certified Management Consultant and objective and unbiased. Dick has Bachelor of Engineering and MBA degrees, and can be reached at 847 256-1410 for a FREE consultation. Or visit www.GenBusCon.com for more information.
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