High touch, last mile
Acquired last August by XPO, 3PD is the largest provider of “high-touch, last-mile” deliveries in North America, said Karl Meyer, the unit’s chief executive officer.
Meyer, former national delivery manager at Home Depot, founded 3PD in 2001 with his brother Randy, who serves as its chief financial officer, to provide last-mile deliveries in the Atlanta area.
Since then Meyer said 3PD has grown to become North America’s largest deliverer and installer of appliances, retail building materials, and, “if not the largest, pretty close to the largest deliverer and installer of electronics.” It’s also a major provider of deliveries of furniture and fitness and medical equipment.
Customers include both retailers like Home Depot, Lowe’s, and Sears, as well as manufacturers such as General Electric, cabinet maker Masco, and major bedding companies such as Sleepy’s and Serta.
The company provides service on either a dedicated basis for customers that have a high volume in specific markets, or on a transactional basis through a network that serves multiple companies.
“We’ve seen in the last two or three years a big shift in fulfillment in the last-mile space,” said Meyer, because of “growth in e-commerce and to a large extent what Amazon is doing. This has been a threat for seven years or so, but it hasn’t been up until the last year that we’ve seen a lot of our customers generating actionable strategies to compete.”
The growth in e-commerce, he said, is “being driven by two things. One is velocity and the second is free shipping. Amazon is the biggest innovator there, and what they are really doing is they are getting closer to the customer.”
By building more delivery centers, Amazon has been able to outsource more work to regional parcel delivery companies, Meyer noted, and not give all of its business to FedEx and UPS. He said the regular annual price increases by those package delivery companies “are not sustainable to a model where free delivery is the customer’s expectation.”
As a result, Amazon is making changes so it can control costs, but still accelerate delivery velocity, “so they are able to get to next-day and eventually same-day fulfillment,” he said.
At the same time, he said traditional “brick-and-mortar retailers” are implementing omni-channel strategies to “at a minimum maintain market share, but ideally to be able to grow, market share in online sales.”
In response, retailers are seeking to leverage their footprint so that customers can make purchases at the store or on-line and also have their merchandise delivered at home or picked up at the store. They also support returns, “which is a pretty nice differentiator against the non-brick-and-mortar e-commerce players,” Meyer said.
To compete more effectively with Amazon, companies such as Home Depot and Lowe’s are building facilities to fulfill e-commerce orders.
While it’s expensive to build a parallel delivery system for e-commerce, Meyer said it is difficult for distribution centers to serve both stores that need pallets of goods and individuals who just want one or several items. Likewise, he said trying to fulfill on-line orders out of stores can be problematic, both because of the aging store systems and imperfect inventories.
“Making commitments online about inventory that’s in the store can cause more problems than it solves sometimes,” he said.
For a large company like Lowe’s, 3PD will deliver from their stores in a particular market, receiving orders up until, for example, in Los Angeles 5 p.m., and then run routing algorithms and push those orders out electronically to drivers who will go to the stores, pick up and deliver orders.
3PD also has dedicated contracts where it runs 47 warehouses for customers such as GE.
For transactional customers, Meyer said 3PD will pick up from any origin and deliver to any zip code in the contiguous United States.
“We accept the order in one of our three call centers nationally, do the first-mile pickup, and take it to our line-haul provider. Forward Air is our primary line-haul provider. They provide the line haul; we recover off of the destination terminal and deliver, install, assemble—whatever the services are required,” he said.
“If it’s going into a home or an office and it has a service requirement at delivery that’s really the world that we’re focused on,” he added.
Meyer said the company is now looking at opportunities to integrate with XPO, and its other units such as NLM and Pacer International.
For example, he said 3PD has grown into a business with $400 million in revenue with “a very small selling force, less than eight people. Part of our opportunity with XPO is we are integrating our rating tariff into their brokerage office, so you can have over 800 people selling last mile. By the second quarter of this year, we’ll have that in place.”
With Pacer, the company sees opportunities, he said, “with their Southern California facilities to be able to leverage port-centric services for things like furniture to do assembly, port-level assembly, and then distribution to end consumers. The same thing out of North Carolina.”
The company will also explore Pacer’s intermodal capabilities to see if there are opportunities to reduce costs.
Meyer said the company has developed patented, proprietary technology to provide visibility through the order lifecycle and “capture exceptions and generate triggers off of them.”
For example, when the company delivers Kraftmaid cabinets it is usually to a location that has an installer “waiting for you if not then, the next day. And on average there are 17 cabinets in a kitchen so if you have one piece of trim that is damaged or missing you can’t put the kitchen in,” he said.
“Historically you would capture that exception on paper and go back to the local facility, go to the regional Kraftmaid and eventually make it back up to Ohio and a week later someone would overnight a piece there,” Meyer explained. “We are integrated with Kraftmaid now where we capture the exception at delivery; we can take pictures of the damaged product and attach it to the order; and that information goes straight into their manufacturing facility and they are able to overnight a piece right then and there to the customer.”