Go Ahead...Pile It On!
Today's outsourcers expect 3PLs to offer a wide range of value-added services. 3PLs respond.
Andrew Klingel, director of operations for Siamons International, knows what he wants from his 3PL: a bit of everything, most having little to do with transporting and storing products.
Like many logistics managers, he expects his third-party logistics provider—Santa Monica, Calif.-based CaseStack—to take an active role in supporting an array of daily business operations.
"We use CaseStack for a wide range of services, from order processing to product packaging, even building store displays," Klingel says.
These are boon times for 3PLs such as CaseStack; most are enjoying double-digit growth rates.
In 2006, slightly more than one-fifth of 3PLs responding to an International Warehouse Logistics Association (IWLA) survey reported revenue increases of 20 percent or more. Another eight percent posted revenue gains of between 15 and 20 percent, while 25 percent experienced sales growth rates of between 10 and 15 percent.
Against this backdrop of healthy revenue gains, 3PLs continue to press for market share growth. Expanding market presence means finding new customers, as well as convincing existing clients to switch allegiances.
One way to win new customers is to listen closely to their needs, then offer ready-made solutions, even those not directly related to logistics.
"It's hard for 3PLs to make money on basic services," says C. John Langley Jr., a supply chain management professor at the Georgia Institute of Technology in Atlanta. "That's why more 3PLs are emphasizing value-added services."
Value-added services encompass a variety of offerings. Packaging, picking and packing, labeling and kitting, inventory and control, and assembly and customization are the service areas providing the strongest opportunities for 3PLs, according to the IWLA study.
Keeping Customers Satisfied
Toronto-based Siamons, which specializes in mold control products, views its 3PL relationship as vital to its business success. "The relationship is an extension of our business," Klingel says. "It's critical to customer satisfaction."
CaseStack helps Siamons accomplish tasks faster and more efficiently than if they were handled in-house, Klingel notes.
The 3PL provides a range of order-processing services, "handling everything from individual bottles and samples all the way up to full skids, LTL, and full truckload for our larger customers," he explains.
CaseStack also occasionally provides repacking services for Siamons, and builds and ships store displays. CaseStack assemblers take the display parts out of a corrugated box, build the unit, then ship the three-shelf display to the retailer.
"When it arrives at the store, the customer just has to take off the top and put up the sign," Klingel says.
CaseStack doesn't focus exclusively on value-added services, but understands the need to be flexible enough to provide any service a customer requests.
"We can handle most value-added services," says Dan Sanker, CaseStack's president and CEO. "It's not always feasible for companies to handle tasks in-house that may come up only once a year, or that require some form of specialized expertise, such as RFID."
Value-added services mark the difference between a 3PL that's simply a transportation/warehousing company and one that's a full-spectrum service provider, Sanker notes.
For Klingel, working closely with CaseStack on all logistics issues is key.
"CaseStack gets to know our product, and us personally," Klingel says. The companies' tight relationship comes in handy whenever Siamons faces a new business challenge.
"Any time we face a new issue, we set up a conference call," Klingel says. "CaseStack offers advice on how to handle a situation, based on its experience with other customers facing the same challenges."
Valor and Value
As a Tier II automotive industry supplier, Valor Manufacturing operates in a challenging just-in-time logistics environment. The constant pressure requires the company to demand maximum productivity and efficiency from all its activities and relationships, including its 3PL agreement.
"Valor is a young company, established in 2000 as an importer of automotive exhaust components," says Cindie McGloine, supply chain manager for the firm, which is based in Dundas, Ontario, Canada.
In 2003, after experiencing service-quality problems, Valor terminated its relationship with a Kansas warehouse operator and began scouting for a 3PL that could help it not only move and store products, but assume a variety of value-added responsibilities.
After considering several providers, Valor settled on Evans Distribution Systems, Malvindale, Mich.
Valor relies on Evans for numerous services beyond transportation and warehousing, including repacking, inspection, EDI support, Web site operation, and an interactive inventory system.
"Having Evans perform these value-added functions frees up valuable time to devote to other areas of our business," McGloine says. "This allows us to better utilize our staff."
The arrangement also provides direct financial benefits. "We avoid spending time and money that we would otherwise have to invest in land, rent, building, staff, maintenance, and administrative costs," McGloine says. "This partnership allows us to continue to grow our business."
Evans also serves as "Valor's eyes and ears," says Leslie Ajlouny, Evans' vice president of business development.
Valor's products, which are imported primarily from Asia, are frequently subjected to rough handling and contaminated environments before arriving in the United States.
"We visually examine the products just before Valor's customers receive them," Ajlouny says. "We're the last line of defense."
Such attention helps Evans forge a tight bond with Valor, so tight that the 3PL often becomes involved in the company's decision-making processes.
As Valor faces new challenges, such as the adoption of RFID and other emerging technologies, Evans will be there to help meet them, McGloine says.
"As our OEM automotive and Tier I customers embrace new technologies, we will need these added services to keep up with their requirements," she notes.
McGloine credits Evans with helping Valor thrive in a highly competitive market. "Our business has grown exponentially over the past few years," she says. "We are still growing, and we need our 3PL services to grow with us."
Getting in Thick
SimplyThick is a small company with large logistics needs. As the developer and marketer of a food and beverage thickener for people who have difficulty swallowing, the St. Louis-based firm needs a 3PL that understands its specialized product and its importance in customers' daily lives.
"We want to make sure we have the right partners who can get our product out the door according to schedule," says John Holahan, SimplyThick's inventor and founder. "When we choose a 3PL, we look for a good match in size and flexibility, and an understanding of our product."
After parting ways with its first 3PL, a large organization that Holahan says failed to provide the service and attention SimplyThick required, the company went shopping for a new provider. SimplyThick examined several candidates before deciding that TAGG Logistics of St. Louis most closely matched its needs.
"We've worked to develop systems and technologies that work well for both companies," Holahan says. "Everybody at TAGG now knows what SimplyThick is, and how crucial it is to our customers."
In addition to typical 3PL services such as transportation and warehousing, TAGG also provides several value-added processes to SimplyThick, including kitting, packing, and order fulfillment.
"Businesses are outsourcing more, and 3PLs have to be willing to broaden their service offerings," says Gary Patterson, president of TAGG. "We offer one-stop-shopping to companies such as SimplyThick."
For Holahan, TAGG's value-added services mean he doesn't have to worry about every last detail.
"Small companies live and die by sales," he notes. "If we kept a big-time industry veteran on staff who knew how to set up a warehouse and warehouse management system, maybe we could save some money."
But, lacking such a person, SimplyThick's management prefers to avoid the energy drain and distraction of running an in-house warehouse and order fulfillment operation. "Outsourcing allows us to focus on what we're good at," Holahan says.
Companies that ask a 3PL to provide value-added services are, in essence, bringing the provider inside their business. Such a relationship requires a high level of cooperation and trust, demanding that the client and provider work closely together and share knowledge about all facets of business operations.
"Companies need to be able to tell their 3PL things that are kept in confidence," Langley says.
Yet many companies are reluctant to divulge their secrets to people outside their corporate tent.
"There's a perception that if you're not careful, you'll give out some information that will come back to hurt you," Langley says.
Yet, if a business doesn't trust its 3PL, the provider will be forced to fill in missing information with estimates and guesses, creating ample opportunities for project failure.
"By keeping information close to your vest, you impair your company's ability to function," Langley says.
Langley admits that businesses may have good reasons for failing to share sensitive information with their 3PL.
The client may, for example, be afraid of a 3PL employee with in-depth knowledge of a critical process suddenly jumping to a competitor.
"But if you can't share, for whatever reason, you will come up short in terms of the providers' ability to respond," Langley warns.
Holahan agrees. "You've got to find a 3PL you can trust," he says. That trust is built up over time as the partners work together to meet various goals.
Sizing Up Providers
When a business plans to rely on a 3PL for one or more mission-critical services, it's vital to examine that provider from every possible angle—the same way you might size up a potential merger partner.
"Look at the 3PL's goals, and the people working there," Klingel says. "Because a 3PL becomes an extension of your company, you want to know you can work with its people."
The formula for creating a successful value-added services partnership with a 3PL is simple: good chemistry and the right contract, which includes key performance indicators.
It also helps to view potential 3PL partners a little skeptically and not be impressed by marketing collateral. Make sure you examine their real capabilities.
Then you can be confident that no matter what service requests you pile on, your 3PL can handle it.