3PL: Tactical Resource or Strategic Partner?
When it comes to choosing a 3PL provider, what do you look for? Beyond competitive pricing, is it breadth of service? Specialty transportation capabilities? Global reach?
Whatever your selection criteria, price is a critical factor once the must-have capabilities have been confirmed – but is price really the issue, or is it cost?
When it comes to logistics, price is only one of the variables that contribute to cost. Sure, it’s vital to procure 3PL services at competitive rates, but it is equally important that the relationship is structured so that your company can maintain or improve customer service while reducing the cost of doing business.
A 3PL user/provider relationship often begins with the goals of reducing transaction costs and improving efficiency. This is accomplished through outsourcing of transportation, warehousing, customs clearance and brokerage, freight forwarding, cross-docking/shipment consolidation, order fulfillment and distribution, etc.
This tactical approach, when executed well, delivers excellent results. But, could those results be multiplied to reduce internal resource costs, enable greater agility in decision making and improve your business’ ability to adjust to changes in customer demands or the business environment?
The answer is often yes, but it means making a strategic decision about how you use a 3PL to move the relationship to another level: one of strategic partnership. That takes mutual commitment, focus on clear objectives, flexibility and, above all, trust.
Choosing a Partner
There’s a natural apprehension about inviting a vendor to sit at the table when business decisions are being made. However, in our experience a shared understanding of our customers’ business models, short and long term objectives, competitive pressures, cost issues and customer demands enables them, and us, to be more successful.
Transparency is essential; a willingness to share information confirms that goals are aligned. That enables us to be proactive so we can anticipate and identify opportunities to improve, suggest innovative ways to increase logistics effectiveness and provide business intelligence that helps 3PL users make more effective decisions and improve profitability.
Choosing the right partner is key to a successful strategic 3PL relationship, and getting to know each other to build the necessary trust is vital.
You need to confirm shared values and that your corporate cultures are compatible. You need to understand capabilities and expertise and determine how to leverage those of both organizations. You need to be clear about your expectations and agree upon goals, key performance indicators and measurement intervals.
You need to talk about the opportunities, but also consider “What if?” scenarios and take the necessary steps to mitigate risks.
In our view, the objective should not be to create a partnership, but to achieve specific goals through partnership by working to the same performance standards. There should be consequences for both organizations should they not meet the standards, and rewards when they meet or exceed them.
The potential for the partnership to be win-win, or lose-lose, encourages partners to work together to achieve the desired results.
Sustainable value creation should be the overriding goal of a strategic 3PL partnership. Since “value” is defined differently by every business, when we work with a customer we learn what constitutes value for their business, first.
Then, together, we validate proposed goals, activities, innovations, processes and performance indicators against those criteria before moving ahead.
While a transactional relationship is more appropriate and effective for some organizations, strategic 3PL relationships represent an exceptional business opportunity for others.
As the supply chain lengthens and its complexity increases, logistics and supply chain planning, measurement, and evaluation processes become increasingly important – and the potential for Wheels Group to help 3PL users build strategic competitive advantage has never been greater.