Companies that outsource logistics to a third party logistics provider (3PL) certainly want to maximize 3PL benefits. Ironically, the success or failure of a relationship has as much, or more, to do with the actions of the CUSTOMER as the 3PL. We cover it in our viewpoint paper: The Ultimate Guide to Being a Great 3PL Customer.
According to Cliff Lynch, author of Logistics Outsourcing, “Major failures in outsourcing occur when a firm outsources an activity its own personnel do not totally comprehend, and the provider promises to meet requirements that have not been clearly defined, communicated or understood.”
Following are 10 tips to maximize 3PL benefits for each stage of the logistics outsourcing journey.
Preparing to Outsource
- Improve your request for proposal. You want to know your operation cold and share the detailed operational data required for a careful analysis by the 3PL. The more your potential partner can know about the current operation – processes, volumes, workflows, metrics – the better the proposed solution will be and the more accurate the cost estimate.
- Set realistic expectations. Despite what some may tell you in their sales pitches, 3PLs are not miracle workers. If you’ve had a significant operational problem for years, don’t expect a 3PL to eliminate that problem immediately. If it’s hard for you, it will be hard for them. Better to set realistic expectations at the start and then collaborate to solve the problem over time.
- Ensure cultural alignment. One of the biggest barriers to 3PL outsourcing is the concern that someone outside the company will not care enough to sweat the details. Culture and chemistry matter. The relationship may look right on paper, but don’t commit unless it feels right, as well.
Establishing the Relationship
- Clearly define contract terms. It may take some extra time to get it right, but it’s essential to have clarity up front on services to be performed, operational performance expected, and payment terms. Lack of mutual understanding can lead to disputes, which can quickly undermine relationships.
- Define a longer contract length that supports investment by the 3PL. Give your 3PL the freedom to consider big ideas that may involve capital investments that can be amortized over a longer period.
- Assign appropriate resources to manage the relationship. 3PL benefits cannot be maximized if there are not resources on the client side to proactively manage the relationship. Great things can be accomplished, but your 3PL needs to work WITH you, not FOR you, to make them happen.
- Define the cadence for regular communication. Depending on the scope of work, it could be daily, once a month or any interval. The important thing is to define the meeting/call schedule and stick to it. Regular communication is a key to ensuring alignment and progress against objectives.
- Measure what matters. There are literally hundreds of things that can be measured and reported on. But what are the metrics that will matter most to the business? Decide on a focused set of KPIs and make these your operational religion. You want your 3PL’s attention to be on improving the numbers, not creating reports.
Driving Breakthrough 3PL Benefits
- Share your company’s long-term strategic plans. Understanding this broader perspective is highly empowering to a 3PL and can trigger keen insights that would not likely surface in the context of a transactional relationship.
- Collaborate. Look for opportunities to work side-by-side with your partner on continuous improvement projects. By combining your staff’s knowledge of the business and the customer with a 3PL’s logistics expertise with you and many other customers, you can create a more powerful result.
To get the most out of logistics outsourcing, don’t forget to look inside your own operation. The right management approach to outsourcing can make all the difference.