So….how do you find the right 3PL?
(3PL = Third Party Logistics company. i.e. Outsourced Logistics Services)
And perhaps more importantly:
- What are the things you MUST do right?
- And what are some of the traps to AVOID?
Having advised hundreds of companies over the last 20 years on Logistics Outsourcing, I still find many people struggling with the whole process. And far too many organisations end up with a 3PL partner that is a bad fit culturally, does not provide the right service performance and costs far more than expected.
And do you know the sad part? It’s usually the client’s fault…..not the 3PL.
It all comes down to good planning and preparation. And Yes, I know that it can be quite daunting if you’ve never done this before, so that’s why I thought these tips would be useful for you.
I’m going to provide some links below, to a whole range of articles, guides and videos that will assist you with lots of the detail. But first let me just make some key points. These are the SIX foundations for working through a successful Logistics Outsourcing process:
1. Understand why you are Outsourcing
What are the key reasons? Is it to merely have ‘experts’ manage your Logistics operations; or to reduce costs, to improve service levels, or gain access to new technologies? All of these are valid reasons, but make sure you know yours clearly. And if a primary driver is to reduce costs, this is not always easy to achieve!
2. Have a Realistic time-frame
I meet with many companies who quite honestly want to go through the process far too quickly and in not enough detail. This will usually lead to a very poor outcome. Think in terms of at least 2 – 3 months just to get to the point of selecting your preferred supplier. Why? Because you normally need to allow them at least a month to design a fully costed solution for you!
3. Be Open
Far too many people approach outsourcing in a very ‘closed’ manner. Again, this leads to misunderstanding, poor service and high costs. Once you start going through the outsourcing process and have narrowed down the field of potential suppliers you need to be ready to ‘open up’. You need to be ready to share lots of data about the operation, particularly, product master data, customer master data, current and forecast inventory levels and transaction history.
Without this type of information no competent 3PL will be able to accurately access the resources and costs involved in providing the required services. You also need to be prepared to share any ‘issues’ you have with your operations, such as high levels of returns or special handling. ‘Hiding things’ will only result in frustration and higher costs later on.
4. Be Objective
In most organisations there will be ‘favoured’ 3 PLs. Incumbents perhaps, maybe one that the CEO used in a previous role, or the latest ‘Uberesque’ offering you have seen at a conference. And they are all valid potential suppliers. Your challenge is to maintain objectivity through the process, to ensure that you make the right decision for your organisation! And there are sound ways of doing that, that I’ll share below.
5. Understand Rate Structures
Here’s where things can really go off the rails. The form in which you pay for the services will have a big impact on how the 3PL performs those services. For example, not that you ever would; but imagine you agreed to pay for warehousing services at an hourly labour rate! There is no incentive whatsoever to closely manage labour productivity. In fact quite the reverse. Rate structures can be complex and need to match your organisation and your outsourcing objectives. When I’m assisting clients through this process, I probably spend 40-50% of my time on this alone!
6. Manage the Contract!
Outsourcing Logistics is not about ‘delegating’ the task and ignoring it. A sound and valuable 3PL relationship requires ongoing management. All too often this is ignored or allocated to someone in the organisation who merely pays it ‘lip service’. You need to get involved and stay involved in the operation.
Just pay really close attention to these 6 foundations and you’ll be well on your way to Outsourcing success.
Now some detail…
Here are a selection of Outsourcing Resources that you can dip into:
A 55 minute recorded webinar on the whole process! Recorded Logistics Outsourcing Webinar
An Article on the Future of Logistics Outsourcing
An Article on Logistics Outsourcing Pricing Approaches
An Article on Successful Logistics Outsourcing Tips
A downloadable Guide to Logistics Outsourcing
An Article on Why Companies bring Logistics BACK in House
An Article on 3PL Evaluation and Selection
I hope you find these Logistics Outsourcing resources useful.
And of course if you need any assistance or support in your Logistics Outsourcing process, just contact me directly.
Coming for Breakfast?
If you are in Melbourne on the 23rd May or Sydney on the 25th May, why not come along to our Free Executive Breakfast?
The topic this time is Supply Chain Benchmarking. What it is? Why do it? How to do it?
Great information, great networking and of course….a great breakfast.
For more information and registration, just go here:
I found your article on 3PL interesting
I am currently engaged in some literature studies focused on leading practices for Performance Based Contracting (PBC)- Outcomes Based Performance Contracting in South Africa. While reading your article it crossed my mind as to how 3PL and PBC may compliment one-another. My specialist field is Defence Weapon Systems, more specific Systems Life Cycle Management.
Have you perhaps some experience on applying PBC as a approach within the context of 3PL?
Hi George. PBC is often associated with Defence contracts. Happy to have a chat sometime on the phone.
Point 3 “Be Open” in your approach is very important in the success of 3PL.
Prior to implementing a 3PL, my recommendation is to make the change management.
For an outsourcing process project to succeed, MAKE CHANGE MANAGEMENT. Employees first need to be convinced that sharing common information between their own (internal) divisions is a good thing.
Too often, companies will fail in their attempts at collaborating with key supply chain partners because their own internal groups don’t cooperate with each other.
You have to be able to trust your own people before you can hope to collaborate with other companies so, when you do the change management avoid the simultaneous change of internal management (cross-department collaboration) and external (cooperation between partners) in your company.
Good points George!
Nice information. 3PLs are very useful to execute supply chain process effectively.