Over the past 12 months, a recurring theme amongst VARs was
to shift business focus to verticals less affected by the economy.
The problem with this notion is that two of the most talked
about opportunities, government and healthcare, are to most VARs
nothing more than a dangling, out-of-reach carrot. As you probably
know, the amount of red tape (forms and processing)
required to even bid on government
business is daunting. Additionally, and equally
the case with healthcare, long sales cycles mean
the recession could have been over (assuming we're
truly coming out of it) by the time a VAR's efforts
showed any traction. All that said, the poor economy of
2009 did create some very real opportunities. Consider 3PL
providers. Essentially, 3PL providers are companies that are providing
storage and handling services for someone else's inventory.
In 2009, many companies turned to 3PL providers to reduce their
own overhead. That's helped ISV/integrators like Datex that create
solutions aimed at solving the basic problems 3PL providers face.
While other integrators struggled to make it through 2009, Datex celebrated
20% revenue growth. According to Michael Armanious, president,
and Samir Armanious, CEO of Datex, this growth was achieved
by addressing four common pain points to which 3PL providers
3PL Providers Need Metrics
When it comes to any warehouse, the integrator says that
3PL providers need to ensure they're capturing details of
every transaction (shipping, receiving, picking, packing,
etc.). "Without warehouse automation, without the capability
of having a mobile device that records the start and
end time of a transaction, 3PL providers don't have a
way to provide valuable metrics of their profitability,"
says Samir Armanious.
For instance, in the food industry (60% of Datex' customers),
one of the most important things to these customers
is lot traceability. "When a product comes in, it
needs to be assigned to a particular lot number, which is
attached to that product for its life for tracking purposes,"
Prior to the integrator installing its solution (which
includes its own warehouse management system [WMS]
software and hardware), one of Datex' cold storage
provider customers had a system which wasn't giving it
accurate data. "With the implementation of our system,
the customer was able to automate its facility and
increase throughput by more than 50% because of the
real-time data visibility," he says. The customer's old system
was only providing information at the end of the
3PL providers catering to pharmaceutical customers
(warehousing any product typically found in a drugstore)
have similar needs. With pharma (10% of Datex' customers),
traceability is a huge component, and inventory
transactions require multiple signatures and different authority levels to get product moving. The use of technology
allows these providers to go paperless, but still
maintain a level of traceability and auditability throughout
In another example, Samir Armanious explains that in
the apparel industry (30% of Datex' customers), a big
challenge is what's known as the apparel matrix. "For
every piece of clothing there are the three major attributes
of color, style, and size," he says. "If you're looking
at inventory of 10,000 SKUs, you'd have to multiply it by
a factor of three." Essentially, 3PL providers of the apparel
industry need to manage a large number of SKUs and
ensure inventory is being accurately picked. One of
Datex' customers was constantly shipping out the wrong
product to the point where truckloads of wrong products
were being shipped to Wal-Mart and other major retailers.
A supply-chain-fixated company like Wal-Mart doesn't
like receiving the wrong products. Indeed, it charges
steep fines for incorrect shipments. Datex' customer was
hit for approximately $200,000 in penalties. While the
cost of Datex' solutions vary, Samir Armanious says the
average install is between $125,000 and $150,000 without
hardware. When you consider the ability to eliminate
penalties like those of Datex' apparel provider, the system
can pay for itself in a few months.
Add Profitability To Your Customer's Supply Chain
The second major pain point 3PL providers face is managing
multiple customers within their warehouse.
Indeed, there could be 50 accounts storing inventory in
the same facility. "3PL providers have to determine
which customers are profitable, which are not, and what
margins are associated with each customer," Michael
Armanious continues. "Therefore, 3PL providers need
activity-based management tools as part of their WMS to
look at the profitability of accounts." These management
tools can help a 3PL provider determine if an account is
worth keeping, or if there's a need to increase rates. The
tools provide an accurate picture of warehouse profitability.
Win 3PL Sales By Reducing Supply Chain Costs
Additionally, Michael Armanious says another reason 3PL
providers are keen to adopt Datex' solutions is cost savings.
"If you ask a customer about their inventory accuracy,
often the first response is that they have 99.9%
inventory accuracy," he says. "Once we ask follow-up
questions, we often discover that one of the primary reasons
they have such great inventory accuracy is because
they have 15 people to double- and triple-check every
order." Basically, the 3PL provider has increased their
amount of labor to be able to have such great accuracy.
If a provider is doing things manually, Armanious says
the most conservative numbers show a WMS can create
a 14% to 30% reduction in warehouse labor. Additionally,
with the same amount of space, throughput can be
increased by 30%. Between those two values, ROI is very
clear, and systems often have a 9- to 12-month payback.
Make Your 3PL Customers More Marketable
The final reason 3PL providers adopt WMS solutions is to
make themselves more marketable. "When manufacturers
are looking at potential 3PL providers, they look for
a provider that can be accurate and provide as much visibility
as possible into the inventory," says Samir Armanious.
"The 3PL provider that can grant daily, hourly, even
real-time reporting is going to win the business." With a
3PL WMS, providers can gain a competitive edge in
retaining existing customers and bringing in new
accounts. In fact, Armanious says his apparel customer
was able to land its largest account because of the capabilities
of the WMS solution Datex installed.
Selling WMS Solutions To 3PL Providers
To address all these issues, Datex created its own WMS
software named Footprint, which helps handle and manage
a 3PL provider's operations at the warehouse level.
Using mobile devices like a Honeywell handheld mobile
computer (see sidebar on page 26) and WMS systems
like Datex Footprint, it's possible to automate and provide
real-time data for every warehouse transaction that
takes place. Third-party billing, system-directed picking,
cycle counting, container and yard management, temperature
control, and online visibility are just a few benefits
of such solutions. The sum of all the benefits equals
a reduction or elimination of errors and lead times,
therefore reducing extra material handling, excess travel,
and time spent looking for items in the warehouse.
The integrator isn't aware of how many 3PL providers
exist, but Michael Armanious says new ones pop up
every day. As you could imagine, the majority of 3PL
providers are located in areas where major shipping and
receiving takes place (coastal cities like Long Beach, CA;
New York; and Savannah, GA). To find new providers,
Datex is a member of the International Association of
Refrigerated Warehouses (IARW) and the International
Warehouse Logistics Association (IWLA). Armanious says
3PL providers typically join one or both of these organizations.
Combined, these associations cost the integrator
approximately $2,000 a year in dues.
In talking with Samir and Michael Armanious, it's clear
that while selling solutions to 3PL providers does require
knowledge of the market's unique needs and challenges,
3PL sales aren't an out-of-reach carrot for most VARs
already selling supply chain solutions. With the continued
need for such providers in the import-heavy United
States, your next (or first) 3PL customer could be just
around the corner.