{"id":2202,"date":"2018-02-14T20:51:00","date_gmt":"2018-02-14T20:51:00","guid":{"rendered":"https:\/\/www.shipbob.com\/au\/blog\/why-a-traditional-3pl-isnt-enough\/"},"modified":"2025-09-30T01:16:13","modified_gmt":"2025-09-30T01:16:13","slug":"why-a-traditional-3pl-isnt-enough","status":"publish","type":"blog","link":"https:\/\/www.shipbob.com\/au\/blog\/why-a-traditional-3pl-isnt-enough\/","title":{"rendered":"Why ShipBob Is Not a Traditional 3PL"},"content":{"rendered":"\n

Table of Contents<\/p>

** Minutes<\/p><\/div><\/div>\n

So, what\u2019s wrong with the above supply chain?<\/a><\/p>\n\n\n\n

A better supply chain<\/a><\/p>\n\n\n\n

Learn more<\/a><\/p>\n<\/div>\n\n\n\n

When you hear the phrase \u201csupply chain,\u201d what comes to mind? At ShipBob, we think of the supply chain as a network of organizations working in sync to improve the flow of materials and information across the production process. The goal of an effective supply chain should be to cost-effectively coordinate upstream and downstream production entities to achieve high customer satisfaction.<\/span><\/p>\n\n\n\n

Let\u2019s look at a traditional supply chain:<\/span><\/p>\n\n\n\n

Suppliers \u2192 Manufacturer \u2192 3PL<\/a> warehouse \u2192 Customer<\/span><\/p>\n\n\n\n

(The arrows represent the direction of flow of materials and information.)<\/span><\/p>\n\n\n\n

A standard supply chain starts with the purchasing of raw materials from suppliers, with the key objective of paying the lowest price<\/a> possible. For example, companies often place bulk orders of materials to save money. The excess raw materials get stored in warehouses<\/a> until they can be used by the manufacturer.<\/span><\/p>\n\n\n\n

Correspondingly, the manufacturer focuses on lowering unit costs through large production runs, fewer machine changeovers, and product standardization. At the end of the production run, the inventory of finished products needs to be transported to 3PL warehouses before they can be sold to the retailers and end customers.<\/span><\/p>\n\n\n\n

So, what\u2019s wrong with the above supply chain?<\/h2>\n\n\n\n

Each unit working with functional independence is successfully meeting its objectives; however, the working capital of the company is being used to produce inventory and then store that inventory at the 3PL\u2019s warehouse. If the product fails to generate demand, the company will have to write off all of the leftover inventory. <\/span><\/p>\n\n\n\n

At the end of the day, the sales objective \u2014 to create competitive differentiation through product variability, customisation, and reduced lead times \u2014 is at odds with the production and manufacturing objectives of long production runs and product standardization.<\/span><\/p>\n\n\n\n

In the example above, the 3PL functions as (1) a storage facility for finished inventory and (2) a distributor of inventory to end retailers and\/or customers. The 3PL works to optimise the activities within its four walls, which include cost-effectively warehousing the finished inventory and shipping the product when an order comes in. <\/span><\/p>\n\n\n\n

It is disconnected from the upstream activities of purchasing and manufacturing, as well as the downstream activities of sales and reducing the delivery lead times.<\/span><\/p>\n\n\n\n

The example above is representative of the supply chain of most companies \u2014 uncorrelated to the actual demand for the product. In a day and age of shortening product life cycles and volatile demand, this supplier-driven supply chain model just doesn\u2019t work.<\/span><\/p>\n\n\n\n

A better supply chain<\/h2>\n\n\n\n

You need to flip your supply chain on its head and put the customer first. In this new model, the 3PL integrates with sales and distributes inventory across a network of fulfilment centres. <\/span><\/p>\n\n\n\n

When an order comes in, it gets shipped from the fulfilment centre closest to the end customer to reduce delivery times. <\/span><\/p>\n\n\n\n

When the product gets shipped out from the ecommerce fulfilment<\/a> centre, information can be transmitted upstream to the manufacturer, telling them to produce a unit to replace the one that shipped. Information from the manufacturer is transmitted further upstream to the purchasing, which now knows to replenish the raw material consumed by the manufacturer. <\/span><\/p>\n\n\n\n

Each part of the supply chain is now synchronized based on demand forecasting<\/a>. This minimises the build-up of inventory between the different stages of the supply chain, and the entire supply is more responsive to the demands of the customer.<\/span><\/p>\n\n\n\n

This agile, responsive supply chain<\/a> \u2014 in which information flows between the upstream and downstream business processes, and activities are based consumer demand \u2014 is far more competitive and effective than the traditional supply chain. <\/span><\/p>\n\n\n\n

By sharing information between all stakeholders in the supply chain, we have substituted the build-up of inventory with information and responsiveness. Contrary to a traditional supply chain, we have a \u201cdemand chain:\u201d the customer makes a demand that initiates a coordinated process and flow of information.<\/span><\/p>\n\n\n\n

ShipBob\u2019s mission is to successfully implement this \u201cdemand chain\u201d for ecommerce businesses. We do that by:<\/span><\/p>\n\n\n\n

  1. Integrating across all of your selling channels and marketplaces to capture your sales data.<\/span><\/li>
  2. Using your sales data to strategically distribute your finished inventory across our fulfilment centre network, allowing us to fulfil your sales requests quickly.<\/span><\/li>
  3. Pushing your sales data upstream to help you coordinate purchasing and production.<\/span><\/li><\/ol>\n\n\n\n

    This strategy has two advantages:<\/span><\/p>\n\n\n\n

    1. Increasing customer satisfaction by making your supply chain responsive<\/strong>. Storing inventory at the fulfilment centres closest to your customers allows us to fulfil orders more quickly and cost-effectively. Compare this to a typical 3PL, whose warehouse in the middle of the country can efficiently store inventory, but is ineffective at reducing delivery lead times<\/a>.<\/span><\/p>\n\n\n\n

    2. Reducing the cost of the overall supply chain.<\/strong>\u00a0By substituting inventory with information, you can make more accurate purchasing and production decisions. This reduces the capital spent on raw inventory, optimising your supply chain<\/a> to make it cheaper and more agile.<\/span><\/p>\n\n\n\n

    As the power shifts towards more price-conscious consumers and competing products start to look more similar in features, a more effective and responsive supply chain will be one of the ways to differentiate from the competition.<\/span><\/p>\n\n\n\n

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