If you are a user of third-party logistics (3PL) services, you know that 3PLs tend to have a metric for just about everything – productivity, accuracy, timeliness, costs….
3PL metrics are used as a barometer of performance and to inform continuous improvement programs. But should these same numbers be used to measure the success of your 3PL/Client relationship?
It depends on if and how well these metrics align with the metrics your retail customers use to measure your success.
If the measures used to determine your supplier scorecard do not funnel down pretty directly to your 3PL metrics dashboard, that’s a real disconnect. And, unfortunately, that disconnect is more the rule than the exception.
The problems with separate success metrics and second-hand relationships
Having a separate set of metrics to measure your retailer relationships and your 3PL relationships is really a symptom of another, more elemental problem: 3PLs often don’t get direct insights and data from the main customers in the retail supply chain – the retailers themselves. This may limit your ability to maximize your 3PL’s contribution.
The physical distribution sequence looks like this, with the 3PL often being the final, critical touch point with the retailer.
But the feedback loop looks more like this, with 3PLs too often being a step removed from direct retailer feedback.
The ideal relationship dynamic is more triangular than sequential, with all parties sharing the same supply chain goals and metrics, and working collaboratively to achieve them.
When 3PLs are too far removed from direct retailer feedback, the following types of problems can occur:
3PLs don’t always get feedback on a retailer’s specific areas of concern, or they get information second hand. In either case, it limits their ability to add value. For example, let’s say a recent spate of damaged shipments has created an urgent retailer initiative on damage reduction. A 3PL that’s allowed to get deep inside its customer’s supply chain can offer proactive recommendations based on a solid understanding of the problem. If partial pallet orders are among the root causes, for instance, the retailer could be encouraged to order in full-pallet quantities and the supplier could provide an attractive incentive for the retailer to adapt its purchasing habits. A deeper and more direct analysis will spawn more creative, targeted solutions.
Metrics that disagree
If 3PL metrics show 99.99% inventory accuracy levels, but the retailer’s data and experience tell a different story, there’s clearly some analysis needed. 3PLs can work hand-in-hand with their customer and the retailer to uncover the discrepancy, but only if the nature of the relationship affords the 3PL seamless access to the retailer’s team.
KANE works with a large liquor distributor that gives KANE direct access to all the receiving metrics reported by stores in this direct-store-delivery program. It’s a highly open and transparent relationship. This real-time feedback allows fast action to address issues, but it also allows all parties to question and reconcile numbers that don’t agree.
Limited knowledge to solve a problem
3PLs that work as a seamless extension of the supplier’s team have a distinct advantage. Let’s take routing guide compliance as an example. It’s one thing to see a code assigned to a hefty chargeback, it’s another to speak directly to the retailer’s distribution center manager to better understand the issue so it can be immediately addressed and solved.
Reducing friction to improve the customer experience
A Walker study found that, by 2020, customer experience will overtake product and price as the key brand differentiator. In other words, it’s no longer about what you sell, it’s more about how you sell.
Logistics is a very big part of how you sell. And 3PLs are a very big part of delivering the ultimate success measure: a great customer experience.
When you, as a retail supplier, do not foster a collaborate dynamic between supplier, 3PL and retailer teams, you create friction – with multiple sets of metrics and redundant, second-hand communication channels. It’s time to connect your 3PL metrics more directly to the precise success metrics your retailer customers use to evaluate your performance.
3PLs want to be accountable to both you and your ultimate customer for achieving supply chain and business success. But to do that, we need a seat at the table and a single, shared way to measure success.