3PL Partnerships: How to Ink the Deal
How to form a relationship with your 3PL that's so productive and strong, you'll want to put it in a heart and wear it where everyone can see.
In some ways, signing a contract with a third-party logistics (3PL) provider is a lot like getting a tattoo. Just as you have to put plenty of thought into any design you ink on your body, you need to spend time carefully crafting the bond you form with a 3PL.
After all, you'll be living with that relationship, day after day, for a long time. You need to fashion a partnership that reflects your goals and values—drawn expertly—with clear, sharp lines. And you'd better like that relationship a lot, because getting rid of it could prove difficult, painful, and expensive.
What are the secrets to forming and sustaining a great 3PL partnership? Based on conversations with some shippers and their service providers currently engaged in strong alliances, some of the keys include clear expectations, a desire to collaborate, well-engaged employees, and honest, ongoing communication.
Here's a look into some of those relationships, where the commitment to mutual success runs far more than skin deep.
The Human Element
Facilities are important. Technology is important. Finding a service provider that understands your industry is crucial. But the secret sauce in a great 3PL partnership consists of good people.
"It comes down to the attitude of the professionals in the business," says Chris Gain, vice president, operations and technology at McGregor American Essentials in Toronto. "They want to tackle your problems; they're excited about the opportunities; they like the industry."
American Essentials is a wholly owned subsidiary of McGregor Industries, a family-owned manufacturer of dress socks sold under the names Calvin Klein, Cole Haan, Izod, Tommy Hilfiger, and Chaps. The Canadian company formed American Essentials to sell its products in the United States. Since 2015, gateway logistics provider Port Logistics Group has handled inbound logistics and outbound order fulfillment for American Essentials from its City of Industry, Calif., distribution center.
Looking for the Right Accessories
American Essentials started its search for a 3PL in 2014. The company wanted a partner to receive its product from overseas manufacturers, store it in a Los Angeles-area facility, and then manage distribution to the retail chains that make up its customer base. The 3PL needed to understand the apparel and accessories market, and know what it takes to comply with the stringent shipping requirements that retailers impose.
"Handling apparel and accessories is a different animal because of the nature of the business—the seasonality and the high SKU [stock keeping unit] count," says Scott Weiss, vice president, business development at Port Logistics Group. "There's a lot of work and a lot of product touches."
Because Gain considers human relations so important, when American Essentials started talking with Port Logistics Group about a potential partnership, he took a hands-on approach. "We walked the floor of Port Logistics Group's various facilities and saw the different ways they fulfilled orders," he says. During those visits, Gain and his team observed that the 3PL used fulfillment strategies that American Essentials also had hoped to implement.
Team members at Port Logistics Group asked as many questions as possible about the scope of the work that American Essentials required. The 3PL needed that information to build an accurate customer profile, so it could correctly allocate space and staff, and develop pricing that made sense.
"You don't want to start your relationship by making a call the first week to say, 'We're losing money on your business,'" Weiss says. "The customer needs to make sure the 3PL earns a small, fair profit."
Once the two companies struck a deal, they developed a detailed implementation plan. During implementation, they held weekly conference calls. "As we got closer to completion, we had biweekly calls with the IT department, who are critical to ensuring smooth information exchange," Weiss says. And right before the go-live date, the partners started talking every day.
Daily Data Dump
Day-to-day, most of the information the 3PL and the shipper share passes between them automatically, with no need to enter data. "Data exchange happens in near real time," says Gain. "It eliminates all the 'noise' from the operations team, so they can concentrate on making sure we quickly meet our customers' needs."
Port Logistics Group produces a monthly report to show how it performs against a set of key performance indicators (KPIs). "A flag is raised if something sticks out," Weiss says. Also, like many shipper-3PL pairs, American Essentials and Port Logistics Group hold quarterly business reviews (QBRs), where senior managers from both sides meet to discuss the past three months and look ahead to the future.
The good working relationship that the two companies have forged allows them to make crucial adjustments in logistics operations as business needs change. Early in the relationship, for example, American Essentials started a large, new program with retailers from a shoppers' club. Suddenly, the company needed extra warehouse space to accommodate the inbound inventory. "Port Logistics Group found us extra space," Gain says. "And because they do our drayage, and it's all a single throat to choke, they were able to bring in those containers in large volume."
Port Logistics Group also had to use different materials handling equipment for this new merchandise, Gain says.
The two partners made the change smoothly—in part, because they started making plans together as soon as Gain's team learned about the potential for new business. It also helped that the 3PL had a strong portfolio of assets in Southern California. "Port Logistics Group could swing into action and ramp up quickly for us to be able to meet a need that, in the past, we probably wouldn't have been able to meet," Gain says.
Because he considers the human factor so essential to the business relationship, Gain recommends that shippers looking for a 3PL partner take a lot of time to get to know the people on the front lines. "Talking to the people on the floor in the facility reveals whether they are engaged in the business," he says. "You can tell when people are actively interested in the problems they're solving."
Skin in the Game
"Many people think that when you choose a 3PL, you close your eyes and business gets done," says Kristina Enbom, director of operations at Globe Electric. But that's not how outsourcing works. "You have to keep your hand in the business and work with the 3PL as true partners."
Based in Montreal, Globe Electric makes lightbulbs, lighting fixtures, and electrical products, which it distributes to retailers and also sells to consumers through an e-commerce channel. Since 2014, it has contracted with Weber Logistics to manage its logistics in the United States.
Weber receives Globe's product from overseas manufacturing sites, stores inventory in a Norwalk, Calif., warehouse, fills orders for customers, and manages outbound transport using common carriers, couriers, and its own fleet. A second 3PL plays a similar role for Globe in Canada.
Globe first turned to Weber for help with its growing e-commerce business. Weber had considerable expertise in that channel. The Globe team also liked how Weber integrated information technology into its operations.
In addition, the Globe team recognized a strong cultural match between the companies. "Weber treats us the way we treat our customers," Enbom says.
Those conclusions emerged after Globe thoroughly investigated the 3PL. "We were in and out of their facility one million times," Enbom says.
After the companies signed their contract, the visits continued. "We were on site with Weber's engineers, picking locations for the product, and determining how the pick-and-pack operation would work, where it would work, how many pick lines we needed," Enbom says. The team also collaborated with Weber's IT department, to make sure the shipper had access to all the reports it wanted.
Once Weber had the new operation up and running, startup talks gave way to a routine of scheduled communications. "We have conversations at the beginning of every day to discuss what's coming, what we're expecting, and what issues have come up," Enbom says. "At the end of Weber's day, which is three hours behind ours, we get an e-mail recap of what shipments went out, what's still pending, and what's planned for the next day."
There's also a phone call on the agenda every Wednesday. "Weber gives us a heads-up on what's coming in the next week and anything pending for the same week," says Thelma Leon, who has managed Globe's operation in the Norwalk DC since early 2015. "They also communicate any special promotions." The partners also hold QBRs.
Besides using scheduled meetings to coordinate their day-to-day work, the two partners collaborate closely to respond to the unexpected. One example occurred in 2015, when a sudden surge in e-commerce orders taxed the DC's resources.
To handle the increased volume, Globe agreed to let Weber bring in another shift of workers, so the 3PL could start filling orders earlier in the day. "And we worked on our end to prioritize which orders needed to go first, second, and so on. Every two or three hours, we were back on the phone," Enbom recalls.
Globe gave Weber the option of holding some e-commerce orders for next-day fulfillment. Globe and Weber also rescheduled some fulfillment to retail customers, to spread the total workload more evenly across the week.
Like Enbom, Leon recommends close coordination and communication as keys to a successful 3PL relationship. When a problem emerges, she says, the 3PL should never be afraid to ask the shipper for help in finding a solution.
"Many of us have the mentality that the customer is always right: If they need something, we have to do it," Leon says. But often, it pays to let the shipper know how a little leeway in the operation can yield success for both parties. "The most important thing is opening that communication bridge between the customer and ourselves, so we can grow together."
ConAgra Foods and C.H. Robinson have maintained a partnership for more than 20 years. The Omaha-based food company uses the non-asset-based 3PL mainly to broker full truckload transportation for its consumer products, in specific lanes. It often calls on C.H. Robinson to help with tricky freight challenges.
"When we have big surges in our network because of promotions, we look to providers like C.H. Robinson to help pick up some of that volume," says Terry Laluk, ConAgra's director of transportation procurement.
To stay on top of such challenges, Kevin Fay—C.H. Robinson's key account manager for ConAgra—and his team talk daily with more than 20 load planners and operations staff at ConAgra. "We provide status updates on current shipments and ask about any future shipments or other operational issues they have," Fay says.
ConAgra named C.H. Robinson its Dry Brokerage Provider of the Year for 2015. The 3PL earned that award not just by scoring well on objective measures such as on-time delivery, but also by serving as a trusted strategic advisor.
"C.H. Robinson helps us rethink supply chain challenges and suggests how we can do things differently," Laluk says.
Beyond the basic business relationship, ConAgra turns to C.H. Robinson for expert perspective on the transportation industry. "Learning about the macro environment, what's going on with capacity, is helpful," Laluk says.
Because the 3PL works with so many trucking companies, it's especially sensitive to fluctuations in the transportation market. "They have a feel for how many carriers are going bankrupt and how many new ones are entering the market," he says. Such intelligence can influence the shipper's transportation procurement strategy.
C.H. Robinson has also provided valuable insight into the potential impact of upcoming government regulations. One example is the federal mandate that carriers install electronic logging devices (ELDs) on all their trucks by December 2017.
"We hear a wide range of opinions from all over the United States—the ELD mandate will put hundreds of thousands of carriers out of business, or the mandate will have minimal impact," Laluk says. Thought leadership from a company such as C.H. Robinson, with deep experience and a broad view of the industry, helps ConAgra gain a more balanced view.
For any shipper, a long, close relationship with a reliable logistics service partner can be a great advantage. "You want to have a partner you can believe and trust," Laluk says.
On the 3PL side, says Fay, one secret behind a successful partnership is taking a proactive approach. "Is the customer always contacting us with issues, or are we getting out in front of things and letting them know what we're seeing?" he says.
Whether staff at the 3PL notice that a delivery is running late, or they've heard through the grapevine that capacity could grow especially tight in the coming week, it's important to get that information to the shipper as early as possible, he adds.
Another key to a successful partnership, according to Fay, is that the 3PL display a strong sense of integrity. "We're not one company with the load planners and a totally different company around the executives," he says. "We treat everyone the same."
Lifestyle products company Shinola teamed with Reading, Pa.-based 3PL Penske Logistics in 2014 because it wanted to stop managing distribution on its own. Growing at a breathless pace—a 250-percent jump in units shipped between 2013 and 2014—Shinola was continuously reinventing its logistics strategy. It needed not just more warehouse space, but also a partner to help shape its transformation.
"We knew no one was going to come in the door with all the answers," says Jonathan Hughes, treasurer at the Detroit firm. "But we wanted that organization to appreciate and work with us, and respond and grow."
Founded in 2011, Shinola sells American-built luxury products, including watches, bicycles, accessories, leather journals, and other leather goods. It produces or assembles many of those products in Detroit, and sells them through its own retail stores, an e-commerce channel, several major retail chains, and about 300 independent stores.
Penske operates a distribution center for Shinola near the manufacturer's headquarters, receiving finished goods, filling wholesale and e-commerce orders, managing inventory, replenishing stock at company-owned stores, and brokering freight. Inventory in the facility includes items such as packaging and store fixtures, as well as products for sale.
Before taking over Shinola's distribution, Penske sent a team to the company's internal DC to learn the existing operations inside out, says Brian Mackowiak, area vice president at Penske Logistics. As the 3PL moved the operation into its own facility, it brought in seasoned supervisors from other DCs to help for several months.
"Then we gained more stability to form our team locally, working with the associates we took over from Shinola and hiring many more in 2015 and 2016," he says.
With the new DC up and running, the Penske team—headed by operations manager Ed Evanoff—started communicating with Hughes' team at Shinola several times each day. The fast-changing nature of the business makes that kind of collaboration crucial. "We have a forecast, but we receive substantial growth on the e-commerce side," Evanoff says. "So we have to be able to adapt daily."
3PL Adds Value
Along with traditional logistics activities, Shinola requires a variety of value-added services, such as monogramming leather journals and handwriting a note to enclose with each e-commerce shipment.
Shinola might soon start shipping engraved jewelry from the DC as well. "So that's another thing Penske is going to learn," Hughes says. "The demands that we have are probably not reasonable, but Penske has responded better than we would have done internally."
In one case, Penske and Shinola collaborated closely on value-added services for a special order that originated close to home. In 2015, in honor of its 50th anniversary, Team Penske—the auto racing organization founded by Penske Corporation founder and chairman Roger Penske—asked Shinola to produce 1,800 units of a special edition gift watch. Each watch had a serial number, and Penske Logistics had to keep the units in order.
"It took coordination, and a close partnership with the workers at Shinola who were manufacturing the watches, to make sure they were organized," Evanoff says.
Staff in the distribution center also had to ensure the watches were packaged to perfection. "The watches had a black matte finish, so we had to put some dust controls in place, and workers had to wear white gloves when they packaged them," Evanoff says. The staff had just four days to pack and ship all 1,800 units.
Sustaining a partnership like the one between Shinola and Penske requires that staff on both sides understand what Shinola is trying to accomplish. "This business does not work unless the employees buy in to what we're trying to do," says Hughes.
Getting the Customer View
That's why, when Evanoff hires new associates in the DC, their training includes a quick trip to Shinola's flagship store in Detroit, to get a customer's-eye view of the company. "Once workers see and understand the customer, they take a little more pride in processing the orders," he says.
At Shinola, management considers the associates who work in the Penske distribution center as part of their own staff. "If they're successful, we're successful," says Hughes.
A strong partnership requires a delicate balancing act. Naturally, the shipper needs to manage the 3PL. "It's hard for us not to be directional," says Hughes. But the 3PL also needs to manage the customer.
"We reached out to Penske to leverage their expertise," Hughes says. "Sometimes we have to sit back and let them do what we hired them to do."
When a shipper and its 3PL partner craft a balanced relationship, built on communication and a deep sense of trust, that partnership enhances every aspect of the supply chain operation—just as a well-crafted tattoo, artfully placed, can enhance a person's appearance.