A Guide To Third-Party Logistics

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A Guide to Third-Party Logistics

From warehousing, inventory management, and order fulfillment centers, third-party logistics (3PL)
processes are at the heart of the supply chain. For brands or sellers that rely on these logistics
businesses, the receiving, storing, and shipping of inventory are crucial components to their growth—
especially when supply chain management can be complicated.

With the specialization of logistics functions becoming a necessity for many organizations, especially with
the rise of ecommerce and omnichannel fulfillment networks, the outsourcing of these specific
responsibilities has fallen to third-party warehouse businesses called 3PLs, or third-party logistics
warehouses.

But what exactly is a 3PL? What do they do? And what are the reasons for hiring one?

What is 3PL Warehouse?

A Third-Party Logistics Warehouse, or 3PL, is an outsourced logistics partner for warehousing, inventory
management, and order fulfillment. They store and ship inventory for multiple businesses, providing
seamless integration of supply chain operations. The rise of online retail has driven 3PL growth, with
specializations in areas like B2B, ecommerce, retail, and more. 3PLs allow brands and sellers to focus on
their core needs by managing warehousing operations and transportation services. Essentially, 3PLs are
the linchpin of the supply chain, enhancing efficiency and enabling automation of order fulfillment.

What a 3PL is Not

Private warehouses, or warehouses that only fulfill orders of their own products, are not considered 3PLs.
These types of warehouses are usually owned and managed by manufacturers or retail stores. They use
specific accounting, billing, and shipping software that often does not allow for the flexibility needed to
manage inventory and billing for multiple customers.

What about 1PL, 2PL, 4PL, and 5PL?

1PL: A 1PL is a business/seller combo that manages the fulfillment process from strategy to storage to
fulfillment of their own items. They have their own warehouse and fulfillment center where they house
their inventory and from which they ship their products to retailers and clients. These are often also called
private warehouses.

2PL: A 2PL functions as an asset-based carrier. They are often shipping lines that handle ship operation,
airlines, and hauling companies with a fleet of vehicles. Usually, a 2PL is called a forwarder or freight
forwarder because their business is basically only transportation focused.

4PL: 4PL refers to fourth-party logistics. With the 4PL structure, a business outsources virtually all of its
logistic operations. The 4PL acts as the single point of contact between the seller and logistics providers.
They make all decisions on every supply chain aspect. A 4PL will often work with a 3PL to manage
logistics or other logistic services. Some 3PLs may even create their own 4PL network by partnering with
other 3PLs.

5PL: The term 5PL is relatively new. It refers to a company with full logistic integration through the use of
many outsourced providers. A 5PL features fully integrated logistic solutions that embrace the whole
supply chain from start to finish using a wide range of outsourced service providers. 5PLs are high-
tech and typically embrace all integration of IT and computer systems to ensure visibility and control of
the supply chain, even if different suppliers work together.
What Are the Responsibilities of a 3PL?

Third-party logistics warehouses take on important supply chain operations to help their customers focus
on growing their own businesses. This means everything along the supply chain and includes logistics
operations like:

 Scheduling and executing the receiving of inventory to the warehouse


 Sorting, managing, and accounting for all inventory
 Maintaining inventory in proper conditions
 Negotiating discounted shipping rates
 Picking, packing, and shipping products
 Kitting and assembling products if necessary
 Managing recurring subscription boxes
 Value-added services (e.g., optimizing the unboxing experience)
 Returns or reverse logistics
Who Benefits from 3PL Services?

3PL services function as outsourced businesses that meet a company’s coordination and supply
chain needs. Retailers, brands, and merchants are regularly turning to 3PLs to outsource their supply
chain needs such as distribution and warehousing. Nowadays, many kinds of businesses are regularly
partnering with 3PLs. They range from small ecommerce retailers all the way to Fortune 500 businesses.
Each one sells a wide range of products. 3PLs provide necessary services that help a business grow.

Small Ecommerce Businesses: A small ecommerce business might be able to manage and self-fulfill
their orders initially. However, once a business starts to grow and orders increase, they will start to spend
an excessive amount of time packing orders and shipping in-house. So much extra work prevents a
company from scaling.

Although a small business can hire warehouse workers to keep up with demand, they will eventually run
out of room and be faced with renting a warehouse to increase their space which becomes a costly
endeavor. Additionally, they may want external expertise to help drive efficiency and automation in
their ecommerce fulfillment processes.

As a result, small businesses get locked in a catch-22, they need to expand to grow their business, but
the costs and space become extreme and gouge out their bottom dollar. They can face overspending on
storage and shipping costs and employee salaries needed to fulfill orders and manage inventory. The
answer to the dilemma is to outsource fulfillment to a 3PL so the business can start to focus on other
necessities and save money. A 3PL will tackle order fulfillment and provide necessary services while
reducing shipping rates, driving operational efficiency, and keeping up with best practice workflows.

Medium-Sized Companies: Medium-sized companies can also benefit from a 3PL. A fast-growing
company needs a 3PL for strategic fulfillment operations to meet its level of growth. If a company has
outgrown its current warehouse location, then reaching out to a supportive 3PL can help meet the
demand and scale up once the order volume increases. In some situations, they may strategically split
inventory throughout several distributed fulfillment centers to ensure that items reach customers faster
and at more affordable rates to help increase a company’s profitability. Leveraging a 3PL can also help
these companies handle seasonal peaks without sacrificing the consumer experience.

Large Fortune 500 Companies: Reports carried out in 2017 and 2020 by Armstrong and
Associates found that 90% of all Fortune 500 companies use a 3PL. Of course, one must remember that
there are many types and sizes of 3PL companies. A 3PL that works with small Shopify websites is not
going to be the same as a 3PL that works with a Fortune 500 company. Each 3PL is designed to meet the
needs of their customers such as tracking inventory across multiple channels and more.
What Types of Companies Use 3PLs in 2023

Whether a company is offering a solitary product or features a full catalog, hand-made items, or
subscription orders, the fastest growing and most successful companies partner with 3PLs.

Many companies use 3PLs such as those selling the following:

 Nutraceuticals
 Wine and spirits
 Bulk goods
 Raw materials
 Electronics
 Pet accessories
 Apparel
 Cosmetics
 General merchandise
 Cold Storage
 And more!
Eight 3PL Services To Use for Your Growing Ecommerce Brand

Services differ between 3PLs. Some might specialize in one niche, and others in other functions. Read on
to explore several 3PL warehouse services below:

1. Transportation: Many 3PLs focus on the cornerstone of transportation services, which they utilize to
move shipments between manufacturers and warehouses to companies and buyers. Freight
forwarders transport large shipments via various countries, and smaller shippers such as USPS,
UPS, DHL, and FedEx are often used to move smaller parcels.

2. Warehousing, Fulfillment, and Distribution: Many 3PL warehouses focus on services


like warehousing, fulfillment, and inventory management coupled with shipping and returns. Sellers turn to
this type of 3PL to outsource all of their fulfillment and warehousing needs. The 3PLs that manage these,
can also manage distribution services, including transportation, shipper identification, shipping rates, and
optimized shipping strategies.

3. Financial 3PLs: Large ecommerce companies often use financial 3PLs that offer accounting and cost
control services to help control the cost of freight forwarding, tracking of inventory, and management.
Typically, 3PLs that offer these services meet the needs of larger companies.

4. Receiving: A 3PL must receive inventory to fulfill orders and ship. At a 3PL warehouse, they will store
a company's inventory of products before they ship to a consumer. The 3PL coordinates the inbound
shipments with the company which may or may not use freight forwarders to manage and organize bulk
shipments that flow from the manufacturer to the distribution center. The entire process is part of a 3PL
warehouse management process. The best 3PL companies have management software integrated which
serves to make the process easier. The software identifies the location of the product and is then put in
storage to make it easier to fulfill the order.

5. Picking: Once a customer places an order the next process is known as picking. An order
management system will then process the order submitted and send it to the appropriate 3PL
warehouse or fulfillment center. Once the order is received, then it is ‘picked’ out of the warehouse or
storage bin for shipment to the buyer. Be sure to review the 3PL’s technology to ensure they use bar code
scanning to ensure pick accuracy.
6. Packing: After picking, it's time to organize and pack the order for shipment. A 3PL company will
determine the best way to pack the product so it is secure, branded, and safe. The entire process is done
in a cost-effective way. When it comes to packaging, a 3PL facility must have the technology at its
disposal.

7. Shipping: Shipping is a complicated stage of the process and also expensive, but clearly, it is crucial.
Everything becomes a web of intricacies with the overwhelming number of shippers, shipping options for
each carrier, locations, and cutoff times. A 3PL will build a strategy that focuses on shipping costs,
delivery time frames, and ensuring the customer receives their item.

8. Returns: Sometimes a customer orders an item by mistake or it arrives damaged from the shipping
process. In either case, the buyer requests a return. Returns are a common part of the shopping process
and customer experience. A skilled 3PL company is ready to receive products, document their receipt of
the times, and establish firm rules with the seller to know exactly what to do with returns.
How 3PLs Help With Supply Chain Challenges

As a crucial part of the supply chain, a 3PL manages all picking, packing, shipping, and handling of items.
A 3PL owns none of the inventory in the warehousing process. They serve as a go-between or
intermediary that acts between the client and consumer. The goal of any 3PL provider is to ensure that
the logistics of the client’s business runs smoothly and efficiently so they can fulfill the needs of their
consumers.

Many brands struggle with shipping, transportation, and distribution. However, an


experienced 3PL service provider increases efficiency for any business. Yes, some companies would opt
to work in-house, but most businesses leverage the 3PL services to effectively outsource during the high
season. A 3PL partners with a company to streamline everything and reduce wait times for shipping.

Why Hire a 3PL Warehouse?

Speed and Accuracy: With consumers demanding speed and accuracy from the businesses they
purchase from, hiring a 3PL who specializes in these processes makes sense for many
growing ecommerce retailers who may not have the infrastructure to take on these warehouse
operations in-house. Most 3PLs already have the technology to manage their customers’
inventory, automate routine tasks, and deliver complete visibility to drive not only value but efficiency.

Regulatory Navigation: Another reason businesses opt to hire a third-party warehouse is because of the
type of inventory the business carries. Certain types of products are controlled by many rules and
regulations surrounding, and unless the facility is built to accommodate these regulations, the inventory
and company selling it, can be in serious jeopardy. Some products that have regulations around their
storage include cold storage, hazmat, nutraceuticals, wine and spirits, and more.

Industry Expertise: 3PLs offer expertise that cannot be obtained without years of industry experience.
They can combine a number of warehousing services all in one offering—all under one roof. Things like
negotiating lower shipping rates, picking and packing efficiency, or materials management are areas of
expertise for a 3PL business. In most cases, they are much more likely to do it better and more cost-
effective than a business trying to do it on their own.

How 3PLs Help Sellers

Cost Savings: The number one reason why a seller decides to outsource their fulfillment needs is to
save money. The majority of third-party logistics companies collaborate with numerous sellers so they can
use their buying power to obtain better prices with logistics vendors on items such as shipping services
and materials. The overhead is spread out, so 3PLs offer better rates than if a seller opts to manage
things.

Here are several ways that a 3PL helps save money:

Lower Capital Investment Costs: A seller might think it makes sense to operate their own private
warehouse and tackle fulfillment orders with their staff, but the process is extremely expensive. As the
business grows, so do operational costs, such as labor, rent, security, and packing materials. It’s more
cost-efficient to let a 3PL handle things.

Lower Shipping Expenses: The sheer size and reach of a 3PL business model significantly lower the
cost of shipping. As a seller handling your own fulfillment, you cannot beat the prices obtained by a 3PL,
who spends 100% of their time focused on the logistics industry.

3PLs forms a network of relationships with shipping carriers so they know the best ones to use for various
locations, can navigate the sales channels, and know the varying prices depending on the time of year.
They ship thousands of products using multiple shippers every day, so they can negotiate bulk discount
rates with the largest shipping carriers. Yes, you might save only a small amount per package, but as
your business grows, the savings add up and impact your bottom line.

Seasonal Flexibility: Typically, sellers experience spikes in sales throughout multiple times of the year.
Sales often increase during the holiday rush or due to special promotions. A 3PL has the ability to scale
up and down as needed so your company will not take a hard hit over the additional margin of costs.

Greater Level of Experience: As the owner of a thriving business, you probably have a handle on
operations, but fulfillment and logistics might not be your specialty. As your business grows, you’ll want
a third-party logistics provider that is a true logistics expert who can provide you with the biggest value.

Better Warehouse Safety: Running a warehouse is not easy. You’ll have to comply with health and
safety regulations and standards which include certifications, training, and periodic equipment checks. In
addition, the operation of a warehouse takes time and extra staff. Outsourcing to a 3PL specialist helps
you maintain workflow and save money.

Greater Customer Satisfaction: Tackling shipping, fulfillment, and logistics might cause you to spread
yourself thin which results in errors. Customer satisfaction takes a nosedive which can impact how you
grow your customer base. A 3PL eliminates simple mistakes such as incorrect orders, late deliveries, and
incorrect labeling. Reducing errors always provides greater customer satisfaction so you can more
effectively grow your business, generate more customers, and make existing customers returning
customers.

Fewer Equipment Needs: Any business experiences unforeseen costs but with an order
fulfillment operation, the expenses can become steep because equipment regularly breaks down or
requires maintenance to continue performing.

The equipment needed to operate a warehouse includes forklifts, conveyor belts, barcode scanners,
and pallets. The upfront cost of purchasing them is often steep, and so is the ongoing maintenance and
repair. A 3PL has all the needed equipment so you don’t have to worry about buying your own. Plus, they
repair and maintain all of their mechanical devices which saves you money.

IT Capabilities and Warehouse Management Software (WMS) Software Handled: Many people are
surprised to realize that the amount of software a logistics company requires is staggering. Everything
from 3PL billing software, shopping cart and EDI integrations, and third-party fulfillment software needs to
work with a WMS to track orders and inventory. The software used ensures that everything runs smoothly
and efficiently.

However, when you partner with a 3PL, you don’t have to worry about the WMS software to determine
what works best. The logistics company will be aware of the 3PL risks customers are most worried about
and already have the best WMS for 3PL warehouses in place.

If you partner with a 3PL, you never have to worry about the upfront cost of IT components or training
employees to run the software. Everything is included with the 3PL you are working with.

Going Paperless: Another way a 3PL warehouse partner can benefit your business is by reducing
manual errors. Automation reduces the amount of manual work that can lead to human mistakes, which
can become costly down the line. Working with a 3PL that offers mobile barcode scanning and paperless
warehouse management means you can save money on these expensive hiccups.

Less Opportunity Cost, More Capital: If you are spending an excessive amount of time with order
fulfillment then your core business responsibilities might start to suffer. If you delegate fulfillment to a 3PL
then you free up capital you can reinvest in your business. Not to mention, you gain more time and
energy to focus on your business.

Serve More Locations: Your consumers’ locations and number of distribution centers all matter because
of the time to delivery and the cost. 3PLs often have multiple strategically located fulfillment centers giving
them greater reach, driving down the cost of your shipping.
When Should Sellers Engage a 3PL?

Most ecommerce brands should be using 3PL. Regardless of ecommerce platform, product category, or
industry, can benefit from outsourcing fulfillment.

Let’s examine the signs that your business is ready to partner with a 3PL:

Shipping Has Increased to 100+ Orders Per Month: There is no magic number that indicates when
exactly your volume has reached a point where it's better to outsource. However, typically if you are
shipping 100+ orders per month, then you have had to enlist the help of friends, family, or additional labor
to pack boxes quickly to meet the demand.

Order fulfillment quickly becomes a problem because you are swamped, and it is a costly activity that
generates little revenue to offset costs, so it could be holding back our company’s growth. Not to mention,
if you have hired warehouse workers to fulfill then you might actually be bleeding money in an effort to
pack items, print labels, transport the items to a post office, and more.

It costs you time and labor which you could be using to acquire more customers, launch marketing
campaigns or develop new products. At this point, it is high time you partner with a 3PL.

Running Out of Space: As your order volume increases, your inventory grows. If you are fulfilling orders
yourself, then you have to keep products on hand and find adequate storage space. A 3PL
warehouse will hold your products in their outsourcing inventory warehouse and then fulfill all orders
effortlessly, so you don’t have to worry about storage or fulfillment. You’ll never have to fear running out of
space.

Offering Two-Day Shipping: Amazon is the king of two-day shipping. However, if you are self-fulfilling
orders, then providing your customers with two-day shipping takes a huge toll on your profitability. This is
especially true if you are providing two-day expedited air shipping. Working with a qualified 3PL with
better negotiated rates makes two-day shipping feasible and affordable.
How to Choose the Best 3PL Company

At this point, you have decided that finding a 3PL company is in your company’s best interest and will
help significantly with your bottom line. Your company will save time, money, free up resources, and
experience growth. However, choosing a 3PL warehouse is not always easy. There are numerous
companies out there so you might wonder which is the best 3PL company to meet your needs.

You’ll want to find a 3PL that you can trust to handle your inventory and maintain customer satisfaction.
Here are a few questions to ask any 3PL before making the decision on which is best for your company:

How is your 3PL different from your competitors?

This is a basic question, but you’ll want to pay close attention to the answers. Honestly, not all 3PLs are
created equal.

What technology and 3PL software do you rely on?

You want to pick an innovative tech-enabled 3PL that provides streamlined, integrated shipping and
fulfillment solutions. They should also be running WMS software to help with automation including order
and inventory management so they can track orders and manage returns effortlessly.

Where are your fulfillment centers located?

You not only want to know where the headquarters of the 3PL is, but also their other fulfillment centers.
The locations will give you an idea of who can offer the fastest delivery coupled with
affordability. Warehouse locations help your shipping strategy and ensure the ease of two-day shipping.

Understanding 3PL Pricing

There are a variety of 3PL pricing models that depend on your business’s needs. However, here are the
most common 3PL costs:

Cost Definition

Onboarding Fulfillment services, tech setup

Inventory Incoming inventory acceptance and storage such as per unit, flat rates, per hour,
Receiving or per pallet

Inventory Storage space - warehousing, per SKU, fixed fee, fixed fee per shelf, fixed fee per
Storage pallet/pallet used, bin fee

Pick and Pack Pay for each item/action included in every order
Packaging Packing materials, boxes, air-fill for items

Kitting Kitting and assembly

Shipping Shipping from the fulfillment center

How to Manage a 3PL as a Seller

An effective warehouse management system (WMS) is a software solution to track inventory and manage
the entire warehouse operational process. The software focuses on managing, shipping, and tracking all
of the warehoused inventory. Warehouse management software helps everything run smoothly,
distinguishes activities, and manages all processes.

WMS software provides the following:

 Real-time visibility to track all inventory statuses and levels.


 Live integrations (coupled with reports) with shopping carts to avoid the possibility of backorders
and stock shortages.
 Recording and tracking inventory supplies, locations, lots, serial numbers, and expiration dates.
 WMS identifies and then recognizes the all SKUs.
 Provides visibility to the entire warehousing process.
 Offers control of the inventory sent along the logistics pipeline.
 Tracks all aspects of receiving packing, packing, and shipping.
 Assignment and complete tracking of items from products to the various storage locations
using automation.
 Control of supply chain logistics to ensure timely delivery of products.
 WMS scales to guide flexible periods during the peak and low seasons.

How do you determine 3PL performance?


After you choose a 3PL partner, you’ll want to measure their function by looking at their key performance
indicators (KPI) such as returns due to shipping damage, shipping errors, quality of service, accuracy,
timely delivery, possible bottlenecks, and maximum efficiency achieved.
What is OTIF (on-time in-full)?

On-time in-full (OTIF) is a supply chain metric for measuring performance in the logistics industry. OTIF
generally refers to a supplier’s ability to deliver product within prescribed delivery windows and at full
quantities ordered.

History of OTIF in the Logistics Industry

The concept of OTIF originated in 2017. It was then that Walmart began evaluating suppliers based on
their ability to deliver orders on time – and levied fines on those that couldn’t comply. OTIF is now widely
used to judge the performance of the supply chain. Particularly when it comes to inventory planning,
inventory optimization, and order fulfillment.
OTIF was designed to improve store operations within Walmart itself and quickly led to a series of major
changes as it was rapidly adopted by other retailers and companies. Most notably, because it penalized
loads arriving early as well as late, it gave rise to a greater need for executing supply chain operations
with pinpoint precision. And, in the process, necessitated more accurate insight into the status and
disposition of supply chain assets than ever before.
Companies that enforce OTIF supply chain standards don’t always validate the fines they issue, leading
to disputes. Much like detention, better visibility can help resolve these disputes for both parties.

OTIF Challenges

With OTIF, one of the biggest challenges to reliably calculating your score is data consolidation.
Accurately capturing, collecting, and consolidating the data from within your carrier base is near
impossible without the right tools. Then the challenge is to aggregate that data into a single place, so you
can properly validate it for quality and consistency. Platforms like FourKites, make this process easy. And
with FourKite’s suite of advanced analytics solutions, can help you monitor that data and assess
performance over time. Including identifying bottlenecks and other issues that are negatively impacting
your OTIF score with your target customers.
One FourKites customer in the CPG industry has already used these capabilities to improve OTIF
performance with its major retail customers. The FourKites platform collected pallet- and SKU-level
information from the customer. With that data, the platform tracked both the on-time performance of their
loads and the in-full metrics. By referencing that tracked data the customer was able to challenge and
resolve disputes from a number of customers who didn’t have data on their end to validate claims of an
OTIF violation.
Real-time visibility is a necessity for an efficient, cost effective supply chain. And considering fines from
OTIF violations can easily amount to tens of thousands of dollars each month, the ROI of a real-time
visibility solution becomes apparent rather quickly.

How is OTIF calculated?


OTIF is really two different metrics combined together into a single acronym. Let’s break it down:
 On-time is a service metric that tracks how closely a delivery came to meeting its agreed-upon delivery
appointment time.
 In-full refers to the quantity of the product itself, and measures whether customers are receiving more,
less or the exact amount they requested.
OTIF fines are usually assessed as a percentage of the value of each early, late or incomplete shipment.
For instance, Walmart, which changed how it penalizes shippers when they make partial deliveries,
fines shippers that fail to meet the company’s OTIF requirements by charging 3% of the cost of the goods
sold for each miss. Companies shipping to Walmart and other retailers not only pay an upfront cost for
missing delivery windows; they also potentially risk losing space on a store’s shelves.
Customer rules around OTIF can vary depending on how individual companies measure the metric. For
example, a late delivery isn’t the only occasion that might give rise to OTIF-related fines. Some
customers, looking to keep their inventories lean, assess penalties when deliveries arrive a day early,
while others are happy to accept early arrivals.
In the end, the penalties underscore the growing need for accurate insight into the real-time status and
location of supply chain assets – and the increasing value this information holds for the world’s shippers.
And that’s where real-time supply chain visibility can help shippers better meet timetables to avoid
paying fines. Let’s take a closer look at how this works in practice.

How the OTIF KPI can measure performance

When retailers evaluate partnerships, a carrier’s ability to deliver product on-time and in-full looms
large in their decision-making. So, if logistics teams aren’t meeting targets set by key customers, they
need to adopt the right carrier strategy for that business. If the problem stems from poor planning, poor
manufacturing, or poor warehousing processes, they need to work more closely with other stakeholders
to resolve any issues.
The OTIF KPI offers clear incentive for companies to raise their score as high as possible with the highest
degree of consistency. With that goal in mind, real-time visibility platforms make a huge impact by offering
transparency so operators can better understand underlying reasons behind any OTIF-related issues.
For example, is a low score related to production problems or a warehousing delay? Maybe it’s an
appointment scheduling issue, or a bottleneck caused by trying to ship too many orders on the same day?
Perhaps the carrier is not allowing enough transit time. Perhaps they’re sending drivers who don’t have
the right hours of service. Visibility can help you find out.
Supply chain visibility systems get to the root cause(s) of these issues and help managers plan more
proactively. Greater agility, consequently, translates into better decision-making that results in improved
OTIF scores.

What is a good OTIF benchmark?

In an ideal world, companies would strive for 100% compliance with on-time in-full across their customer
base. But this is the real world, do a pretty solid OTIF benchmark to shoot for is the high 80% or even
90% range.
Since its inception in 2017, Walmart has been one of the biggest forces driving OTIF supply chain
adoption throughout the industry. Because of this, Walmart’s standards can act as a fairly good barometer
of best practices in this still-developing space.
In the years since rolling out OTIF in 2017, Walmart’s standard OTIF target for its suppliers has steadily
increased from 75% in August 2017 to 85% in January 2018, to 87% in March 2019. And as of
2020 Walmarts’ OTIF expectations have shot up to 98%!
OTIF standards are somewhat of a moving target. Requirements will vary across industries and can even
vary across individual retailers. With these increasingly high expectations, companies should focus on
getting their OTIF score as high as possible. And aim for the highest degree of consistency across their
customers. A higher OTIF supply chain capability will help you get more business and keep that business
once you’ve secured it.
How can you improve OTIF?
All of this begs the question of how to improve your on-time performance. If you’re asking that question,
know that you’re not alone. Fortunately, there are plenty of things you can do to improve your
performance over time. Here are a few common ways we’ve seen this done over the years:
 Get a single point of truth. This allows you to notify your customer as soon as a delay occurs, and
potentially even allows you to save that load by dispatching another shipment that will arrive on time.
Obviously this is a challenge due to the fragmented nature of global logistics, particularly in North
America and Europe. It’s not at all a simple matter of having the driver call ahead as soon as he or she
has experienced a delay.
 Identify sources of delay on your end. Ideally, you should be closely monitoring your carriers, your
distribution centers, your warehouses and all of the other moving parts within your supply chain. Be on
the lookout for patterns that are impacting your overall OTIF performance. Once you find the areas
where delays most often occur, you can start addressing the root cause of the delay. As we’ve said
before, you can’t fix what you can’t see!
 Validate any fees or fines. In addition to identifying the sources of delay within your own operation,
you should also keep a close eye out for delays that result from the customers’ actions as well. For
example, if you can prove that your truck arrived on time to a given facility, but that it was detained
outside that facility due to delays occurring on the retailer’s side, you can prove that the delay wasn’t
your fault and dispute any fines the retailer tries to leverage against you for that particular load.

Adapting in real-time to avoid OTIF delivery fines

Real-time visibility solutions offer a single source of truth about the status of supply chains. Managers can
reference audit trails to pinpoint the actual location of a truck, as well as the actual time that it arrived and
left a location. This ability to quickly access the latest intelligence on where things stand can prove
invaluable for a company. With that intel they can quickly implement contingency plans before a delay
impacts their OTIF score.
More and more logistics companies turn to data science platforms to streamline their operations. With
these platforms they’re able to make much more informed decisions than rivals who still rely on outdated
legacy systems. For example, when an algorithm determines the high probability of delay on an order, a
recommendation engine can offer prescriptive advice to guide future steps, as the system will know
whether a truck is going to be late for a pickup. That allows time to locate another driver on a load or find
an alternative carrier to deliver the goods and meet the agreed-upon delivery time.
This last-minute maneuvering may slightly increase transportation expenses, but it helps avoid a late
delivery and potentially hefty fines. According to Gartner, shippers that deploy supply chain visibility
solutions can reap up to 10% improvements in their performance metrics.

Case studies in successful OTIF supply chain improvement

These steps really do pay off. Smithfield, a FourKites Customer, improved its on-time performance from
87% to 94%. How? Smithfield improved visibility across all the moving parts of its supply chain. Smithfield
ships about 1,000 truckloads of product per day in the US alone. They contract with more than 230
separate trucking companies – that’s a lot of moving parts and a lot of disparate systems. By unifying all
of those elements into one single supply chain visibility platform, it suddenly becomes much easier for
companies to identify the patterns behind their OTIF performance scores.
Another great example is Kraft Heinz. When on-time in-full first came onto the stage, Kraft Heinz made a
number of changes to its operating structure to accommodate the higher expectations, first
by prioritizing larger asset-based carriers over one-off brokered loads, then by leveraging FourKites to
improve supply chain reliability and strengthen relationships with its partner carriers. In doing so, the
company improved its overall OTIF score by 5% over the course of one year.
Once you see improvements like that, then you’re ultimately able to book more accurate delivery times
with your retailers and adjust those windows proactively when delays occur. For most retailers, the bottom
line is this: If your appointment is scheduled for 10:00, the expectation is that you’re going to be there at
10:00.
Final thoughts on OTIF and supply chain efficiency
Even if you’re not delivering on time 100% of the time, that doesn’t mean you’re a poor performer. In
looking to improve your OTIF performance, what’s most important is ongoing and effective collaboration
between supplier and customer. That way, managers have the necessary tools to take action when
needed.
We saw examples of this play out during the height of the COVD-19 disruptions. Real-time visibility
systems helped logistics companies function in the face of global supply chain chaos. Shippers with
access to real-time supply chain visibility solutions could securely log in to view orders moving around the
globe. FourKites customers were able to monitor orders via a single pane of glass that captured up-to-the
minute information on order whereabouts. For practitioners of modern supply chain management, it was a
real-world reminder that OTIF performance comes down to proactive decision-making and data-driven
visibility. Without it, you’re left shooting in the dark.

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