The wrong 3PL Fee or KPI structure can really wreak havoc!
And we still have Sydney to go!
The topic of course being Logistics Outsourcing.
At our Melbourne event yesterday we had a really good 3PL turnout, so we were able to engage in some healthy and lively debate about the client and 3PL perspective on what often goes wrong and also the ‘right way’ of going about things.
An area that really intrigues me is the whole subject of fee structures and KPIs. We discussed the relative pros and cons of different rate structures such as Cost Plus, Totally Variable, Fixed and Variable, % of Sales and so on. But the element that I know many of us find challenging, is understanding the implications and behaviour drivers of these rate structures.
Let me share a simple example. And maybe you could share your views below?
You are paying a 3PL for warehousing services.
One of the fee components is a storage cost per pallet per week.
OK, so you want to encourage the 3PL to help you, perhaps via process or systems improvements, to reduce your inventory holding. But here’s the catch. By helping you reduce your inventory, the 3PL will actually reduce their revenue. So what’s the incentive to help you reduce inventory?
Sure you can try a ‘gain sharing’ model. But what other options are there?
Maybe share your answers below?
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P.S. There are 3 remaining seats at our free Sydney Logistics Outsourcing Seminars on 16/17 Sep 2014: Outsourcing Success Secrests