Laying the Foundation For a Long-Term 3PL Partnership
Many companies start working with a third-party logistics (3PL) provider to fix an isolated problem at the lowest possible cost. Unfortunately, these relationships are often short-lived and serve only to fill an operational gap. But thoughtfully planned 3PL partnerships can produce invaluable results using a long-term approach that focuses on sustainable operational gains, rather than a temporary price break.
Achieving sustainable partnerships begins with first impressions namely the 3PL’s presentation of its capabilities, services, and principles. Initial sales calls or consultations should not be about driving a hard bargain. Instead, they should focus on identifying pain points and ensuring an alignment of vision and values. This will lay the foundation toward mutually beneficial collaboration, rather than an arrangement in which one party “wins” at the expense of the other.
The University of Tennessee (UT) has conducted extensive research on a business model called vested outsourcing, which coordinates the customer and service provider in a balanced, long-term relationship.
The most effective partnerships require little discussion about the service provider’s processes. The focus is on the outcomes, which are expressed in terms of a limited set of high-level metrics.
“Under the purest form of vested outsourcing, the customer pays only for results, not transactions; rather than being paid for the activity performed, service providers are paid for the value delivered by their overall solution,” says Kate Vitasek, UT faculty member.
The 5 Rules of Vested Outsourcing encourage partners to:
- Lay the foundation
- Understand the business
- Align interests
- Establish the contract
- Manage performance
The last rule is not focused on deliverables, but rather the ongoing development of the relationship between the 3PL and shipper. Both should repeatedly evaluate the effectiveness of the team, the communication flow, and execution strategies.
Implementing this kind of partnership isn’t easy. Both the shipper and 3PL may need to overcome a long-standing culture of winner vs. loser price bargaining. Each should approach the partnership with a “servant leadership” mentality, indicating a willingness to make sacrifices in the interest of cumulative reward.
As you begin your partnership, you also need to establish boundaries for each party. Sometimes called guardrails, these checkpoints ensure that both parties are oriented toward the desired outcomes. Identify the major steps that will propel you toward your goals, but also schedule key dates to check in with the team and measure success. If progress is lagging, it may be necessary to revisit the original plan and modify goals or processes.
Establishing the right set of measurement criteria is vital to saving time and money. But, a work plan that is too stringent can inhibit the 3PL from tapping into its creative expertise to reach intended objectives.
The 3PL-shipper relationship should be focused on results, creating a sustainable partnership that delivers long-term success for all parties.