News Flash

Multi-client fulfilment model could benefit 3PLs in e-com: McKinsey

07 Jul '22

2 min read

Pic: McKinsey

The e-commerce boom, propelled by the COVID-19 pandemic, has had a profound impact on the shopping habits of consumers. The rapid surge in e-commerce is exerting pressure on third-party logistics (3PL) companies as they deal with complex customer demands, increasing costs, and more competition. Multi-client fulfilment can enable 3PLs to handle these challenges and make them succeed in an increasingly competitive market, according to global management consulting company McKinsey.

Analysis reveals that multiclient fulfilment can help realise cost savings in comparison to dedicated fulfilment models. However, in order to fully leverage the potential advantages offered by the multi-client fulfilment model, changes are needed to service offerings, commercial structure, warehouse operations, and technology, according to an article titled ‘The promise and challenge of multi-client fulfillment for e-commerce’ on the McKinsey & Company website.

Fulfilment operations include a single-client model, in which operations are customised as per clients’ requirements and a multiclient model that is preferred by large e-tailers. 3PLs could immensely benefit from a partially integrated multi-client fulfilment model, authors Tom Bartman, Julian Dragendorf, Scott McConnell, John Murnane, and Isabelle Pan wrote in the article.

Multi-client fulfilment operations typically have a larger footprint, which enables e-tailers to reduce lead times and allows them to compete with market leaders that offer two-day and same-day deliveries. These operations can also reduce e-tailers’ costs as overheads such as labour, automation, and real estate can be shared with other e-tailers. Additionally, they can offer more flexibility than single-client operations as they do not provide long-term commitment to 3PLs.

Economies of scale make savings of between 7 and 9 per cent possible and assist e-tailers to take more customers in a shorter period of time without increasing their square footage. One can achieve such savings through several steps such as demand smoothing, site scaling, automation, and final-mile savings. According to the article, around 90 per cent of logistics experts are of the opinion that e-fulfilment leads to profits of around 5 to 10 per cent. Multi-client fulfilment and the resultant savings could increase e-commerce profitability twice or thrice.

“To successfully implement a multi-client approach, one may require making certain changes to a 3PL’s real estate, service offering, commercial structure, and operations; new and flexible technology for supporting front and back-end operations and end-to-end connectivity will likely be needed as well,” the authors wrote.

Fibre2Fashion News Desk (NB)