3PLs Lease More Warehouse Space as Shippers Seek Out Their Services

Growing demand and pandemic partnerships offer efficiency and value-adds

Warehouse workers manage boxes on a forklift.

Third-party logistics providers are now leasing more warehousing space than any other sector amid growing demand for 3PL services. CBRE's 2023 North America Industrial Big Box report found that 3PLs accounted for 41% of all lease transactions at traditional warehouses and distribution centers, with at least 200,000 square feet in 2022, surpassing retailers and wholesalers for the first time on record.

Pandemic-related supply chain disruptions and ongoing challenges made shippers more reliant on 3PL partnerships to stabilize and manage their fulfillment needs and logistical networks. They have continued to draw on those relationships, and demand is stronger than ever.

Brad Liddie, vice president of operations for Penske Logistics, said 3PLs offer expertise in core shipping functions, flexibility in labor and the benefit of scale. "We've been in the space for a long time and have the know-how," he said. "We can help alleviate overhead costs and the angst of internal headcounts and manage costs. Our customers can stay leaner and more focused on their core competencies."

Increasing Efficiency

Many shippers have turned to 3PLs to help lower costs and increase reliability. Penske draws on data to help its customers optimize their operations, increase efficiency and reduce the risk of disruptions. "We have an advantage as a 3PL on the technology side, and we're extremely helpful in helping customers leverage available data and expose operational insights," Liddie said.

The 2023 Annual Third-Party Logistics Study reported that 3PLs invest in technology faster than shippers. That technology offers added visibility into the supply chain.

"If you think about all the parts that need to come together to build a motorcycle, for example, they all come from different areas. We're the focal point as a 3PL and can help our customers scan, catalog, and systemically track and analyze disparate data elements," Liddie explained. "We keep all that and more in our system so we can pick and load efficiently."

Information also drives improvements within the warehouse, and Penske analyzes clock and working time data to identify inefficient use of labor and make improvements. Engineers constantly review layouts to reduce travel throughout the building, maximize labor, and get to a lower cost to serve. "That is the power of good systems and routine analysis of the material flow," Liddie said.

The speed of analysis is also critical. "With seasonal spikes or seasonal planning, we need to help them make strategic decisions quickly," Liddie said, adding that there are times when customers need to make changes within a fiscal year they hadn't anticipated. "We can work together to help them accomplish what they want to do without a hard hit to their books and make change less painful."

Managing Surges

Spikes can be disruptive, even when they are planned. As a 3PL, Penske can help smooth out disruptions, which create expense, churn and friction points. Open, collaborative discussions on forecasts and historical demand create opportunities for advanced planning to get ahead of potential challenges. Penske can also help manage surges by bringing equipment and labor from other locations.

A valuable resource, Penske's distribution center management elite team includes experienced forklift drivers. "We use our elite team as part of our operational resiliency plans across North America and conduct in-depth, cross-functional scenario plans to ensure we have sufficient equipment and personnel to meet our customers' needs," Liddie said, adding that Penske also has a list of specific providers that can provide additional nationwide support for labor needs.

Investing in Staff and Resources

Labor is a critical component of efficient warehouse operations. "Everything starts with people," Liddie said.

Technology can play a role in maximizing staff. "There aren't enough people to do these jobs, and the only way to supplement the labor you need is to automate what you can. 3PLs are willing to make that investment because they can sell it," said Kevin Smith, CEO of Sustainable Supply Chain Consulting, in the 2023 Annual Third-Party Logistics Study.

Penske can work with its customers to create an overall labor-management program. As part of labor management, engineers establish labor standards, standardize and streamline operations, and eliminate activities that employees deem to be non-value-added.

As a 3PL, Penske uses scheduling technology that generates schedules based on associate input. Associates can also communicate with each other if they need to trade shifts, which creates an easier and more efficient way to schedule associates, minimizes attendance issues, and gives associates a better work/home life balance.

Tasking technology can boost efficiency and optimize warehouse operations by reprioritizing tasks in a work queue in real time. The technology sits on top of the warehouse management systems, runs in the cloud, and takes key data from the WMS to look at the work queue and reprioritize tasks, driving efficiency.

3PLs can also focus on labor not only within the four walls of the warehouse but also with associated workers, such as professional truck drivers, to move products to and from the facility. "They are looking at the total landed cost and being conscious of the full supply chain when making decisions as opposed to making them myopically around the facility's geographic location," said Melissa Hadhazy, a senior client partner for Korn Ferry and contributor to the 2023 Annual Third-Party Logistics Study.

Keeping associates safe is a top priority, and Penske Logistics uses a mix of technology and training to prevent injuries and accidents. The company has created a safety culture by focusing on three pillars: training, communication and continuous improvement.

Equipment is also essential to smooth operations; the right equipment helps staff complete their work safely and efficiently. Penske draws on its expertise to determine what is needed, provides material handling and IT equipment, and manages its lifecycle.

Providing Value-Adds

3PLs can offer a range of additional services in a warehouse beyond the primary storage and distribution functions, which provide added value and efficiency for shippers. "We're not pigeonholed to box in and box out," Liddie said.

Value-added services within supply chain logistics could include specialized or customized administrative or physical benefits such as kitting, bundling, re-branding, customization, re-packaging, returns management or work-order processing.

Penske also offers additional value through the information it provides. With data capture and real-time communication, customers can see down to the part-level detail precisely what is being shipped and where it is in the supply chain, compare the quantity of pieces ordered to the number that shipped, and track and trace loads to monitor their status. The detailed level of information is beneficial in the event of a recall, a disruption, or if inventory needs change.

Drawing on Experience

Penske brings deep expertise to every facet of warehouse and distribution center management. It begins with facilities and real estate, encompassing a significant amount of warehouse space managed by Penske along with a substantial number of facilities it operates.

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