HOW TO BUILD STATE OF THE ART
3PL RELATIONSHIPS FOR THE 21ST CENTURY
A manufacturer’s and 3PL provider’s perspective by Jay Harris, President of Komar Distribution Services
Solid business rules and logic, combined with the power of great systems, make it possible to successfully manage a third party logistics (3PL) relationship and gain competitive advantage. Opportunities with the right 3PL services provider should reduce net cost of distribution resulting from enhanced supply chain management, reduced transportation costs, fewer operational chargebacks, improved on-time performance and superior retailer scorecard grades.
A Quick Overview of the 3PL Business
Third party logistics providers originated on the simple premise of allowing manufacturers the opportunity to let somebody else manage their transportation or warehousing. It may come as some surprise that automotive manufacturers are heavily dependent on 3PL providers. Toyota, General Motors, Ford Motor and Chrysler all use more than 40 third party logistics providers. That begs the question: Why? The utilization of 3PL providers, most research firms would say, is one of the simplest concepts: companies outsource to focus on their core competencies, while the 3PL provider becomes responsible for supply chain information, business processes, and technology solutions.
This sounds great in practice, but in our experience, the decision to outsource some or all of a company’s logistics, distribution and transportation is not one to take lightly. The logistics landscape is littered with failed relationships between 3PL providers and manufacturing companies. In many cases, the seeds for these failed ventures are sown early in the process.
Project Management is a Key to Success
We believe a crucial part of the process in overcoming the failures others have experienced with 3PL providers is placing special attention on project management. An effective 3PL project manager (PM) is skilled at identifying opportunities and uniting parties, systems and processes. A great PM strives to take proven best practices, embed them into the customer’s organization or the 3PL and make them durable, permanent and lasting. These best practices include:
- Improving stock arrival dates at the DC
- Reducing storage costs
- Exceeding vendor compliance requirements
- Always shipping on customer start date
- Scorecarding of the 3PL provider, the vendors, the retailer and the customer
In the beginning of the relationship, the project manager is what we would call a true project manager – she may handle many singular/one-time events such as writing or fine-tuning a Standard Operating Procedure (SOP) or Best Practice. There may also be an extended discovery period between the partners while they explore supply chain opportunities such as squeezing money and days out of the supply chain, setting up meaningful metrics, and so on. Eventually, the relationship evolves, and while there will always be singular task and improvement opportunities, the relationship should fall into a comfortable and natural cadence with weekly status meetings monitored by both parties. The PM often acts as a meeting facilitator.
An accomplished full service 3PL provider should be highly capable of driving competitive advantage and operational savings. These are examples of leading opportunities:
- Savings in Ocean and Domestic Transportation Cost – It is very possible and desirable to find a 3PL relationship that will leverage cooperative buying power to save transportation dollars and optimize ocean transport and supply chain days. The relationship can provide valuable insight into the murky world of ocean transport. It can help mitigate arbitrary price increases and create savings using a dynamic RFQ environment.
- Supply Chain Management and Collaboration Software – Efficient communication with overseas suppliers, shipping forwarders, customs brokers and truckers can have a dramatic and profoundly beneficial effect with production order management. The aim is collaborative clarity between buyers, vendors and logistics companies so that all parties are always aware of where product is in the supply chain. Good systems should predict early and late product arrivals, provide succinct communication threads between parties, and highlight operational remediation. Advanced 3PL’s often provide and insist on the use of such software as it is recognized as vital operational glue.
- Vendor Compliance and Chargeback Reduction – The 3PL provider should be expected to understand Vendor Compliance and share in the responsibility, including chargebacks. Many 3PL providers will talk of their compliance but shirk at taking any responsibility for chargebacks beyond their provided fees. An effective provider must be willing to take responsibility for operational chargebacks that directly result from their lack of performance as well as have a proactive compliance officer in place so that chargebacks do not become the business relationship focus. The focus should be in driving the retailer performance scorecards to an “A.”
- Face-to-Face Meetings – The 3PL PM should be expected to visit the operational headquarters of the client with appropriate frequency to create a true extension of the businesses and a synchronous and harmonious relationship between the parties. Such visits also make it possible for all stakeholders to become involved, including sales. As an example, proactive 3PL providers will visit the client during trade or market weeks to interact with sales and even client customers, thus getting closer to the end customer requirements.
- Scorecard/Report Card – While the 3PL staff and certainly 3PL PM face time with the client is a best practice, it is very important to have a weekly report card that asks important questions and defines the health of the various process requirements between the parties. This will quickly frame and define expectations of the relationship. The goal should be an “A.”
- Reduced Time to Market – Consider reducing product time to market by two weeks for every season; this could result in one extra month of selling! Process and lead times can be reduced by using collaboration visibility tools, multi-location points of distribution, proactive flow and pick processes, C-TPAT, Foreign Trade Zones and, of course, choosing a 3PL provider with the same vision and the resources required to accomplish this goal.
- Sharing of “Other” Best Practices – A 3PL provider may also provide other unexpected but welcome synergies in areas such as operational best practices outside traditional supply chain areas. A willingness to share an extensive network of support, contact and ideas can also be expected with a top 3PL provider.
Sometimes the Takeaway is Knowing What is Possible and Achievable
We have identified some of the opportunities through which a company can achieve significant operational results and business growth. The relationship between a client and 3PL provider can be such that the sum of the parts is much greater than the whole. Today’s advanced 3PL providers are truly capable of identifying opportunities and garnering operational support to take advantage of them. There is no question achieving solid results with an advanced, forward-thinking 3PL service provider is a goal all companies should identify and act on.