The practice of outsourcing of logistics services to a third party logistics provider (3PL) is now becoming the norm. The benefits are many, and are well documented:
- less investment in vehicles, warehouse space and specialised staff
- applying the latest technology leading to continuous improvement
- access to industry expertise and best practices resulting in fewer mistakes and lower risk
- deals with the peaks and valleys of uneven demand and seasonal peaks through shared facilities
Running your own logistics facility can be a distraction and an unnecessary complication when you should be focusing on servicing your customers.
Assuming you have taken this big decision to hand over, or at least share, the control and management of some key elements in your supply chain, your involvement does not end there. Let’s look at how to get the best out of your 3PL relationship.
- Treat your outsourced 3PL as a business partner
Your 3PL company is not just another supplier; it is an extension of your business. Yes, it supplies services, knowledge and expertise but are you getting the best you can out of the relationship? Start to think of your 3PL as a collaborator – it is effectively the logistics branch of your own company. To be able to deliver on your expectations they need to understand your industry and your business, not only your supply chain operations.
In Cap Gemini’s 2017 Report on the state of Logistics Outsourcing, they note that “the topic of alignment remains relevant, and shippers and 3PLs agreed on the importance of openness, transparency and effective communication to overall success. Among respondents, 44% of shippers and 86% of 3PL providers agree that collaborating to achieve logistics cost and service improvements hold value.”
- Be open about your company’s goals and long-term vision without necessarily divulging your secret formula for success. Communicate all related industry intelligence and relevant financial information clearly and regularly.
- Build relationships with multiple contacts within the 3PL company. The more you know about your partner the better. Problems occur at all levels, access to the right people is an important factor when issues arise and need immediate action.
- Set goals and key measurements
The gap between success and failure of the 3PL relationship is really quite small. It is just the difference between your expectations and the actual outcomes. Know what you want and articulate it clearly. Your expectations must be defined in quantifiable and measurable terms that are both understood and accepted by your partner. If the outcomes do not meet your expectations, there is obviously a lack of agreement on how to manage performance.
Key performance indicators (KPIs), used to measure acceptable performance levels, are often “decided upon” before confirming them with the partner; however they need to be mutually agreed upon. Some examples of KPIs are: % of deliveries not made on time, number or value of losses or breakages, availability of trucks and % downtime of systems. This is the common ground on which the relationship is built.
- KPIs can be a powerful catalyst for improving service levels to customers and containing costs if managed correctly. If KPIs are defined poorly or, quite often, not at all, the result will be declining service levels, rising costs and high levels of frustration on both sides.
- Schedule formal meeting intervals to review operational performance against KPIs and reset measures if required. These meetings also act as progress reports on overall service delivery and log remedial actions.
- Additional quarterly or half-yearly reviews at executive level serve to reinforce positive behaviours and provide a platform for discussion on continuous improvements and innovation.
- Resolve issues sooner than later
Issues can reach crisis mode very quickly if ignored. If your 3PL has direct interaction between his staff and your customers, which is commonplace in last-mile deliveries, you need to have a watertight method of managing customer complaints within the agreed KPIs. Customer complaints find their way onto social media very quickly – your brand reputation may be at risk rather than the 3PL’s.
- Appoint a single point of contact in both your company and the 3PL to deal with each type of supply chain problem. Channel information and problems through these senior individuals and empower them to make immediate decisions.
- Implement an escalation procedure. Define the escalation path that issues will follow should they not be satisfactorily resolved within the defined time frame. This will ensure that problems will not get side-tracked or buried. Keep a log of issues and their outcomes and track all resolutions.
- Circumstances can arise which result in a downward slide of 3PL performance over time. It may show itself in falling service standards, rising costs or more customer complaints. Ideally, this will show up in the analytical reports, ignore the signs at your peril.
- Keep your 3PL provider in the loop
Providing up-to-date information on changes in your business, e.g. new product introductions, year-end activities and impending recalls will enable your partner to adjust or reorganise to meet those needs. If you are intending to expand into new geographic regions and/or new services then make sure your 3PL partner has the capability and capacity. They will need time scale up, don’t expect them to work in a vacuum.
The logistics outsourcing industry globally, and particularly in the UK and Europe, has seen some consolidation in the last few years. The larger players are growing through acquisition of smaller competitors. They are investing in technology, both in materials handling and paperless administration, for the benefit of your customers. Leading 3PLs provide expertise in international trade regulations, cross-border customs and excise and are better equipped to deal with challenging circumstances.
Your logistics partner must deliver on its promises. The next article will be about what to look for when sourcing and selecting a 3PL partner.
Our directors are experienced logistics consultants who have worked closely with clients in a range of sectors and countries to improve or expand their warehouse and distribution centre operations.