Gaining Alignment With Your 3PL is Key to Supply Chain Success

When choosing a supply chain partner, it is essential that goals, expectations and strategy are all in alignment. In order to achieve this synergy, open and honest communication between business partners needs to be in place to move the relationship beyond one of simply executing services to one of real collaboration. Measurement, monitoring, and corresponding rewards are the cornerstones of this effort, in concert with establishing Key Performance Indicators (KPIs) and specific program initiatives targeted toward areas of pre-determined efficiencies and improvements. The 3PL should feel comfortable in a risk/reward relationship that is tied to performance-based compensation to ensure alignment with the same end objectives as the client, thereby establishing ‘skin in the game’ for all parties involved in the given endeavor.

For example, a specific initiative such as a safety program will have goals, performance benchmarks and KPIs associated with it. Establishing a safety performance benchmark that awards incentives for both employees and client partners when goals are reached or exceeded builds a framework toward ensuring alignment. In this case, the incentives naturally work as an accountability platform to achieve the corresponding goals and objectives that are tied to the program-specific KPIs.

At Total Logistic Control (TLC), we typically structure and define our client engagements with programs for employees and our clients that drive specific improvement initiatives or targeted results. In some situations we define the specific initiatives, while in others the client has a pre-determined set of business goals and objectives tied to their expectations. In all cases, the business goals of each client serve as the foundation for the relationship and become the KPIs for TLC (the 3PL) with regards to measuring success and potentially receiving additional compensation. In addition, it is fairly common to establish gain share parameters with clients that are tied to the KPIs and offer significant rewards as a percentage of the annualized savings achieved from those efforts. The net effect to the client is realizing a substantial multiple of the gain share paid through annualized savings in their operations. 

A typical engagement begins with targeting efficiency gains that generate savings for both the provider and the client. The collective team from both the provider and the client analyzes potential opportunities and implements programs that are realistic, measurable and attainable. Examples of these types of programs include: developing achievable Engineered Labor Standards, mitigating variable indirect time by focusing on identifying root cause, warehouse layout and design optimization that utilizes zoning by sku movement, optimizing aisle widths and racking type to the corresponding material handling equipment used and optimizing building cube and utilizing application specific racking methodologies to drive productivity within an operation. In concert with these programs, benchmarks are developed that become the KPIs by which measurement and a performance-based award system is created.

Another important and often overlooked element to supply chain success is embracing a culture based on ‘thinking like the client’ to drive ongoing continuous improvement and fostering an environment that embraces best practices. The notion to ‘See the business through the client’s eyes’ revolves around not what each individual associate would do, but what the client would do and what their customers would expect. By embracing this approach, the focus within a 3PL shifts to its core, which essentially is a service business built around a people centric model. To that extent, TLC truly believes that our people are our single greatest asset and by design, our client-focused culture is what drives our associates to deliver exceptional value to our clients.

The right 3PL partner will have a service set that incorporates the right expertise and experience to add value in multiple areas of a supply chain. These tools may include services in areas such as planning, transportation, distribution, packaging and supply chain technology. As the breadth and depth of the integration of these service offerings expand into a client’s supply chain, the natural alignment between performance, goals and rewards expands to create a holistic atmosphere that transcends beyond just execution. When a supply chain partner can create an environment in which they foster a client-centered culture based on alignment of objectives, embrace a shared risk relationship through a performance-based compensation model, and bring forward a passion to drive results through mutual goals and objectives, it truly creates a balanced win-win relationship.

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