What Shipper CEOs and Execs Should Know About 3PLs
A lot goes into a successful relationship between a shipper and a 3PL—but it’s not always what you hear in seminars or learn on the job. If you’re a CEO or senior manager for a shipper, here are 11 things you should know when you think about 3PLs:
“Bigger” May Not be Better and Longevity isn’t Always the Whole Story
Many shippers think that the bigger the 3PL and the longer the 3PL has been in business, the better the performance and service. Not necessarily. “Many Tier II [3PL] providers excel in specific industry niches. They provide customers with direct, hands-on expertise, with the benefit of a larger platform,” as Robert A. Voltmann, president and CEO of the Transportation Intermediaries Association, told Inbound Logistics in July 2011.
Shippers can also find great success with smaller 3PLs whose cultures, work ethics and operations closely align with their own. These 3PLs might not have been in business long—but, if they can provide trustworthy customer references, it might be worth it to take the chance.
You Don’t Always Get the Best Price—Even if You Think You Did!
Shippers feel they get the best price for services when they begin negotiations with a 3PL and come away feeling that they saved 30 to 40 percent on costs because of deep discounting. It’s difficult to really know what it costs your 3PL to deliver services, but as in any other business enterprise, it is human nature for folks to put prices up so they can make them appear to come down drastically in discounts for their customers. Those shippers that do best in securing least-cost pricing from their 3PLs are also not necessarily the ones with the largest shipping volume—a common misconception. Instead, they are companies with the savvy to understand the costs and environmental factors that affect 3PLs and how they charge. If you lack deep-down expertise on what can be negotiated with your 3PL (like fuel surcharges!), you should consider hiring an outside consultant who can bring you that expertise.
Knowledge of Product, Industry and Geographic Sector Counts
A shipper and its 3PLs should have knowledge of the industry sectors, products and areas of the world in which they work. If they don’t, products can get damaged during shipment because of inexperience handling them—or logistics can get delayed because of countries’ policies and politics.
Talent is in Short Supply
Finding and retaining talent is significantly impacting shippers and 3PLs right now. Newer workers easily move from place to place, go after the top dollar if they are well-skilled and don’t demonstrate much company loyalty. When considering a 3PL partner, ask 3PLs about their employee turnover rate and query them about the certifications and internal education they provide their staff. Since everyone is fighting for talent, it makes sense to team with someone that you feel is in a strong position to both command and retain it.
Reliable Technology is Critical
Most 3PLs depend upon technology to flow instructions to their in-field logistics. The same technology provides tracking and update statuses on shipments. In some cases, 3PLs offer cloud-based technology that gives their shipper clients visibility of the end-to-end logistics process. Unfortunately, many shippers still focus on only the physical transportation capabilities of the 3PL, when they should also be verifying that their providers have sound technologies and the ability to operate them 24/7. “We can failover our systems in a matter of minutes with minimal loss of data,” says Tamas Nemeth, IT manager for Transfreight, a 3PL for the automotive and recreational vehicle industry. “This is important for our operations and our customers.”
3PLs Can Help You with Sustainability
When shippers evaluate 3PLs for transportation capability, they should also inquire into the sustainability numbers and initiatives of these companies. In some cases (e.g., intermodal shipping that uses railroad), shippers have gained leverage for their own sustainability targets by being able to incorporate their 3PLs’ results.
Always Develop an RFP and Move it into Your Service Contract
Many shippers seek out 3PLs without ever taking the time to develop a full request for proposal (RFP) that details the service and service levels that the shipper expects. “This is a major educational process that we enter into with many of our shipper clients,” says Gary Harrell, founder and CEO at Axiom Strategy Advisors. “It is very important to get your management team together to thoroughly define your requirements for your 3PL.” Once you select a 3PL, the next step is to take the points contained in your RFP and move them forward into the contract that you negotiate. The points in the RFP (e.g., on-time shipments, no damaged goods, etc.), can be used as service level agreements (SLA) in your contract with your 3PL.
Maintain Single Points of Contact with Your 3PL
Shipper-3PL communications and operations flow best when there is a single point of contact for managing activities (and the relationship) on each side. If communications pour in from all points of the shipper and the 3PL, operations and execution quickly become confused.
Outsourcing Isn’t the Only Way to Ship
It shouldn’t be an automatic decision to outsource your logistics. There can be strong arguments for a mixed strategy in which you maintain some shipping capabilities within your own organization because it provides both insurance and flexibility. In any event, the decision to outsource or insource should be carefully considered. “Many companies enter into the logistics process thinking they have to outsource to achieve the margins they want on their products,” says Harrell, “but the first thing we do is to walk through their processes with them to determine whether it really is best to outsource. It is only after this that we move forward.”
Don’t Count Out Air Freight
Shippers have done a good job managing speed of delivery against costs as they have assembled trucking and rail transportation strategies. But there is also a place for air freight in this mix. “No doubt, air cargo can be expensive when compared to other options,” says Boeing’s Russell Tom, “but if you’ve got high value or highly perishable goods that have to get to market, it might be your most expedient and cost-effective choice.”
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