A good third-party logistics partner (3PL) can add value far beyond the cost of the service. But the extent of that value is significantly influenced by the actions of the outsourcing company and how it manages the relationship.
This article offers 5 things shippers can do to maximize the benefits of logistics outsourcing.
Is the logistics outsourcing relationship strategic or tactical?
Let’s examine two types of relationships: tactical and strategic.
If you hire a painter to paint your bedroom, you’ll tell him exactly what you want. After that, you don’t want a whole lot of interaction. He does his thing and you get the pale blue bedroom you expected at the estimated cost.
When you hire a financial advisor with the goal of growing your investment portfolio, your approach is different. You’ll likely invest whatever time is needed to answer her questions – about your goals, changes in your financial situation, etc. Why? Because you expect your personal investment of time and effort to pay off. You want her to have all the knowledge she needs to make you more money.
Forward thinking shippers manage 3PL relationships in much the same way. They regard 3PLs not just as tactical cost centers but as value creators. The amount of value created will depend mainly on the 3PL’s capabilities, but also on how well shippers create an environment for the 3PL to deliver breakthrough performance in reducing costs and improving performance.
Here are 5 suggestions to elicit greatness from your 3PL. For our complete list of 12 tips, download our Ultimate Guide to Being a Great 3PL Customer.
1. Assign appropriate resources to manage the relationship
Ironically, studies have found that the top reason outsourcing relationships end is a failure on the part of the outsourcing company to assign the proper resources to manage the relationship. Logistics outsourcing takes away the burden of daily execution, but adds significant management requirements, including setting and monitoring objectives and handling ongoing communications. If you haven’t already, you should define the job responsibilities of a 3PL relationship manager and then assign someone to this role as their sole responsibility or as a significant part of a broader role. Great things are possible with the right partnership, but 3PLs must work with you, not for you, to maximize the benefits of outsourced logistics.
2. Define contract length to support investments in people and technology
Initiatives with the biggest payoff may involve 3PL investments in, for instance, automation. 3PLs may take this risk, but only if the contract terms allow them to amortize the investment over a longer period. Some shippers limit contract length, believing that frequent contract negotiations provide more leverage to continually lower costs. This may lead 3PLs to focus on more tactical improvement projects with incremental gains. Not a bad thing, just not the transformative changes that could be considered as part of a longer-term, strategy view.
What’s more valuable, a small, incremental reduction in labor or a multi-million-dollar labor savings linked to a major automation initiative? You wouldn’t tell your financial advisor she has 3 months to show value. You’d give her a longer runway to consider strategies that create wealth for the long term.
3. Define a structure for regular communications
Communication should not be left to chance or happen “as needed.” Everyone’s busy these days, but there is untold value in adhering to a regular communications cadence with your logistics outsourcing partners – whether it’s a daily call or in-depth quarterly reviews. Meetings should focus primarily on what your 3PL partner is doing to get orders out the door and into customers’ hands on time and intact. But leave time to ask your partners what the company needs from you in order to be successful.
4. Share long-term business strategies
3PLs want to do meaningful work. They want to come to the table with game-changing ideas that help clients achieve their over-arching business objectives. But they can’t do that without context. Businesses that regard 3PLs as tactical logistics partners likely won’t share wider business plans or corporate visions. That’s a mistake. This intelligence is empowering and will undoubtedly spark insights on how the supply chain needs to change to support the company’s vision.
5. Collaborate as members of the same team
Finding the right culture fit with your 3PL is important. You want a partner you can regard as an extension of your internal team. And you want the 3PL’s team members to regard your goals as their goals. This promotes a more single-team, collaborative approach, rather than the typical buyer/vendor relationship. Here’s an example of what can happen when this kind of collaborative relationship exists.
A major food manufacturer and its 3PL were challenged with reducing overall costs in both material and labor for a co-pack operation. The 3PL initiated a lean project and the manufacturer sent several engineers on site to work with the 3PL’s operations team and share its experiences with other co-packers. The result was a new corrugate design that generated an immediate $250,000 payback on the corrugate alone, plus a near 6-figure labor savings over time from faster POP display construction.
Success in outsourcing logistics requires collaboration
The 2020 Third-Party Logistics Study found that 93% of shippers say their relationships with contracted 3PLs have been successful. When it comes to logistics outsourcing success, the manufacturers and retailers that create the most value for their companies are those that invest in their 3PL relationships. It’s on the 3PL to perform, but don’t underestimate the value of your role in giving your logistics partners the knowledge and support they need to deliver value beyond what’s expected.