Improving the shipper/3PL relationship

September 23, 2006 by SwizStick  
Filed under 3PL, Supply Chain Management

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A little late in coming, but I wanted to link to this article in this month’s issue of Logistics Management on shipper/3PL relationships. It’s a Q&A with four 3PL industry analysts and I think it provides a good, basic analysis of the shipper/3PL relationship, where the industry is going, and tips on how the relationship can be improved. Read the whole thing. Some excerpts that I found interesting:

How vital is the technology piece to 3PLs’ growth?

Langley: Development of information technologies is essential to the success of today’s 3PLs. Considering that many 3PLs are classified as being non-asset-based, IT capabilities are quickly becoming a way that 3PLs can differentiate themselves from each other.

Armstrong: Information technology has become a key reason for outsourcing. Companies are asking, “Why spend millions of dollars purchasing and integrating supply chain systems if our 3PL already has them?” Top 3PLs must have solid systems supporting their people in order to compete. Systems have become a clear differentiator.

What should shippers keep in mind before turning to a 3PL for their technology needs?

Bentz: It’s important to remember that most 3PLs are not technology leaders from the standpoint of supply chain management. They may have strong routing and scheduling tools or automated dispatching, load-building, shipment-tracking, and performance- monitoring capabilities, but I struggle to think of any one that has mastered the mysteries of end-to-end supply chain management in a meaningful way.

I agree. It has been my personal opinion that far too many 3PLs (particularly small-medium sized outfits) are lacking when it comes to IT capabilities. Too often they have only rudimentary technology. It always surprises me how so many operations I have seen are decidedly “low-tech”. 3PLs who invest a significant amount of time and money in developing and improving IT capabilities will definitely differentiate themselves well.

Which trends would you say are putting the greatest pressure on shipper/3PL relationships?

Langley: My belief is that the bar is being set higher for today’s shipper/3PL relationships, and that one of the greatest sources of pressure is for the 3PLs to step up the levels and quality of service they are providing to their customers. Another significant source of pressure is the natural proclivity of many shippers to continually put downward pressure on prices and therefore on the profitability of 3PL operations. What often happens is that shippers place so much emphasis on continually lowering prices that they drive even the best 3PLs to find other customers.

Emphasis mine.

I was so glad to read this. Shippers need to remember that in their constant drive to lower costs they need to avoid the risk of affecting service through their 3PL or harming the relationship with their 3PL. Some shippers know the cost of everything and the value of nothing. More than a few times in the past we have looked at some customers thinking “No matter how much we continue to lower our pricing it never seems to be enough. Maybe this isn’t the kind of long term business we want to develop. Perhaps we should try finding some different business.” You can only push a 3PL so far before the only choice they have is to use lower quality carriers and contractors, thereby affecting service. That’s not to say that some 3PLs don’t have high prices and bad service, but if you have a solid 3PL as a partner and you continually push them to lower prices and then wonder why service begins to suffer, you may want to sit down and contemplate why.

With those differences in mind, what are the keys to building a successful 3PL relationship?

Lieb: There are many, but I can boil it down to a top four: 1) the ability of the 3PL to deliver on promises; 2) trust—in both directions; 3) a clear agreement at the beginning of the relationship on what the responsibilities of both parties are; and 4) the establishment of clear performance metrics at the beginning of the engagement.

Armstrong: As in any good marriage, communication and trust are the keys. If a shipper withholds information and doesn’t let a 3PL help it optimize its supply chain, then inefficiencies will exist. And if a 3PL isn’t focused on making ongoing process improvements for its client, then problems will arise.

Let’s turn the tables: What is a 3PL looking for in a customer?

Bentz: As a former 3PL guy, I wanted a few simple things from my clients. I wanted an honest, clear, and straightforward set of expectations and service requirements. I wanted a relationship where we could have honest, open dialogue when problems arose so we could work jointly in solving them. And I didn’t want to have to chase them for money.

Couldn’t have said it better myself. They just described the perfect customer, and the requirements are quite simple.

To wrap up: What steps can shippers take to ensure that they’re on the same page with their 3PLs in terms of expectations and responsibilities?
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Langley: Communication, communication, communication. I suggest a relationship strategy be developed that matches the needs for communication and dialogue between shippers and 3PLs at three levels: operating, planning, and executive. Since people in both organizations will tend to turn over somewhat rapidly over time, the time and effort spent on this objective will be well worth it.

In my last company one of my mantras was “we are in the business of communicating”; even though we provided logistics and transportation services to our clients, communication was equally important. Without communication, every aspect of our business would suffer.

There is plenty of useful information and insight from this article for both shippers and 3PLs.

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