At their best, third party logistics (3PL) companies provide new and innovative ways to improve logistics effectiveness. They are also agile and flexible enough to accommodate the current and future business needs of most shippers.
No wonder then, that shippers increasingly turn to 3PLs to manage their warehousing and distribution needs.
In fact, 90% of Fortune 500 companies in the United States along are working with 3PLs, according to a recently released report from Armstrong & Associates.
So why do so many shippers run into relationship difficulties with their 3PL partners?
In many cases, we need only look at the very first steps in the partnering process to spot the first signs of rot.
If Only There Were More Good Tenders
Selecting the right 3PL is no simple exercise, yet it’s one that’s all too often subject to shortcuts, a dearth of detail, and overly compressed timelines. Many tenders in fact, are so badly written that it’s impossible for a structured and objective selection process to take place.
So how do you define what is a good tender?
The key word here is “assumptions”. Simply put, a good tender is one where the 3PLs do not have to make assumptions in their proposal. The more information provided by the shipper, the fewer assumptions are required for 3PLs when responding to a request for tender (RFT).
The lead role in a 3PL RFT response process is often performed by a solution designer. He or she is responsible for designing and pricing an optimal solution based on the information provided in the shipper’s RFT, although site visits and Q&A meetings with the shipper may also play a part. From the following paragraphs, you’ll gain a brief insight into some common RFT mistakes and the difficulties they present to 3PL solution designers.
Vagaries in the Scope of Work
To do her best work, the solution designer requires a shipper to be very clear on the proposed scope of the partnership. From inbound to outbound, inventory management and value-added Services, shippers should make sure that all activities in the scope of the arrangement are documented to a fine degree of detail.
Ideally, a high-level supply chain flow chart will depict the scope of work, along with a clear delineation of responsibilities for both shipper and 3PL.
Let’s take inventory management as an example. What is the shipper’s expectation regarding counting cycles?
The cycle-counting methodology should be detailed and provided to the 3PL so resource requirements can be calculated. If this doesn’t happen, the 3PL solution designer WILL make assumptions. She’ll have no choice if she’s to provide the shipper with a cost projection.
In the worst-case scenario, the 3PL’s price will exclude anything that’s not set out in the shipper’s RFT. At best though, assumptions made by the 3PL’s solution designer will distort cost projections. In turn, the shipper’s selection decisions are misinformed, perhaps leading to price disputes during (or even after) preparation of the outsourcing contract—hardly a good way to get a partnership off the ground.
Doing Without Detailed Data
Take a look at the table below. What’s wrong with this picture?
Of course nothing is wrong at all if tables like this are supported by files containing data at a much more granular level. However, in reality, it’s not uncommon for a shipper to supply only high-level information, similar in detail to the example below.
So what’s wrong with the picture?…
The information in the charts provides none of the answers 3PLs need to develop informed solution proposals. It doesn’t inform the 3PL of what an average order profile looks like. There is no SKU-level information, so the 3PL has no hope of assessing resource requirements for key warehouse activities, such as order picking.
So again, the solution designer will make a number of assumptions which may be close to the mark, or wildly off it. Furthermore, each 3PL on the shipper’s shortlist will also make assumptions, so ultimately there can be no objective comparison of the candidates’ offers. The assumptions will naturally differ from one 3PL to another in a way that’s purely arbitrary.
The quality and granularity of shippers’ data also determines how innovative a 3PL can be in its solution design. Data limitations impact a solution designer’s ability to understand the shipper’s business. Therefore, she will be unable to design an optimal solution, or calculate the resources necessary to provide an efficient service to the shipper.
In short, withholding detailed data is one of the surest ways to sabotage the 3PL tendering process—and set your company up for disappointing outsourcing results.
Turning the RFT Process into a Time-trial
Shippers sometimes make the mistake of compressing timescales for the RFT process. In some cases, 3PLs are given an expected turnaround time of two weeks from receipt of the RFT. This is simply not enough time for a solution designer to come up with an optimal and accurately priced proposal.
Any 3PL that wants your business will come up with some sort of solution, even in the shortest of timescales, but if they manage to present you with the best possible solution, it will be more by luck than judgment. Instead, what you are likely to get is the best cost-projection achievable in the time given.
To provide a solution that’s optimised to match your business’ needs, 3PLs need sufficient time to visit your operating centre/s, gather extra information that may be missing from the RFT (especially if the scope of work is not clear or your company does not provide granular data in the RFT), and model various solution scenarios to arrive at a final, optimised proposal.
If you impose an unrealistic timeline for 3PLs to respond to your RFT, those activities will either be rushed or just won’t happen at all, and you’ll end up with hastily prepared solutions from all the candidates—and what that means is that you’re not going to get the best solution, whichever candidate wins the contract.
Don’t Let the Solution Designer’s Nightmare Become Your Reality
The three mistakes discussed above recur time and again to challenge 3PL solution designers and give them nightmares. More to the point though, if your company makes these mistakes during 3PL selection, you will effectively be “planning to fail” at the very outset of your logistics outsourcing journey.
Mistakes like these are more than just a solution designer’s nightmare. They can easily become the catalyst for outsourcing failures.
Setting up a logistics outsourcing partnership is not a project to be taken lightly. Errors can be costly, but are completely avoidable. Just give your project the time it deserves, pay attention to detail, and offer potential 3PL partners the information they need to design an optimal solution. Aside from making life easier for solution designers, these actions will go a long way to ensuring outsourcing success for your enterprise or organisation.