3PL Roundup: Straight from the (Out)Source
Market pressure has driven more business to the third-party logistics sector, but as a result, businesses are expecting more from their 3PLs. Find out what customers are demanding and what potential customers should know before they decide to outsource.
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Feeding off a down economy, increased global competition, expensive information technologies, and an industry bend toward outsourcing, third-party logistics (3PL) service providers are thriving. Between 2000 and 2001 the 3PL market grew 7.4 percent and in 2001 alone, it accumulated a gross revenue of more than $60 billion (up from $56.4 billion in 2000) according to recent figures culled by Armstrong and Associates, a supply chain management consulting and information services provider.
But as profits have soared, so too have customer expectations and competition within the marketplace, driving 3PLs to be "service" providers in every sense of the term. The growing complexity of the transportation and logistics industry requires a greater collaborative effort among shippers, intermediaries, and consignees. Much of this expectation and onus falls on 3PLs.
That's why Inbound Logistics decided to turn the tables and find out from 3PLs themselves what their customers are demanding and what potential customers should know before they decide to outsource.
Judging from the feedback we received, 3PLs are meeting customer demands with promises of greater communication and flexibility (see sidebars below). In turn, they advise prospective customers to perform due diligence when looking for 3PLs and to be proactive in communicating their expectations and requirements up front, before the deal is sealed.
Rather than pay lip service to what the 3Pls told us, we figured that as full-service providers they can speak for themselves. Read on.
Q: What advice would you give a current 3PL customer?
Stacy Daniel: Get the 3PL involved with your company. Communicate with your 3PL—communication is key to a strong relationship. Involve your provider in your strategy planning and allow them to understand enough about what's going on in your organization so they can assist in current and future needs. Create joint opportunities to gain share and work on continuous improvement.
Larry Marzullo: Get engaged and stay engaged! Projects often fail when the 3PL comes up with a solution and the customer says, "OK, you take care of it." Without constant engagement, expectation gaps grow. Therefore it is important to find a 3PL that is committed to improving your business process, then stay engaged to maximize the value it can help you create.
Don Varshine: Make certain your current 3PL is a full-service provider positioned worldwide—either within or through alliances developed with strategic partners—that can meet all your expectations at affordable prices. Your 3PL needs to be flexible and committed to providing customized service to meet new and changing demands.
Ivy Cohen: Be sure your 3PL has the ability and support to communicate with all key parts of its organization—transportation, management, and finance—to generate the best possible results.
Kenneth Pehanick: Develop mutually agreeable measurement tools to monitor performance. Avoid trying to micromanage single occurrences and manage to the macro level of performance. Too often we get bogged down in isolated incidences of performance failures that taint the relationship and the overall objectives of why you hired the 3PL to start with.
John Wagner: Involve your 3PLs in planning meetings. Keep them in the loop so their planning incorporates your planning.
Bob Gotwols: Don't be afraid to ask for help. If a 3PL provider doesn't know your problem, it cannot offer the right solution. All companies have shortcomings, especially in the area of supply chain management. Admit that you need help with a specific problem and allow the 3PL to do what it does best—save money by providing solutions to problems.
Chip Smith: Survey the carriers handling your traffic through the 3PL and ask for their feedback on communications, payment terms, and fulfillment of volume commitments. You'll quickly erode your existing carrier base if they are not happy dealing with the 3PL. A poorly managed 3PL can cause problems with slowed payments to carriers, disjointed communications, and poor organization. A well-managed 3PL can drive cost out of a shipper's supply chain. A poorly managed one does the opposite.
Geoff Davis: Look for opportunities to expand and ways you can contract assets. Demand a shared services model transition. Don't simply transfer your assets to another firm. It will add a layer of cost.
Jennifer Chappell: Decide up front how you and your 3PL will measure hard and soft cost savings. Make time to meet with or at least have a conversation with one of the 3PL's current customers to understand the challenges and advantages of implementing the new process.
John Harold: Get with the program. To achieve the greatest success, your company's management has to back the 3PL's programs 100 percent. Without this support, your managers and workers won't "buy in," and progress can be very slow.
Paul Delp: Communicate as much as possible and meet face to face regularly.
Michael Blasquez: Maintain a clear and open channel of communication between your company and your 3PL partner. If the communication channel is strong, the outsourced experience can be very rewarding for all involved.
Q: What advice would you give a company looking to select a 3PL?
Stacy Daniel: Know what capabilities you need. Do your due diligence. Make sure there is a good culture fit between your company and the provider. Do your homework on the providers to whom you will send RFPs. Send out an RFP and give the providers adequate time to develop a solution—30 days is a good target.
Larry Marzullo: Watch out for creeps—scope creep that is. One thing that is critical in maintaining a successful relationship and preventing scope creep is benchmarking exactly what you want done and putting these expectations in writing.
Expectation gaps arise when the 3PL has built and designed a process and is measuring its performance against that, then your needs change. In this scenario, the 3PL is either not doing exactly what you require, or it is measuring something that it perceives is creating value for you when it isn't. You must fight this by being very disciplined. Everything has to be put in writing all the time. As needs change incrementally, so should the metrics.
Don Varshine: Make certain your 3PL has the financial capabilities to perform long term on its promise. Develop defined performance standards with measurement tools to evaluate results. This type of understanding makes for a better long-term partnership where all parties involved realize a reasonable return on their investment.
Ivy Cohen: The best 3PL will be one that is capable of integrating the logistics process into the entire company's strategic plans and operations.
This should include: accounting and finance to ensure reporting on cost structure and monitoring improvements, as well as managing and reporting on cost reductions; production, to track and manage shipments resulting in reduced inventories and floor space, and improved cash flow; sales, to measure on-time arrivals and care for individual customer needs.
Kenneth Pehanick: Closely examine the capabilities of the prospective provider to make sure that all the applications you are investing in are in production and tested. Ask for references of companies using specific applications that you are interested in, not just general references.
John E. Wagner: Know what it is that you want to achieve when doing a project. Have clear goals and measurements so you know what success looks like. Tie the 3PL's financial success to the achievement of those goals.
Bob Gotwols: Consider the 3PL's history. What experience does it have in dealing with your specific logistics problem? The best price is not always the best option.
Chip Smith: Ask the 3PL how it select carriers, the communications process with the shipper and carriers, payment terms with carriers, and its process for performance measurement of carriers.
Geoff Davis: Make sure your organization doesn't think distribution is a core competency. If it does and it isn't, call recruiters or go to the islands for the summer.
Supply chain software, optimizers, software operator partnerships and exchanges only work if someone who actually owns the assets is willing to let some other entity control hard assets for its financial benefit.
Jennifer Chappell: Make the time to meet with or at least have a conversation with one of the 3PL's current customers to understand the challenges and advantages of implementing a new process.
Paul Delp: Look beyond the prices.
John Harold: Take a hard look at the approach the 3PL takes. How does it begin? Does it use common sense? How does it collect and analyze data? Is it sensitive to your corporate culture? Is it flexible and can it customize programs for your company? Are you satisfied with the ways it measures results? Are there any potential conflicts of interest? Are the 3PL's fees based on a percentage of your company's freight charges rather than on the savings achieved for your company? You wouldn't set your traffic manager's salary as a percentage of freight charges, so why choose a similar way with a 3PL?
These factors can be much more important than the 3PL's size or client base, and you'll want to feel comfortable with the ways these issues are addressed, just as you would with your own employees. When you're fully satisfied, it will be much easier to garner support from your colleagues and employees for the 3PL's programs.
Michael Blasquez: Make certain the 3PL clearly understands your expectations before entering into an agreement andmake sure it has a proven track record of satisfying your requirements.
Bekins Furnishes Made-to-Order Solution
Bekins' Home Direct, USA division delivers and sets up high-end items, such as exercise and medical equipment in homes across the United States.
One customer, Bush Industries, is a significant-sized furniture manufacturer based out of Erie, Pa. Its niche is high-end, ready-to-assemble furniture. Historically, its business model served customers through dealers; but it discovered that its inventory carrying costs were too high. Accordingly, Bush decided to offer a direct ship program to superstores.
The challenge of implementing such a program was in figuring out how to reduce inventory and sell to these new customers—all at a reduced price. Together with Bush, Bekins designed a process that significantly reduced its inventory and used the value created by these savings to reduce the furniture pricing enough to enable the superstores to move the product.
As a result, Bush was able to change its business model from one with dealers and lots of inventory to one of superstores with very low levels of inventory.
As an ancillary benefit, this change in strategy has had a direct impact on marketing and overall company growth.
D&D Drives Goodyear's Success
Goodyear Tire and Rubber needed help with handling and storage of a large quantity of tires. D&D Distribution was required to purchase tier racks for the operation, contract with a company for the unloading/loading of trucks (all done by hand), and make available more than 400,000 square feet of warehouse space for storage of approximately one million car, light truck, and off-road tires.
This was all accomplished and implemented within 60 days. D&D's performance allowed Goodyear to work through a period of time when it was experiencing changes in operations and a very high finished product inventory.
Langham Bottles Hard ROI With Enhanced Customer Service
Over the last six weeks Langham has begun working with a major food and beverage manufacturer/distributor to implement a freight management system that incorporates both current routing guides and definite cost-savings requirements.
The challenge entails:
- Effectively communicating the change in transportation scheduling to vendors and transportation companies.
- Monitoring vendor compliance with program requirements.
- Monitoring carrier performance.
- Coordinating with the freight payment agent currently in place.
- Reducing compliance/paperwork errors associated with the freight payment agent.
- Producing a net 10-percent savings to standard transportation costs over the cost of the program.
Although some changes have not yet produced enough data for statistical analysis, during the first month of the program we have been able to save this manufacturer more than 15.5 percent of net program costs on their inbound transportation.
Service is 'Standard' at Sam's Club
Standard's most rewarding implementation over the past year was in Charleston, S.C., for Sam's Club. Standard was awarded a contract to manage crossdocking operations for a large wholesale company approximately one year ago.
While a well-defined time line was established, the new client decided to terminate the previous provider's contract early due to "operational issues." Standard immediately began preparation needed to assume responsibility for the previous provider's sites.
A joint corporate and local team converted the new site to Standard's operating procedures and expectations within two weeks.