DRILL DOWN ON YOUR LOGISTICS CONTRACT
5 ESSENTIAL QUESTIONS FOR YOUR 3PL
Writing requests for proposals (RFP), evaluating responses, meeting with third-party logistics providers (3PL) and interviewing customer references are standard practice when it comes to selecting your organization’s 3PL. But what other questions should you ask before signing on the dotted line?
Here are five key questions that shippers and 3PLs agree should be part of any 3PL interview process.
What are your financial and market strengths, and your strategic commitments?
“Any 3PL you are considering should be able to specifically describe the value it can bring to your company,” says Emmanuel Cambresy, Country Category manager of Strategic Sourcing for one of the largest worldwide healthcare companies. “The 3PL’s business plan must also be able to be aligned with your long-term vision and strategic development plan. As part of this, you should determine whether the 3PL has a joint strategic decision-making process with its customers that facilitates a strong business partnership.”
Frank McGuigan, Transplace executive vice president and COO, notes that the 3PL marketplace is getting crowded. “Companies need to be able to distinguish between the marketing ‘noise’ that they hear and the value that actually gets delivered,” he says. “You want a value-based relationship with your 3PL that can address your specific business model and what it is you have to accomplish. At the end of day, the relationship you build with your 3PL should be based upon the value that it can deliver.”
Derek Leathers, president and COO of Werner Enterprises, says that any 3PL should be able to fully describe its service footprint and particular market strengths. “Interview the 3PL on its global reach and define where current and future markets come into play,” he says. “Most 3PLs know local landscapes better than their customers and can provide global trade management services to enable trade compliance. … Expansion into new markets is a primary reason that shippers select 3PLs; you should have full confidence that your provider has both immediate as well as longer-term account management capacity across various geographies.”
Can you provide examples of your implemented capabilities and expertise as well as demonstrated performance-based results?
“Any 3PL that you consider for logistics needs to be able to provide several examples of case studies and references of customers in like industries, with similar supply-chain or distribution challenges, that represent proven measurable and sustainable results,” says Sean Coakley, SVP of Kenco, a logistics provider. “It is important to fully understand the 3PL’s capabilities with similar organizations, discuss obstacles they may have encountered and how they overcame them, as well as examine their average client tenure and the reasons why contracts may have expired in the past. In addition to service capabilities, look for attributes such as the organization’s culture and reputation, talent development and retention, and industry stewardship.”
Emmanuel Cambresy stresses the importance of holding 3PLs accountable for their results when you interview them. “Always ask the 3PL how it has proactively been contributing to the delivery of sustained innovation and business transformation for its customers,” he says. “Also ask the 3PL how its current commercial structure supports fairness, flexibility and transparency in the supply chain.”
Talking to 3PL customers is also highly important. “Sometimes the 3PL only gives you a list of its ‘good’ customers for references,” says John Brooks, director of Distribution and Transportation for Philips Global Purchasing Group, which handles both Philips’ healthcare and electronics divisions. “But it’s very important during the interview process that you speak with a variety of other customers so you can gain a thorough understanding of the 3PL and what it can deliver. This means that you should ask for full customer lists that you can choose from.”
McGuigan seconds the importance of drilling deep into customer references. “Few companies interviewing 3PLs develop detailed lists of questions to ask references during their RFP processes,” says McGuigan. “You should ask the 3PL what the average length of its customer relationships is, and if it has ever lost a customer. If a 3PL has long-term relationships with its customers, this demonstrates the 3PL’s ability to keep returning value to these organizations. … As a shipper, you want to see successful business cases out there—not just summary results for a series of 30-minute phone calls.”
What are your IT capabilities?
“Always fully understand and interview 3PLs regarding their IT capabilities,” says Werner Enterprise’s Leathers. “The information that IT systems provide is the lifeblood of supply-chain planning and execution. It is essential in a 3PL relationship to align and understand how and where information will be managed, how the system’s architecture is linked to supply-chain strategy and how future enhancements will be financed and implemented.”
Fred Schardt, president and COO of FedEx Trade Networks, says that companies should look not only at present 3PL IT capabilities but also whether the 3PL is making appropriate investments in future technology that will bring value to the supply chain.
“Systems and IT are very important,” affirms Philips’ Brooks. “We have often found that we don’t get the reports we want. Key technology areas that a 3PL should excel in are track-and-trace, reporting, contracts, operations and feedback. The systems the 3PL uses must be flexible and able to change rapidly to respond to new market conditions.”
McGuigan adds, “A shipper should ask its 3PLs what systems, people and processes they have that will improve the shipper’s processes beyond the first year the shipper is with them. You want someone that can lower expense or produce savings—and that has the technology and organizational infrastructure in place to keep delivering to these goals.”
Who will be managing my account and supporting my organization on a daily basis?
Mike Stark, CEO of Pacer Distribution Services, says that companies should investigate what kind of relationship they can have with a prospective 3PL before they sign a contract. “Shippers should ask themselves whether they will have access to the top person if something happens.”
From here, it’s a question of ongoing communication and execution. “This is why companies should also find out what the 3PL’s account management structure is,” says FedEx’s Schardt.
“Another question they should ask is, ‘Once the business is awarded, how will I be serviced?’” Schardt says. “Shippers should make sure the 3PL’s account management structure is capable of building and sustaining a business partnership with constant access. Your 3PL should do what it says it can do. Finally, turnover of personnel is important. You want a 3PL where the skilled people stay and are happy with and understand their jobs.”
“Look for how well you can access key personnel and what kind of internal training programs the 3PL has to ensure that its personnel are well trained in the areas where they work,” adds Philips’ Brooks.
What obstacles do you see in my organization that prevent me from taking full advantage of your services?
Pacer’s Stark encourages shippers to ask their 3PLs what services they can provide that the shippers aren’t presently getting. “Also ask the 3PL where it expects to be with its service offerings a year from now,” he says, “and then tell them that you want to be there with them when they’re planning because it’s important that the two of you speak the same language.”
“When we look at a 3PL, we expect it to be the expert,” says Brooks. “We want our business processes to be driven by 3PLs in the sense that if they are aware of best practices and can recommend changes or improvements we can make to our operations. We want to hear about these so we can consider adopting them.”
“These are healthy conversations that should take place one or two times a year,” says McGuigan, who acknowledges that he sees many businesses that want the 3PL to unilaterally change the business without changing anything that they do. “There are natural resistance points within these organizations, because new workflows require up and down buyoffs from stakeholders and the process of consensus takes time.”
He says that in the ideal situation the 3PL and shipper should be able to originate eight new ideas.
“Maybe three or four of them that get shot down, but then you discover that there are three or four that you really haven’t looked at,” he says. “This is when a beneficial business paradigm shift can occur.”