September 2006 | Commentary | 3PL Line

The Seven Abilities of Highly Effective 3PLs

Tags: 3PL

The right logistics provider can bring you convenience, cost savings, and competitive advantage as you work to deliver the right product to the right place at the right time at the right price.

Execution is the key, central to responding to fluctuating pressures of production schedules, capacity, weather, or other influences on your strategic supply chain plans. A good 3PL provides quality transportation management and process improvements that can lead to execution excellence.

Your 3PL should be able to deliver these seven services:

1. Provide visibility. Product in transit is, in essence, inventory. While it is not in your production or distribution facility, it is in your supply chain. Your 3PL should work with you to develop processes for gathering and reporting inventory status.

Confirming transit time and required arrival dates should be central to each driver dispatch. As the status of each shipment is gathered via automated and manual procedures, you can verify that your rolling inventory will be delivered on time.

2. Measure performance. Your 3PL should measure performance and provide reporting so you can make informed decisions about your supply chain. The first step is to develop perspective across the organization's functional silos. Next comes managing transportation and total supply chain costs so you can maximize revenue opportunities.

3. Create a low-cost network. Low transportation rates alone do not equal low cost. The highest goal in transportation and logistics is to create the lowest-cost network possible that ensures product is where it needs to be, when it needs to be. A strategic, long-term approach to buying transportation can lead to better service and lower costs.

4. Offer multimodal options. Beyond capacity planning, multimodal strategies can help manage the risk of running out of inventory by alternating modes, varying transit times, and selecting carriers. Timely visibility to shipments, regardless of mode, provides valuable information you can use to help reduce costly out-of-stocks.

5. Develop internal and industry rate benchmarks. Achieving a true low-cost solution and identifying waste in your supply chain requires benchmarking rates by lane and identifying the low-rate carriers to create a low-cost network. When 3PLs develop both internal and external benchmarks, you can gauge how you are doing against both your historical results and the wider market.

6. Conduct constraint-based bids. Constraint-based biding tools use math to both optimize price and constrain carriers in different ways. Typical constraints can include maximum volume for a lane, minimum or maximum number of carriers servicing a facility, and penalties for not providing services such as EDI and drop trailers, or for a poor on-time percentage.

Constraint-based bids, conducted by logistics professionals who understand and use the tools regularly, can help set a baseline for future improvements. The tools also provide cost savings and set the stage for managing long-term carrier relationships, as opposed to managing a large, disparate network.

7. Establish reliable transit times. On-time deliveries and effective carrier management are critical. 3PLs can help you determine key performance indicators of successful deliveries because such metrics vary from company to company. Then you can work with your 3PL to develop operating procedures and data-gathering processes. The collaborative efforts of process mapping, data integrity, and timely reporting will positively influence successful deliveries.

When your product is where it is supposed to be, when it is supposed to be there, and at a planned, total landed cost, maximum revenue is generated. That's the level of service you can expect a strategic 3PL to deliver.