If logistics outsourcing was such a winning strategy, why isn’t every company doing it, and why is it that so many logistics outsourcing partnerships terminate prematurely?
The answers to both of these questions may well be connected not with the true value of logistics outsourcing as a concept, but with the frequency at which companies make mistakes when planning and implementing outsourcing initiatives.
Want to Know the Right Way to Outsource Logistics?
Logistics Bureau has completed more than 100 successful logistics outsourcing projects, some for clients that had previously experienced unsuccessful relationships with third-party logistics providers.
As a result of our experience, we’ve seen just about all of the traps, pitfalls, and faux pas that can wipe out the anticipated benefits of logistics oustourcing.
In this post—which will build up over the coming months into a comprehensive guide—we’re going to share some of our logistics outsourcing knowledge and insights.
We hope you’ll be able to use this guide to ensure your company makes the right outsourcing decisions, so if and when you contract-out your logistics activity, yours will be a story of success rather than sorrow.
Our logistics outsourcing guide will be published in parts, right here on this page. In order to access all our secrets to outsourcing success, you’ll need to stop by each month and read the latest installment.
Logistics Outsourcing Secret #1: The Practice of Patience
If you’re chomping at the bit to outsource a warehouse or transport operation, we understand your frustration, but we make no apology. Patience is required if you want to get full benefit from this guide, just as patience is required to be successful with logistics outsourcing.
In fact, patience is one of the most important principles of outsourcing – and one which many companies fail to employ.
Reading this guide in its entirety will be a step-by-step, six-month journey. That’s not dissimilar to the process and duration required to set up a logistics outsourcing partnership—if it’s to be done with the right degree of diligence, and hence offer the best chance of long-term success.
As our guide unfolds, the reasons for recommending a four-to-six-month outsourcing-project timescale will become evident, but for now, you can consider the following statement as the first of our outsourcing secrets revealed:
If you were expecting to outsource your logistics operation (or part of it) within a matter of weeks – as some organisations do – you’re probably setting yourself up for failure.
While on the subject of expectations, it should be noted that they play a large part in the determination of logistics outsourcing success, and so it would seem that this is a good topic with which to start our guide proper.
Here in Part 1 then, you’ll find a brief rundown of the main objectives and expectations companies form when they decide to outsource logistics activity.
Part 1: Logistics Outsourcing Objectives and Expectations
Aside from unrealistic timescales for implementation, there are a number of other ways in which companies can run into problems with logistics outsourcing. As hinted upon above though, the difference between success and failure is really just the difference between expectations and outcomes.
If you want to be sure of success therefore, you first need to be sure of what you expect – in other words, what you want to achieve from contracting out of your logistics activity.
The following paragraphs outline some of the most common reasons that companies choose to outsource logistics, which might prove helpful if and when your company should consider it as an approach to business improvement.
Cost Saving: A lot of companies turn to logistics outsourcing as a way to trim costs from their business operations. Under the right circumstances, outsourcing can indeed save you money, but it may not do so if your company’s in-house logistics operation is even reasonably efficient.
Be careful then, about considering logistics outsourcing as a cost-cutting measure unless your existing operation is really under-performing and unlikely to improve.
An exception can be made to this rule if your company is a start-up and you don’t want to invest in your own logistics assets and workforce. That said, you must still take care to ensure outsourcing is the best solution when the total cost of ownership is considered.
Access to Competence: Most enterprises need some sort of logistics operation, but far fewer exist to operate logistics. That’s why for many companies, logistics outsourcing is a way to keep internal resources focused on what the business does best, whether that’s sales, manufacturing, or providing some form of service.
In some cases, a company may choose to outsource even when logistics is a core part of its business. This situation would typically arise when it’s found that a 3PL offers stronger logistics competences than might realistically be accessed internally.
Service Improvement: This is perhaps the most common of logistics outsourcing expectations. By contracting-out to a 3PL with the right capabilities, resources, and service ethic, your company might be able to leverage logistics to improve the customer experience, reduce service issues, and ultimately, generate more sales and greater profits.
Other Logistics Outsourcing Expectations
Costs, competence, and service are most commonly used as the rationale for logistics outsourcing, but there are others, any of which might be valid to your company’s mission and business strategy.
If your company decides to consider an outsourcing arrangement, ask yourself if your expectations are to save costs, access competences, improve service, or to achieve any of the following competitive advantages:
- Access to global capability
- Increased flexibility in your logistics operations
- Advantages of superior logistics technology
- Access to economies of scale
- Transformation from fixed-cost to variable-cost model
Setting realistic expectations is the very first step to a successful logistics outsourcing initiative, which leads nicely on to…
Logistics Outsourcing Secret #2: Expectation is a Benchmark
When you are clear on two or three primary goals for using a logistics service provider, you’ll be able to…
- Determine if logistics outsourcing is the right way to go
- Target the right potential partners and evaluate them accurately
- Make better choices regarding what to outsource
- Project your company as a desirable customer for 3PLs
- Choose the right partner from a realistic shortlist
- Negotiate a more effective outsourcing contract
- Put the right measures in place to track partnership performance
Expectation then, is the real benchmark by which outsourcing success is measured, and if your company’s expectations are based on incorrect projections or presumptions, your project could be in trouble before it even gets started.
That’s why it’s vital to know exactly what challenges you wish to address through logistics outsourcing, and why you might want to have some expert external help to establish the likelihood of outsourcing as a viable solution.
Bookmark This Post for More Logistics Outsourcing Secrets
Here in Part 1 of our logistics outsourcing guide, we’ve taken a brief look at the typical reasons for logistics outsourcing and the importance of holding clear expectations before deciding to contract your company’s logistics to a 3PL.
When outsourcing-objectives are not carefully explored and clarified, things can quickly start to go wrong, but now you know this secret, erroneous expectations should be no issue for your business.
However, setting realistic expectations is just the first step in getting logistics outsourcing right. In Part 2, we’ll look at some of the ways in which outsourced logistics can fall short of even the most realistic expectations (and why it can happen), while in Part 3 and beyond, we’ll focus much more on how to avoid traps and achieve the right outcomes from logistics outsourcing.
Part 2: 4 Ways in Which Logistics Outsourcing Can Bite You
It’s important to understand that outsourcing to a 3PL is not a venture guaranteed to succeed. As mentioned in Part 1 of this guide though, success can often be a subjective condition, based upon whether or not outsourcing outcomes match expectations.
If expectations are unrealistic in the first place, the decision to outsource may well become regrettable in the fullness of time. Click To Tweet
Some companies for example, make the mistake of considering outsourcing as a strategy in and of itself, which it should never be. If your internal logistics operations are reasonably cost-effective and performed with some degree of competence, placing processes in the hands of a 3PL might lead to disappointment.
Outsourcing should be considered as a tactic, not a goal. Even then, the decision to outsource logistics should not be taken lightly.
4 Outsourcing Problems that Can Become Pitfalls
We’re going to look at how 3PL outsourcing can go wrong, but it’s important to note that more often than not, outsourcing clients bring problems on themselves. Although I have seen issues that arose through no fault of the client, they are relatively rare.
This is not intended to be a criticism of outsourcing clients, however. After all, the only real outsourcing experts are those who work for 3PLs.
Still, if you know how outsourcing can go wrong, you’ll be better equipped to enter the process with open eyes and take the necessary steps to protect your company from pitfalls. So let’s move on now and explore four of the most serious issues that can crop up in client/3PL relationships.
1. Customer Service Problems
Be careful about outsourcing activities that involve direct interaction between a 3PL and your customers, especially if those customers are consumers or small-businesses. I’m talking especially about last-mile distribution, where your 3PL’s truck drivers are responsible for making deliveries to your customers.
It only takes a couple of tactless or bad-tempered drivers to start your customers’ tongues wagging, and many customer complaints these days are made on social media channels where bad news spreads like wildfire. Always research a 3PL’s reputation for service to end-customers as part of the selection process.
2. Increased Logistics Costs
When outsourcing, it’s rare to achieve 100% of the cost savings projected, but more to the point, if you outsource for reasons other than cost reduction, it’s possible your logistics costs will actually increase. If your company hasn’t factored that into the equation, the increase may come as a shock, but there will be little that can be done until the outsourcing contract is due for renewal.
Unless you are outsourcing with the specific goal of cost reduction, be prepared for cost increases that are not necessarily related to your 3PLs pricing. Of course, if you are outsourcing for cost reduction and your costs actually increase, sad to say your company has probably made some mistakes in provider-selection or contract negotiation.
3. 3PL Performance Degrades Over Time
Even if you set realistic expectations, perform all due diligence when selecting a partner, and negotiate the best contract imaginable, it is possible for things to go wrong in an outsourced logistics operation.
It’s just not reasonable to foresee and provide for every possible change in fortunes, either for your own company or your 3PL, which may take place over a three-to-five year contract-duration.
It’s not unthinkable that circumstances can arise which result in a degradation of logistics performance, whether that manifests as falling service standards, increasing costs, reduced asset availability, or other issues that impact your business.
Examples of situations to watch out for include:
- Your business growth outstripping your 3PL’s capabilities or capacity
- Your 3PL suffering internal business problems
- Changes taking place in the political, environmental, legal, or economic landscape
- Your own company or your 3PL becoming subject to a merger or acquisition
This is why you should never enter into an outsourcing agreement without an exit strategy, which should include appropriate provisions in the 3PL contract. These provisions might include asset and human reversibility clauses if you will be transferring assets or employees to your chosen logistics partner.
4. Difficulties in the Client/Provider Relationship
As a business partnership, logistics outsourcing relies wholly upon the relationships and understandings between people. The problem is that the people who broker and manage that relationship in its early days can move on.
Good management can become poor management or events can occur that put a strain on the key relationships between people in the partner organisations.
When relationship issues arise, it’s easy to lay blame at the door of the 3PL or the client, but rarely will that resolve anything. Sometimes good partnerships turn bad and that’s just something you have to be aware of when outsourcing logistics. Again, the best protection you can put in place is to have an exit strategy to execute if relationships break down irretrievably.
Watch this video: Outsourcing of Logistics to 3PL Providers
Avoiding the Avoidable in Logistics Outsourcing
Here in Part 2 of our guide to success with 3PLs, we’ve looked at four ways in which logistics outsourcing can go wrong, even when all possible precautions have been taken. More often than not though, problems arise as a result of clients’ mistakes.
In Part 3, which will be published soon, you’ll find a checklist of points to ensure you cover off when planning to outsource, selecting a 3PL, negotiating an outsourcing contract, and navigating the first few months of an outsourcing arrangement.
You’ll be able to use this checklist as a working document if you are involved in an outsourcing project. By working through each of the points and checking them off when complete, you should avoid all the mistakes that most commonly lead to trouble in logistics outsourcing.
Part 3: Checklist for Success with Logistics Outsourcing
In part 2 of this guide, we explored four of the more serious problems that can arise when outsourcing to a third-party logistics provider. There are of course, many more possible traps, but many of them can be avoided if your company takes a thorough approach to planning, preparing, and implementing a service agreement with a 3PL.
To help you avoid some of the most common logistics outsourcing mistakes, you can use the following checklist to keep track of key tasks, making sure nothing gets missed. This will give you the best possible chance of initiating and developing a trouble-free partnership with your chosen service provider.
The Logistics Outsourcing Project Checklist
Initial Tasks at Project Start
- Determine objectives and scope for the outsourcing project.
- Agree project team responsibilities.
- Discuss and document the current issues impacting your logistics operation.
- Prepare outline of task and service specification.
- Identify list of potential service providers.
- Contact listed service providers to advise that you’ll be issuing an expression of interest.
Review of Existing Logistics Operation
- Conduct a review of current warehouse assets, costs and performance. Document a summary of the findings.
- Conduct a review of distribution resources, costs/rates, and performance. Summarise the findings.
- Conduct a cost, benefit, and risk analysis of current warehouse/DC location.
First Cut of Potential 3PL Providers
- Prepare vendor confidentiality agreement.
- Compile vendor selection criteria.
- Prepare “expression of interest” document for issue to listed 3PLs.
- Issue confidentiality agreement and expression of interest documents to listed 3PLs.
- Await responses from providers.
- Evaluate expression of interest responses from providers that return them.
- Select highest-scoring responders for your shortlist.
Main Selection Phase: Cut to Final 4
- Notify shortlisted providers that they have been selected to receive a request for tender (RFT).
- Establish selection criteria for RFT (cost and capability requirements).
- Add prioritisation and weighting to selection criteria.
- Create timetable for provider selection.
- Create detailed service specification. This should include the following details:
- Customer types and locations
- Demand/freight profile
- Ordering methods and order profile
- Inventory profile
- Operating parameters
- Expected service levels
- Pricing mechanisms
- Special handling requirements
- Interfaces with other partners, suppliers or customers
- Prepare initial draft of 3PL contract.
- Complete detailed contract draft for inclusion in RFT.
- Draft RFT sections, which should include the following:
- Statement of Purpose
- Background Information
- Scope of Work
- Outcome and Performance Standards
- Term of Contract
- Payments, Incentives, and Penalties
- Contractual Terms and Conditions
- Requirements for Proposal
- Evaluation and Award Process
- Process Schedule
- IT requirements
- Potential IT issues
- Strategic issues
- Points of contact for future correspondence
- Perform reference checks on shortlisted providers.
- Complete final RFT draft and obtain sign-off.
- Send RFT to shortlisted 3PLs.
- Await tender responses from shortlisted 3PLs.
- Review submitted 3PL proposals.
- Select final shortlist (no more than four providers).
Final Selection Phase
- Invite providers chosen in step 30 to present their proposals to your selection team.
- Visit sites belonging to providers on final shortlist.
- Conduct workshop to make final selection (select a preferred provider and a fallback provider).
- Notify providers of selection results.
- Enter into contract negotiations with preferred provider (up to two or three rounds of negotiation if necessary).
- Sign off decision to go with preferred provider or switch to fallback (if switching to fallback provider, repeat step 35).
- Sign contract.
- Conduct phase 1 of implementation: Planning phase.
- Conduct phase 2 of implementation: Training phase.
- Conduct phase 3 of implementation: Transition phase.
- Conduct phase 4 of implementation: Commissioning
- Conduct phase 5 of implementation: Post-commissioning. Ensure close monitoring of the relationship by project manager for at least eight weeks after go-live.
- Complete an exercise to compile “lessons learned” from the project, which should be kept on record for reference in any future 3PL implementation.
Next Time: More Logistics Outsourcing Secrets
Please feel free to lift this checklist from our post and turn it into a working document for your outsourcing project/s. In the next edition of this guide (Part 4), we’ll walk through the first sections of the checklist in a little more detail. Along the way we’ll share some more secrets and tips to help you enjoy success with 3PLs—so please don’t forget to bookmark this page and check back in a few weeks.
Part 4: How to Set the Scene for a Successful Logistics Outsourcing Project
So far in this guide to succeeding with 3PL outsourcing, we’ve looked at why your company might wish to outsource logistics and how outsourcing can go wrong if the process is not well-managed. We’ve also provided you with a checklist to help you ensure none of the important tasks in an outsourcing project get overlooked.
For the remaining parts of our guide, we’ll focus on how to ensure success with your outsourcing project and subsequently, the ongoing 3PL relationship.
Using the checklist as a basis, we’ll guide you through some of the key outsourcing activities and offer some tips to help you complete them. Here in Part 4, we’ll cover some of the most important tasks to complete when you are just getting started with your 3PL outsourcing project.
Logistics Outsourcing Secret #3: Know Your Operation Well Before Outsourcing
Before you even start on the tasks in the checklist, you should be sure you have the necessary in-depth knowledge of the way your current logistics operation runs.
You won’t find this task on the checklist (because understanding your processes is something you should consider as a general priority in your business), although you will find a section on reviewing your current operation. However, that’s really a separate activity (covered later in this part of the guide) to be conducted specifically with a future 3PL partnership in mind.
What we’re saying here is that many companies make the mistake of outsourcing an operation without really understanding it, which almost always leads to problems further down the line.
To avoid this mistake—along with many others that arise from a lack of process understanding—conduct a project to map your logistics processes in detail. Process mapping is critical in helping you to understand and ultimately, improve your supply chain performance.
Determine Outsourcing Scope and Objectives
In addition to process understanding, there are two important things to be clear on before you start looking for a 3PL.
You need to know why you want to outsource (which we’ve already discussed to some extent in Part 1 of this guide) and you need to know which activities will be in the scope of your project and of course, which activities will not.
In developing the scope, questions to consider include…
- Will you outsource transportation activities, warehousing, or both?
- If outsourcing transportation, will it include all modes and methods of transportation or for example, just road-going freight?
- Do you want the 3PL to be responsible for payment of freight invoices?
- Do you just wish to outsource freight tendering and load consolidation, or will the 3PL be responsible for carrier selection and rate negotiation as well?
While we’ve already discussed the need to know what you wish to achieve from outsourcing, it’s worth reiterating it here, because your outsourcing objectives should steer your approach to vendor selection.
Your criteria for selection and the questions you ask potential vendors will be different in each of the following example scenarios:
- You’re outsourcing to reduce logistics costs
- You want to improve customer service performance
- You need to reduce cycle and lead times in your supply chain
- You want to access the best logistics technology
- You want to take advantage of specific competencies lacking in your own operation
When outsourcing relationships fail, it’s often because the outsourcing company makes a poor choice of 3PL provider. This is far less likely to be an issue if you are clear on your outsourcing goals and know exactly what elements of your operation are to be outsourced.
Build the Project Team and Assign Responsibilities
An outsourcing project requires involvement from all areas of your business that will be impacted by the changes.
Furthermore, project activities can require your team members to spend quite a lot of time away from their normal duties, which in turn impacts business costs. That’s why you should be sure that you draft the right people onto your project team.
Once the team is active, you can save a lot of time and frustration by ensuring everybody knows the part they’ll play in the project. To that end, it’s a good idea to determine responsibilities, assign them, and make sure everyone understands their role at the very outset.
Logistics Outsourcing Secret #4: Companies Often Fail to assess “Before and After” Performance
Another common reason for companies to be disappointed with outsourcing results is because they don’t establish a baseline from which to measure 3PL performance.
Don’t make the same mistake in your project…
Before you start the vendor selection process, ensure you have a good handle on your current operational performance. That will help you to identify goals and targets for a service level agreement with your new logistics partner, and will also help vendors develop their responses to your RFT.
The Internal Cost and Performance Review
The extent of your internal performance review will depend on the scope of your outsourcing project. For example, if you plan to outsource all logistics activity, you’ll need to evaluate the costs and performance of your warehouse processes, and analyse the benefits and risks associated with your current warehouse/DC locations.
You’ll also need to review the performance of your transport operations, even if you currently rely on external carriers and have no in-house fleet.
If you are only planning to outsource transportation to a 3PL, you might not need to analyse warehouse performance, but on the other hand, this can be a useful activity in any case. The results may even prompt you to consider extending the outsourcing scope to include some or all of your warehousing operations.
Time to Begin the Selection
Once you’ve completed the tasks described above (and in steps 1 through 9 on the checklist) you’ll be ready to start researching and talking to potential vendors. That’s what we’ll focus on in Part 5 of our guide to success with 3PLs. So remember to visit this page again in a few weeks, when you can pick up some valuable hints and tips for the 3PL selection process.
Part 5: 3PL Partner Selection: How to Do it Right
As we discussed in the early parts of this guide, poor partner selection when outsourcing is a common source of problems further down the line.
The checklist in Part 3 of this logistics outsourcing guide contains a number of steps which if followed, can help your company avoid selection mistakes, but here in Part 5, we’ll elaborate on some of the most important activities in 3PL provider selection.
We’ll begin with a look at steps 5 to 16 on the checklist, with emphasis on the “expression of interest” process, and an explanation of why we recommend it rather than issuing a request for tender (RFT) at this point in the selection sequence.
What to Look for when Creating Your Long-list
If you’ve followed steps 1 to 5 in our checklist, you will probably be looking at a list of nine or ten 3PL providers that appear to fit your outsourcing needs.
However, if you haven’t yet created your long list, here are a few of the things you should look for when identifying possible 3PL candidates:
- Experience of working in your market (provides more conditions for a harmonious relationship)
- Size (if yours is a small company, you will not even show up on the radar of a large 3PL)
- Market presence (don’t bother with 3PLs that don’t operate in your region/country)
- Financial stability (you don’t want to contract with a 3PL that subsequently folds)
- Demonstrable results (be diligent and look beyond the referees provided by the candidate)
If you apply these criteria, you should end up with a list of competent 3PL service providers, any of which might just be a winner. Now since they will all be very professional enterprises, they are unlikely to be impressed if they learn they are among nine or ten that will all receive an RFT from your company.
Logistics Outsourcing Secret #4: It’s Bad Form to Send an RFT to 10 Different 3PLS
From the perspective of a 3PL, nothing is more of a turnoff than receiving a lengthy RFT from a company and learning that a long list of competitors is in receipt of the same.
In short, this is a sure way to induce 3PLs to decline to bid on your contract, because when you send an RFT to nine or ten service providers, it creates the impression that your company is ill informed and has not done its homework.
Save the RFT for the Shortlist
RFT responses require plenty of effort and larger 3PLs in particular may simply decline to respond if they think they are competing in a large field, especially if your business will be a relatively small account for them.
Even if all the candidates respond, sifting through the responses will also be time consuming for your team, which is why it’s far better to begin by sending out an expression of interest to each of the 3PLs on your long-list.
An expression of interest is far less detailed than an RFT, and offers a few advantages at this stage of the selection process, namely:
- It enables you to quickly assess which candidates are really interested in working with your company.
- The responses should give you a good idea of the capabilities of each candidate.
- The EOI letter you send out will include the most important insights about your operation, enabling the 3PLs to determine if they will be able to provide the services you need.
- The EOI process is an inexpensive and simple way to identify which candidates are likely to be the best fit for your project.
When you have completed the EOI process, you should be left with five or six 3PL providers that clearly stand out from the rest in terms of fit. Now you can go ahead and begin the RFT process.
Detail is Key in the RFT
If this guide was to cover all the necessary detail involved in creating an RFT and developing the evaluation process, it would comprise many more than the seven parts that we intend to publish. However, if you would like more information about RFT development, you can find plenty of detail by visiting the following resources:
Logistics Outsourcing Webinar Recording (You need to provide basic contact details to access this webinar recording.
The checklist in Part 3 of this serial also sets out most of the elements which should be present in an RFT. So rather than get into real detail here, let’s just focus on the need for detail in your RFT.
The High Cost of Missing RFT Detail
Detail… That’s the single most important thing to keep in mind when developing an RFT and there are two really good reasons for that.
The first and probably most obvious reason is that this is the one opportunity to identify the right partner to work with, and every detail missing from the RFT increases the risk that assumption and misunderstanding will ultimately handicap the resulting partnership.
The second reason is the potential impact on outsourcing costs. If your RFT lacks the necessary detail for candidates to accurately price the potential contract, they will simply build contingency costs into their bids, meaning that ultimately, your outsourced logistics operation will end up costing more than it needs to.
Next Time: From RFT to Contract Finalisation
If you follow steps 17 to 30 in the checklist, and pay heed to the above advice about detail, you should arrive at a final shortlist of (ideally) four logistics service providers, all of which will have presented compelling RFT responses and bids falling within 5% of your outsourcing cost projections.
In Part 6 (the penultimate installment) of this series on logistics outsourcing, we’ll look at some of the final steps in the 3PL selection process, before closing in Part 7 with some tips to get your outsourced operation off to a good start.
Part 6: From Shortlist to Contract Finalisation
We’re getting close to the end of our guide to success with 3PLs, with just parts 6 and 7 to go. If you’ve been following the installments so far, you’ll know that we’ve walked through the 3PL selection process to the point at which you should have a shortlist of about four logistics service providers, any of which would appear to be a good fit for your outsourcing requirements.
Before looking at the final steps in 3PL selection, let’s briefly explore why we suggest that your shortlist should comprise four logistics providers. It’s not a number plucked from the air and actually, there are a number of very good reasons why four is the magic number.
Why Four 3PLs on the Shortlist?
Firstly, this is a shortlist, and it’s very probable that during your RFT evaluations, at least a couple of 3PLs will seem to fit your needs very well.
To choose between them, you’ll want to take a much closer look at each, to try and spot any weaknesses (or exceptional strengths) that didn’t get identified in the RFT responses.
You may also find that one provider stands out head and shoulders above the rest, but you really don’t want your final selection to be a one horse race, hence the need for at least two 3PLs on the shortlist.
But what if one of these two should pull out of the process for some reason?
To make sure you’re covered in such a scenario, it’s safe to say you need three potential partners in contention. Finally, adding a fourth (and if it really makes sense, a fifth) contender, will allow you to test a promising outsider, such as a 3PL that’s recently entered the market in your region. This will really help you to get a good comparison between your shortlisted 3PLs.
OK! Now you know why you’re aiming for a shortlist of four providers, let’s focus on the final selection and how to give your team the best chance of getting it right.
Get to Know the Candidates
With four or five closely matched candidates to choose from, the final selection process should be exhaustive. While it might seem that you can’t go too far wrong, it’s important to remember that at this point everything is resting on the responses to your RFT, but those responses won’t necessarily tell you everything there is to know.
Be sure to invite each of the “finalists” to present their tender proposals personally to your selection team. This will give you the opportunity to ask searching questions and seek elaboration on any points of concern or interest in the RFT. However, there is also another reason, both for asking the candidates to present and for paying a visit to their operating centres. That reason is explained in logistics outsourcing secret #6 below.
Logistics Outsourcing Secret #5: It’s Good to Let a Little Subjectivity in
This may seem to go against all the advice anyone ever gave you about selecting a 3PL provider, and indeed, throughout this very guide we’ve been stressing the need for objectivity during the selection process. That’s because it makes absolute sense to be objective up to a point—and that point is now.
If you’ve followed a systematic and objective process throughout, each of your four finalists have the potential to be an excellent choice for your logistics outsourcing operation.
That’s why it’s a good idea to allow a little gut feeling and emotion into the final decision. Remember that successful outsourcing depends on a harmonious and productive relationship between the partners concerned—and that can only happen if the people involved can themselves form and maintain harmonious relationships.
When you invite your candidates to present their tender proposals face-to-face with your team, and visit those candidates’ business operations, your team can start to interact with the 3PL management teams, which in turn will help your people assess how they feel about the possibility of a long term partnership.
The Final Decision
Once your team is comfortable that it has all the information necessary to make the final selection, pull a workshop together and let each team member air their thoughts and preferences. Be sure to achieve consensus on the decision about which 3PL you wish to enter into a contract with, and also to select a fallback provider, just in case.
With the decision made, all that remains is to notify the candidates of your decision and make arrangements to enter contract talks with your chosen 3PL.
Needless to say, care must be taken to nail down all contract terms and conditions in detail. Contract negotiation could easily be the subject of an entire guide on its own, so we’ll save the finer points for a future article here on the Logistics Bureau blog.
Logistics Outsourcing Secret #6: You’re not Committed Until the Contract is Signed
As contract negotiations progress, it’s all too easy to fall into a committed frame of mind. After all, your own team and that of the 3PL has by now invested many man-hours into tendering, selection, and preparation to commence the outsourcing partnership. However, it’s important to resist the perception that “it’s all over bar the shouting.”
Quite simply, if the road begins to feel rocky during the contract talks, there’s still time to pause and if necessary, talk with the fallback provider (You did remember to select a fallback provider, didn’t you?)
Once that contract is signed, your company is locked into an arrangement that may last for five years or more, and although you should have provisions in place to exit the contract under certain conditions, to do so will undoubtedly create a lot of expense and disruption for your business.
In short, the need for healthy and productive collaboration during contract preparations can’t be stressed enough and if that can’t be achieved, it’s probably a good idea to think again.
You’ve Signed on the Dotted Line, Now what’s Next?
If you follow the tips and advice offered in this guide, the point at which you and your new logistics partner sign the contract should be a worthy cause for celebration. From this point onward, the fruits of your diligent and thorough 3PL selection process will begin to ripen.
Of course even while ripening, a crop can fail, so in the seventh and final part of this serial post, we’ll share a few tips to help you nurse your outsourcing venture through the early stages and effectively manage the relationship with your third-party logistics provider.
Part 7: The Honeymoon and Beyond
Many people who understand logistics outsourcing, myself included, liken the relationship between the client-company and the 3PL to a marriage, the consummation of which can be considered to take place upon implementation of the contract.
In this, the final part of our guide to success with 3PLs, we’re going to share some tips to help you “keep the marriage happy” during and after the honeymoon period, and on through the lifetime of the service contract.
Build a Healthy Relationship
If you follow the guidance offered in previous sections of this guide, you should be assured that at this point, your choice of 3PL will be appropriate and your contract/service agreement will form a solid foundation on which to build a productive and profitable partnership.
In short, you will have avoided most of the issues which typically lead to unsuccessful logistics outsourcing projects. This doesn’t mean though, that a long and happy “marriage” is guaranteed.
Like all partnerships, a lot of work must go into growing the relationship between your company and your 3PL provider. Without an appropriate degree of effort, problems can crop up, accumulate, and ultimately derail what seemed like the perfect client/3PL match.
The tips that follow are intended to help you take the right approach to 3PL-relationship management and spare your company from the heartbreak of a failed marriage.
Assign a Contract Manager/Single Point of Contact
Some companies put a great deal of work into selecting a 3PL partner and developing a contract, then undermine their efforts by failing to make any one person responsible for the ongoing partnership. Avoid this mistake in your own project by appointing a contract manager to oversee the relationship and serve as a single point of contact between your company and the 3PL.
Continually Seek Mutual Benefits
One of the responsibilities of the contract manager should be to work with your 3PL to find opportunities that will benefit both organisations in the partnership.
For example, help your service provider by liquidating obsolete stock in a timely manner, instead of letting it pile up in your 3PL provider’s warehouse. This will help the 3PL to manage a lean operation, allowing them to maintain efficiency and serve your company and customers effectively.
This is of course, just one example of how you might keep the 3PL relationship mutually beneficial. There are many others.
Look for synergies and opportunities to integrate systems and processes across both organisations. The fortunes of your own company are inextricably linked with those of your 3PL, and it’s important to manage the partnership with that in mind. If your partner wins, your company wins too.
Use KPIs to Measure Performance
Even if you don’t set key performance indicators during contract negotiations (which you really should), it’s never too late to do so.
As with anything you wish to manage, you first have to measure performance. Otherwise there’s no way you can drive meaningful improvement or even determine if performance is acceptable.
Implement KPIs that monitor both sides of the partnership. This will help you to find ways to work together with your 3PL provider to improve supply chain performance. Make sure your partner knows that you are implementing KPIs and be sure to share the results. Set up regular meetings with your 3PL to review performance and address issues early.
Visit the 3PL Operation Regularly
Of course data alone won’t tell you all you need to know about your 3PL provider’s performance. Your appointed manager should make a point of spending time at the partner’s site, visiting the operation and getting to know the people who work on your contract. Remember… this is a business partnership, which requires solid business relationships to be developed between individuals if it’s to thrive.
Keep the 3PL Clued-in
If you want your 3PL partner to perform consistently well, you need to keep its management team informed about what’s happening with your business.
If you’re not open with your short-term plans, demand, and sales forecasts, you can’t expect performance or cost to be optimal, and the resources you need may not always be available.
It’s also a good idea to share long-term plans and strategies with your 3PL provider too. If you are planning to implement a continuous improvement program such as Six Sigma for instance, invite the 3PL to take part in it with you.
If you are considering implementing a new business information system, bring the 3PL in on your planning activities. The more you can involve your partner in what you’re doing, the lower the probability of difficulties arising that could not have been foreseen at the time of tendering.
Now Outsourcing Success Can Be Yours
The tips provided here are intended to help you avoid some of the most common mistakes companies make when outsourcing logistics to a 3PL company. If a lot of it just seems like common sense, that’s because it is—but you might be surprised at how often these things are overlooked and how many outsourcing projects have gone wrong as a result.
Like all the guidance compiled over the seven months during which this article has been compiled, adhering to the above tips (as much as possible) will keep your company out of trouble when selecting, contracting, and working with a third-party logistics partner.
Want to Learn More About Logistics Outsourcing?
We hope you’ve enjoyed this serialised blog post and found it useful. While we like to think we’ve created a fairly comprehensive outsourcing guide here, there’s always more to be learned and indeed, there are many other articles here on the Logistics Bureau blog from which you can glean more information.
The articles, videos, and guides on the following list are certainly worth a read:
- Future of Logistics Outsourcing
- Logistics Outsourcing Pricing Approaches
- Successful Logistics Outsourcing Tips
- Why Companies bring Logistics BACK in House
- The 3PL Market and a Forthcoming Identity Crisis
- Getting Aligned with Business Goals for Successful Logistics Outsourcing
- The Suppliers’ View of Logistics Outsourcing
- Logistics Outsourcing Partnerships and Why It’s Time to Break a Rule or Two
- Logistics Outsourcing – The Biggest Mistake
In the future we’ll try to add even more valuable information to this guide, so please help us by commenting on the points you found most useful and telling us what aspects of outsourcing you’d like to know more about. Then we can update this guide (or even add some more serialised parts) to cover your requests, or answer them with some fresh articles on the blog.