Opinion: Building a Better 3PL Relationship

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B>By Ken Chay

I>Director of Strategic Marketing

PL Logistics

When I was a child, many of the books I read ended with the words “and they lived happily ever after.” If only the story of outsourced logistics relationships could be that simple.

Overall, there is positive news about these relationships. Armstrong & Associates, the logistics consulting firm, said that about 90 of the 100 largest companies on the Fortune 500 work with third-party logistics firms. Another study, by Georgia Tech and the Capgemini Group consulting firm, predicted that nearly two-thirds of logistics expenditures in North America would be outsourced through third parties by 2007.

However, just because more companies are outsourcing logistics doesn’t necessarily mean they’re enjoying happy and successful working relationships. In fact, the story of a company’s outsourced logistics experience could have any number of outcomes — and many of them are determined less by the 3PL than by the company that hires it.

Simply put, the success or failure of an outsourced logistics program hinges every bit as much on a shipper being the right kind of 3PL partner as it does on finding the right 3PL — perhaps even more. With that in mind, allow me to offer some thoughts about how a shipper can enhance its success with a logistics provider.

First, a company should go into the experience with clear objectives that are explicitly stated and prioritized in its request for proposal. You’d be surprised at how many shippers in search of a 3PL don’t have a clear handle on what they really want, or how confusing that can make their RFP.

One company department, for example, might tell a 3PL that it wants to improve customer service, while another department may tell that same logistics firm that it’s all about cutting costs. If these happen to be conflicting objectives, what is the bidding 3PL to do?

In order to do its best work, a third party needs to have a clear, unified mandate from every one of the key company departments that will be interacting with the 3PL.

Second, the company should have a firm grasp of what’s possible and what’s not.

While I’m all for shippers setting more aggressive objectives for their logistics providers than they do for themselves, I also believe these objectives must have some grounding in reality. An example of this would be using a data-driven baseline rather than a conceptual benchmark.

Before outsourcing a logistics function, a company should take the time to conduct a thorough analysis of its own logistics costs and service levels for performing that function — or compare them with a similar company.

his helps set expectations that are ambitious but reasonable.

Third, carefully assess how well the company has worked with other suppliers and vendors in the past, because history has a strange way of repeating itself.

If a company’s track record with outside firms — whether transportation, advertising or personnel services vendors — has been more warlike than cooperative, you can be relatively certain that its outsourced logistics relationship could find itself in a similar pickle.

Unless managers take time to figure out what’s causing the friction between them and their suppliers and take corrective action, this pattern will probably replicate itself with a logistics provider.

It is also important to determine how happy a company’s employees really are about the decision to bring in a 3PL.

Unanimous consent throughout an organization is not necessary to outsource its logistics functions. In fact, getting such consent would probably be next to impossible. However, I do think it is highly desirable to identify and acknowledge any potential resistance. Otherwise, this could have a pronounced effect on how well the 3PL is able to get the job done.

Finally, allow me to share an observation from Leo Tolstoy, who wrote, “Happy families are all alike; every unhappy family is unhappy in its own way.”

The same applies to happy 3PL relationships. If you examine the common denominators in all successful outsourced logistics “marriages,” I think you would discover that the issue of commitment is perhaps the single most important factor in determining whether an outsourced logistics relationship will succeed or merely survive.

Despite the increase in logistics outsourcing, far too many companies still regard 3PLs as replaceable commodities rather than valued, long-term extensions of their corporate teams. As a result, they don’t always entrust their 3PLs with the tools — including knowledge and information — they need to provide the value for which they were hired.

If an executive feels uncomfortable being open, honest and collaborative with his or her provider of choice, the chances are good that the outsourced logistics relationship may not live up to its full potential, which can be vast.

When it comes to any relationship, an atmosphere of mutual respect usually provides the greatest rewards and return on investment — not to mention the highest likelihood of a happily ever after.

APL Logistics is a provider of global supply chain management services, with U.S. headquarters in Oakland, Calif. It is a subsidiary of Neptune Orient Lines, Singapore.

This story appeared in the Sept. 6 print edition of Transport Topics. Subscribe today.