Do We Need a Better Model to Manage Logistics Outsourcing Relationships?

When it comes to managing logistics outsourcing relationships, there is an essential dilemma that needs to be solved.

Shipper reliance on 3PLs continues to grow, but the model for managing these strategic relationships has not changed to address the shippers’ increasing demand for 3PLs to proactively drive logistics innovation. 

Typically, shippers assign the responsibility of 3PL management to someone on the logistics team, who is also responsible for many other duties. On the 3PL side, there may be a dedicated strategic account manager whose job it is to stay close the customer to contribute valuable recommendations

But close is still too far. 

The goal of the 3PL should be to work hand-in-hand with the customer to develop the strategy, not just to get close enough to hear about it. Until 3PLs participate in supply chain strategy as part of the customer’s internal team, they will lack the context to feed the idea engine and close the innovation gap that many shippers perceive.

For strategic outsourcing relationships, perhaps it’s time for a new model.  Specifically, an “embedded 3PL” model.  We write about it in our white paper on “Managing Logistics Outsourcing Relationships.”  

What’s an embedded 3PL? 

It’s a model in which the 3PL funds a dedicated resource that is, ideally, officed at the customer’s location and functions as a seamless part of that customer’s supply chain organization.  The focus of this embedded resource is to serve the customer’s interest by leveraging the resources within the 3PL organization to address that customer’s biggest challenges.

The embedded 3PL concept assumes a level of uncompensated investment from the 3PL. In exchange, there would be both a financial risk-share and gain-share component to the contract. The intention is for both parties to have “skin in the game” as they partner to drive supply chain innovation that creates savings and competitive advantage.

The embedded 3PL model is not unique, but it is the rare exception in 3PL outsourcing relationships.  Done successfully, an embedded 3PL model can turn the 3PL from an outside engine for supply chain efficiency to an inside engine for supply chain innovation and competitive advantage.