The Rise of Outsourced Fulfillment and Distribution

By August 10, 2011 Articles of Interest

From Cyber Monday to Black Friday… and Every Day In-between

The third party distribution and fulfillment provider This year, I have heard just as many news stories about ‘Cyber Monday’ as I have about ‘Black Friday.’ Behind the scenes of these two very distinct sales channel events, has been the continued growth in size and importance of a relatively new industry – Third Party Logistics (3PL). More and more, it is the 3PL that makes sure the brick-and-mortar stores are stocked for Black Friday and it is the same 3PL which also ensures orders from the web-sites of Cyber Monday are shipped in time for the Holidays. Specifically, outsourced distribution and fulfillment providers have grown and evolved over the last three decades to carry the majority of the load of today’s retail supply chain across all sales channels.

The First Wave – Globalization

Way back when – actually not too way back when, the traditional business model included domestic manufacturing. Companies had a factory where product was made and next to it they had a warehouse where product was stored. Goods were then shipped from this warehouse to all the brick and mortar retail stores. With the rise of globalization, the factory was the first to go. Production could occur virtually anywhere in the world. With the factory gone, that large warehouse next to it suddenly became completely optional, if not obsolete. Domestic distribution could be located where it optimized the supply chain and reduced transportation and storage costs. It no longer had to be in that warehouse located next to the factory. In addition, just like production, it could be outsourced to a third party to save money, decrease fixed costs and/or increase efficiencies. The third party distribution and fulfillment provider was born.

The Second Wave – e-Commerce

While the paradigm of manufacturing and distribution was shifting, the traditional sales channel was also giving way to change. That old corner store suddenly had a whole different type of competition. The Internet, catalogs, direct response TV and shopping outletssuch as QVC and The Home Shopping Network added complexities to the traditional distribution system. Now the warehouse wasn’t just shipping case and pallet quantities to retail stores and distribution centers. Consumers now shop through an ever increasing number of channels. That warehouse now has to ship individual items to our houses, and do so in a cost effective and efficient manner. The way product is picked, packaged and delivered becomes completely different. This increased level of complexity, coupled with constant pricing pressures, pushed warehouses to higher levels of innovation and technology. It made even greater sense to outsource to a third party provider who specialized in fulfillment and distribution and could keep up with the rapid pace of change.

The globalization of manufacturing gave rise to outsourced logistics, which was then pushed to new levels with the proliferation of sales channels. Whether it is Cyber Monday or any other cyber day-of-the-week. The next time you go on-line, order an item that was made overseas and it arrives at your door step a couple of days later, think about the entire supply chain that product went through, its complexity and actually how little it costs. Nowadays, more than likely it went through an outsourced fulfillment and distribution provider.

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