Moving away from a 3PL to an In-house Fulfillment Strategy?

At GEBHARDT Intralogistics, we get a lot of questions about distribution. One of the top questions we get is about bringing distribution in-house to save money on fulfillment. There are other reasons that many manufacturers and clients want to bring distribution back under the company shingle, but saving money is usually the primary one. Other reasons circle around product security or overseeing the customer order experience from cradle through the beginning of the last mile.

What you Need to Know from the Automation Experts at GEBHARDT Intralogistics

While 3PLs play a vital role in distribution for many companies—especially in cold chain logistics. However, when product volumes start to increase, then the actual economics start to change. This is usually the breaking point and the reason we start to get calls.

When we work with clients, there are a few things that we recommend. Retrofitting or expanding a facility is a large project. So, the sooner we can make sure that clients know the details, the smoother a project. Many of the items that we walk everyone through are:

• Is it better to expand your current facility or do a greenfield?
• Your location choice regardless of whether it’s the current facility or a new one. There are things to consider for distribution before you break ground.
• Current product volumes, cyclical nature, and seasonal peak volumes.
• Any type of environment or special considerations for your product(s).
• Finally, we’ll discuss the business plan, return on investment, and future growth.

Let’s take a quick look at each topic.

When looking at bringing fulfillment in-house, you need a facility adequate to house an operation. Most clients are looking to step into automation at this point. Rightfully so, because automation will offset the cost of labor and lower the cost of each item distributed. However, automation can mean a lot of different things to different people. Fulfillment doesn’t have to be complex, and most clients are looking to take advantage of an existing footprint or want to expand. While this can work as a first step into automating, there are some caveats to think about when doing this.

Aside from land availability, are there any seismic issues that are a concern? While automation can work within a seismic area, special considerations must be taken. Your automation vendor will need to know about this upfront. Are there any special building codes that need reviewing?

Another thing to think about is the impact on your current operation. If you’re looking at an expansion to house fulfillment, usually that works without any issues. However, if you are looking at a changeover in an existing space, that could bring up some prerequisites that are needed. With automation there are requirements for floor strength and concrete depth among others. It’s also important to consider how you phase in automation without disrupting your ability to meet customer demand.

If your current location works for manufacturing, that is a good sign that it can probably work for your fulfillment too. However, this may not always be the case. There may be issues with zoning if you plan to expand. It’s always best to dig into these types of requirements before deciding on to expand or build a greenfield. However, depending on the type of storage you need, there could be zoning regulations that dictate the height of the facility, egress, utility access, and other details. In addition, this is where you really need to think about future growth. If you only have a certain footprint for automating what you produce today, you may want to rethink your plan. It’s best to have the ability to expand and future-proof your business.

As for your existing location, are there any labor constraints? Even though automation helps alleviate the labor requirement, you still need to have a labor force. It may look a lot different than your current manufacturing labor need, but you will need to pull from the available local labor pool.

Another issue to think about for a good location is the availability of LTL shipping access. If you’re close to existing routes and major intersections or interstates, that helps. However, if you are in a rural area or highly dense metropolitan area, this could be an issue.

One of the last things you may want to think about regarding your location is any special requirements for your products. For example, cold storage requires a specific build. Pharmaceuticals also require special vaults depending on the product. This type of information is crucial for your automation vendor. We’ve also seen that this type of storage was much needed in a specific area and the availability to lease a space to other manufacturers in the area was a viable option. This helps offset costs, but this in-turn now makes you a 3PL of sorts as well. So, you really need to think about your plan.

As for your products and volume, an automation vendor is going to ask for the velocity and slotting of your existing products. Most importantly, they will want an ABC curve or will provide one for you. Many clients have this available through their 3PL vendor. The reason for its importance is because this will determine how products slot for certain zones within the facility. This is an extremely important piece of the process. Most clients who move away from a 3PL don’t always need their entire process automated, but you’ll need to know which ones are best suited. For some, it may be a mix of fast movers that are automated, and the slow movers are still picked manually or through a semi-automated process. However, it’s worth mentioning that in many cases, products will fall under the Pareto Principle. This is where 20 percent of your products make up 80 percent of your volume. Typically, these are all your fast-moving items.

There is also the IT side of things too. While clients already have an ERP solution in place, many do not have a WMS or WCS. This type of fulfillment software is needed when you run a warehouse facility—and it’s a requirement for automation. Your automation vendor may have a solution that integrates into your existing ERP system. However, it’s a large discussion point so ask. It’s better to know the details upfront.

Finally, circle back to the business plan. Will the planned facility continue to support your business five or ten years out? Is there enough room for expansion? Furthermore, you’ll want to work with an automation vendor and do an engineering study. This will help determine the size and scope of your automation project. It will also give you a baseline for the return on your investment. While not every project requires complete automation, some clients prefer to ease into automation and plan for future projects as business objectives are achieved. This is doable, but cost variables need to be weighed and the pros and cons considered.

If you would like more information on how and when to bring your fulfillment in-house, let the automation experts at GEBHARDT help. Our team of experts can work with you and provide engineering studies to determine the validity of your future project and take you through a complete project guideline process. We're happy to answer any questions that you may have about distribution and fulfillment automation.