Managing 3PL Relationships – The Most Common Challenge

Managing 3PL RelationshipsI recently facilitated an interactive discussion group at the Smart Warehouse Summit in Sydney. The title of the the discussion was Managing 3PL Relationships.

After some interesting discussions around the various techniques and tools that were being used for managing 3PL relationships and some of the criteria that could be used to evaluate 3PL service providers I asked the delegates to tell me what was their biggest challenge was in relation to managing 3PL relationships.

Without doubt the most common response was that most third party logistics service providers failed to see past the transactional aspects of the relationship.

Overall, it was agreed that most 3PLs were reasonably good at getting the job done but very few proactively drove process improvement or cost reduction initiatives.

The general consensus was that this type of activity was always driven by the customer.

Any request to improve or change a process was seen as variation to the agreement and an opportunity to review the cost schedule and generate additional revenue.

Although there are ways to structure agreements in order to encourage a 3PL to seek cost reduction initiatives, most 3PLs see this type of request as a potential threat to their revenue and are therefore reluctant to proactively pursue them.

Whist there are exceptions to the rule, I would argue that most organisation that engage a 3PL are doing so with a long term view in mind.

The time and cost associated with identifying and selecting a suitable partner can be significant and the preferred option for most organisations would be to do it as few times as possible.

Unfortunately , once the relationship has commenced most logistics service providers do not invest enough time in trying to understand the customers business requirements beyond the activities that they have been engaged to perform.

From customer perspective, the ideal 3PL is one that not only delivers the services that they have been engaged to perform, but is also able to use the knowledge that they have gained about the customers business to proactively identify opportunities to drive efficiency or to reduce cost.

In many cases, inefficiency within the logistics operation can be the result of the customers upstream processes.

A non transaction focused third party logistics service provider will have identified this and will be able to drive the organisation to change its processes in order to take advantage of any potential benefits that may arise within the 3PL operation.

Furthermore , a logistics service provider that understands its customers business, will be in a position to drive process improvements, cost reductions or even identify new business opportunities by leveraging the services or solutions that are already providing to other customers.

Whilst the customer must be willing to share all relevant information, and there are forums such as monthly and quarterly reviews where this can occur,  the logistics service provider must take the lead and strive to gather as much information as possible about their customers current and future business requirements.

By taking this approach the 3PL can align itself with the longer term approach of most organisations and re-position themselves as partner of value rather than one that seems to be more focused on transactions than identifying opportunities to develop a more mutually beneficial relationship.

 

Global 3PL Market to Break the Trillion $$ Barrier by 2022

Revenue generated by the global third party logistics (3PL) service providers is forecast to break the trillion dollar barrier by 2022

A recent report published by Armstrong and Associates estimates that the 3PL market will increase from USD 802 billion to a whopping USD 1.1 trillion by 2022.

The increase in E-commerce order fulfillment activity is a key driver of the growth.

According to the report – 2016 gross revenue from 3PL’s in Asia Pacific is currently USD 305 billion with China making up close to 55% of the regions third party logistics market.

The Australian market represents 3.6% or nearly USD 11 billion

The USA 3PL market is worth approximately USD 167 billion while the gross revenue generated by third party logistics service providers in Europe was approximately USD 172 billion

The report also ranks the top 50 Global 3PL’s by 2016 Gross Revenue. The top 10 are listed below.

  1. DHL Supply Chain and Global Forwarding (Head Office in Germany)
  2. Khune and Nagel (Switzerland)
  3. Nippon Express (Japan)
  4. DB Schenker (Germany)
  5. C.H. Robinson (USA)
  6. DSV (Denmark)
  7. XPO Logistics (USA)
  8. Sinotrans (China)
  9. GEODIS (France)
  10. UPS Supply Chain Solutions (USA)

The only 3PL service provider with a head office in Australia that makes the 2016 top 50 Global 3PL List is the Toll Group

To download the complete report which is available for FREE for a limited time CLICK HERE to be taken to the Armstrong and Associates website.

 

New Speaking Engagement | Smart Warehouses Summit 2017


I am pleased to announce that I will presenting at the 2017 Smart Warehouses Summit

The summit will be held in Sydney, Australia on Tuesday the 24th and Wednesday the 25th of October at the Pullman Hotel

I will be participating as both a speaker and a facilitator of one of the solution round table discussions.

On Tuesday I will facilitate the round table discussion on the subject of “Managing Relationships with Your 3PL Provider” and on Wednesday I will deliver the final presentation of the conference on the topic of “Maximising Productivity in E-Tail Warehousing and Distribution Operations”

To download the brochure Click Here

To view the full agenda Click Here for Day 1 and Click Here for Day 2

To view the list of speakers Click Here

To register for the event Click Here

Feel free to reach out to me if you would like further information and if your attending the conference be sure to come and say hello


 

8 Must Read Articles on Selecting a Third Party Logistics Company

Selecting a third party logistics company can be a daunting task, especially if you are transitioning from managing your own warehousing or transport operations.

To help you with this process I have provided links to 8 Must Read Articles on Selecting a Third Party Logistics Company which will give some valuable insight into how to successfully select a third party logistics company

You might also find by previous post the 4 Rs (and 1 G) of Selecting and Managing 3rd Party Logistics Service Providers worth a reed as well


1. Selecting A 3rd Party Logistics Provider

Selecting a Third Party Logistics Provider

An overview of what to consider when selecting a 3rd party logistics service provider from the team at www.thebalance.com

 

 

 

 

2. Thirteen Considerations when Selecting a 3PL

Thirteen Considerations when Selecting a 3PL13 things to consider when selecting a 3PL service provider from the team at www.cerasis.com

 

 

 

 

3. 3rd Party Logistics – Secrets to Successful Outsourcing

3rd Party Logistics - Secrets to Successful Outsourcing

A Serial Guide to Success with 3PLs from Rob O’Byrne at www.logisticsbureau.com

The team at Logistics Bureau have also written a series of books including Logistics Outsourcing Secrets

To view all of Robs books Click Here

 

4. Six Essential Strategies for Selecting a Global 3PL

Six Essential Strategies for Selecting a Global 3PLSix essential characteristics to take into account when selecting a global third party logistics service providers are discussed in this article written by by the team www.inboundlogistics.com

 

 

 



5. How to Select A Third Party Logistics Provider

How to Select A Third Party Logistics ProviderA five-step process for getting a good start on a successful 3PL relationship from www.industryweek.com

 

 

 

 

6. Third Party Logistics Evaluation and Selection

Third Party Logistics Evaluation and Selection

A list of evaluation and selection criteria to consider when deciding if you should outsource your warehousing and distribution operations available at www.logisticsengineering.com

 

 

 

 

7. Six Tips for Choosing a 3PL

Six Tips for Choosing a 3PL

The team at www.foodlogistics.com share 6 very detailed tips for choosing a third party logistics service provider

 

 

 

 

 

 

8. Evaluating Potential Third Party Logistics Providers and What You Should Be Looking For

Evaluating Potential Third Party Logistics Providers

The team at www.supplychain247.com provide a series of tips that will give you a solid benchmark for what you should be looking for when selecting a 3PL

 

 

 

 

 



 

9 Items That You Should Be Checking As Part of Your Invoice Approval Process

Invoice Approval ChecklistIn this post I will outline 9 items that you should be checking as part of your invoice approval process.

As part of our role as a Logistics Manager we need to ensure that what we are being charged for by our freight forwarders and customs brokers are not only in line with our rate schedule but also compliant with the relevant customs regulations.

In previous posts I have written about  understanding international freight forwarding costs  and understanding customs clearance costs  but in this post I will focus on the process of checking the invoices that you receive from your international freight forwarder or customs broker to ensure that they are correct.

It is a well known fact that the error rates on charges from international freight forwarders, customs brokers and cartage companies can be quite high and not undertaking a thorough auditing process could lead to significant amounts of money being unnecessarily paid.

Furthermore, an incorrect customs value or an incorrect tariff classification may result in financial penalties being imposed by the customs authorities if customs duty is short paid as a result of erroneous information being declared on the customs entry at the time of importation.

Invoices from your international freight forwarder will typically fall into two cost categories:

  • Freight and Service Charges
  • Duty and Tax Charges

Both categories and 9 key items that you should be checking for are discussed in detail below.

Freight and Service Charges

These charges can include:

  • International freight charges – per container or cubic meter for sea freight shipments or per kilogram for air freight shipments
    • Additional freight surcharges may include – wharf or aviation security fees, a bunker adjustment factor (BAF) for sea freight shipments or a fuel surcharge for air freight shipments
  • Local handling charges – per container or cubic meter for sea freight shipments or per kilogram for air freight shipments and in some cases a fixed fee will apply
    • Sea freight charges may include – port service charge (PSC) , sea cargo automation and compliance fees and a delivery order fee
    • Air freight charges may include – airline handling fee, airport terminal fee and an airline documentation fee
  • Customs Clearance and Delivery charges – per container or cubic meter for sea freight shipments or per kilogram for air freight shipments and in some cases a fixed fee will apply
    • Import customs clearance fee (agency), cartage charges and a fuel surcharge fee

As part of the invoice approval process the following items should be checked:

  1. Check the shipping documents to make sure that you are not being billed for someone else’s consignment
    • Check the shipper and the consignee details are correct
  2. Compare the arrival date of the shipment and the service providers invoice date to make sure that you are being billed within a reasonable time frame after the arrival of the shipment
    • Check flight date for air shipments and the on board date for sea shipments
    • Requesting a discount for late billing is an option that can be explored
  3. Ensure that the origin port and destination port on the invoice match those on the airway bill or bill of lading
    • It is this combination of port pairs that drives the rates that will be charged by the service provider
  4. Ensure the freight rates and the service charges that have been invoiced are consistent with what you have agreed to as part of your published rate schedule
    • The provision of rate schedule with a predefined validity period is a normal expectation
  5. Ensure all calculations are correct
    • Check the currency being used is correct
    • Check the exchange rates being used are acceptable – freight forwarders have a habit of using exchange rates as a means of revenue raising
    • Check the quantity and rate calculations are correct e.g. USD 3.50 per kg x 50 kg =

Duty and Tax Charges

Import duty and import taxes are calculated based on the import value of the goods.

In most countries the import value of the goods is based on either the FOB value or the CIF value of the goods.

In Australia the import duty payable is calculated by multiplying the FOB value by the duty rate and the GST payable is then calculated by adding the duty to the CIF value of the goods and multiplying this amount by the GST rate

For example:
If the FOB value is $1000 and the duty rate is 5% then the amount of duty payable is $50
If the CIF value is $1100 and the GST rate is 10% then the amount of GST payable will be $115 – ($1100 + $50) x 10%
The total duty and GST payable on importation will be $165

Prior to approving an invoice for duty and tax the following items should be checked:

  1. Ensure there is a “tie up” between the shipping documents (air waybill / bill of lading) and the commercial documents (invoices / packing list)
    • There should be a common identifier on all documents to ensure the correct goods are being entered for customs clearance purposes
  2. Ensure that the correct customs value has been used for duty calculations
    • The total value of the commercial invoices should equal the value shown as the total invoice value on the customs entry to ensure compliance with customs regulations
  3. Ensure the rate of duty being applied is correct
    • Duty rates can vary based on the country that the goods are being imported from and as can also be different as a result of any trade agreement that has been established between the two countries
    • Duty rates can also vary depending on the tariff classification of the goods
  4. Ensure all calculations are correct
    • In most cases the amount of duty and tax payable is calculated automatically when the customs entry that is submitted through the customs import system
    • Providing the value for duty and the duty rates are correct there should be no issues with the amounts that have been calculated and are required to be paid

Whilst thoroughly checking each invoice will increase the time it takes to perform your invoice approval process I can guarantee the investment will definitely result in credits for incorrectly charged fees and will also remove the risk of any potential customs compliance issues.


The “Weekly Logistics List ” is a weekly email especially curated for logistics and supply chain managers and provides tips, tools and techniques for managing 3rd party logistics service providers.

Try it out. You can unsubscribe at any time and you can also rest assured that we do not share our list with anyone – ever!

To sign up to the Weekly Logistics List and to download a FREE copy of the my guide “52 Tips for Reducing Logistics Costs” please enter your details below.



Feel free to provide feedback on the above list or share your “Logistics Lists” with the 3plmanager.com community by making a comment below
 

New Speaking Engagement | 2017 Supply Chain Forum

2017 Supply Chain Forum

I am pleased to announce that I will presenting at the 2017 Supply Chain Forum

The forum will be held in Sydney, Australia  on Tuesday the 19th and Wednesday the 20th of September at the Swissotel Sydney

I will be participating as a speaker in a keynote discussion session that will discuss the topic:

“Taming Disruption – Breaking in Barnstorming Technology”

The brief for this discussion is below:

The technology intensive, ‘always on’ supply chain is redefining business.

The frontier of innovation is busy and dynamic, where The Internet of Things, predictive analytics and collaborative robotics and sensors provide supply chain managers with more data and insight into their operations than science fiction ever envisaged.

However, uprooting established structures is daunting, and innovation is about more than clever breakthroughs. There must be purpose, strategic design and practicality in our design to allow innovation to manifest as impact.

Given this circumstance:

  • What are the most transformative current technologies a supply chain manager can implement?
  • Are there foreseeable new business models, ventures or challenges that modernisation presents, beyond its immediate implementation?
  • What distinguishes a supply chain manager prepared to harness technological change from one who is not?

Also participating in this discussion session are Phillip Haddad from Booktopia, Indrasen Naidoo from Roy Hill and Felix Ohle from Viva Energy

To download the brochure Click Here

To view the full agenda Click Here

To view the list of speakers Click Here

To register for the event Click Here

Feel free to reach out to me if you would like further information and I hope to see you at the 2017 Supply Chain Forum next month

 

2017 Supply Chain Forum

 

3plmanager – one of the best logistics blogs on the planet

Feedspot Top Logistics Blogs We are proud to announce that 3plmanager has been voted one of the best logistics blog on the planet by Feedspot – a modern RSS reader that allows you to put all of your reading in one location.

3plmanager has been voted in the top 75 logistics blogs on the internet.

The top 75 logistics blogs have been selected using search and social metrics and the ranking is based on the following criteria:

  • Google reputation and Google search ranking
  • Influence and popularity on Facebook, twitter and other social media sites
  • Quality and consistency of posts.
  • Feedspot’s editorial team and expert review
 

Japan Post books $4.7b writedown on Toll and flags 1700 job cuts at the business

According to a Reuters report today , Japan Post Holdings has confirmed it will book its first annual loss in at least a decade, after unveiling a $US3.6 billion ($4.7 billion) writedown on its Australian logistics arm Toll Holdings.

Japan Post estimated its loss at 40 billion yen ($470 million) for the year ended in March, becoming the latest Japanese company to stumble after a high-profile overseas acquisition.

“The price we paid for Toll was high,” Mr Nagato said. “The writedown is intended to wipe the slate clean.”

Japan Post, a conglomerate that spans postal delivery, banking and insurance, had originally forecast 320 billion yen in net profit for the financial year ended in March, down 25 per cent from the previous year.

The company, 80 per cent owned by the government, bought Toll in May 2015 for $6.5 billion in a deal designed to boost its global logistics reach and offset a decline in its domestic postal operations.

At the time of the Toll deal, Toru Takahashi, then-chief executive of Japan Post, had said there would be no major job cuts at Toll.

But Toll has been hit with a drop in parcel volumes as Australia’s economy is buffeted by falling commodity prices, leading Japan Post to book the writedown charge.

Despite Toll’s problems, Nagato said Japan Post was “constantly looking out for other acquisitions, including those beyond the logistics sector.”

Source – Reuters

 

New Speaking Engagement | Automated Warehouse, Smart Technologies & Supply Chain Integration Forum

I am pleased to announce that I will presenting at the Automated Warehouse, Smart Technologies & Supply Chain Integration Forum

The forum will be held in Melbourne at the Marriott Hotel on the 22nd and 23rd of May 2017.

I will be presenting a case study on “Maximizing Productivity in E-Tail Warehousing and Distribution Operations” and will be discussing the following:

  • From shopping cart to the customer’s door – Implementing a SMART system which delivers value
  • Developing order fulfillment processes to suit online retailer order and stock profiles
  • Creating a scalable & flexible workforce and warehousing facility

To view the full agenda Click Here

To view the list of speakers Click Here

To register for the event Click Here

Feel free to reach out to me if you would like further information and I hope to see you there next month

 

Weekly Logistics List | 5 Other Things to Consider when Selecting 3PL Service Providers

5 Other Things to Consider when Selecting 3PL Service Providers

This week week we look at 5 other things you should be considering when selecting a 3PL service provider

We have previously discussed the The 4 Rs (and 1 G) of Selecting a 3rd Party Logistics (3PL) Service Provider and these will always be a major consideration throughout the 3PL service provider selection process.

There are also a number of other things that should be taken into account. These include the:

  1. Operational capability
  2. IT capability
  3. Growth potential
  4. Financial stability
  5. Relationship equality

1. Operational capability

Whilst cost will always be weighted heavily as one of the key evaluation criterion, the operational capability of the potential 3PL service provider will also need to be seriously considered.

Ideally the candidates being considered will be doing business with organisations that have a similar profile to your own organisation.

Do they have experience handling products in the same or similar industry to yours?

Are they delivering to the same customers or to customers with similar requirements as yours?

Are they capable of  servicing a multi channel distribution strategy – a wholesale, retail and eCommerce customer base?

Whilst your industry knowledge may enable you to answer the above questions the best way to confirm operational capability is to ask the potential service providers to submit a number of referees and to make the effort to seek feedback directly from the referred customers.

2. IT capability

Whether you are a small eCommerce start up or a large multinational corporation you will invariably require some form of IT systems integration with your 3PL service provider in order for them to operate in an efficient and cost effective manner.

This will usually require an electronic interface between your operating systems in order to synchronize inventory , to send orders and to receive shipping information.

As part of the selection process you need understand  and evaluate the 3PL service providers capability to create and maintain this type of interface.

Ideally they have already integrated your operating system for one or more other customers and they can demonstrate a successful experience of having done so.

3. Growth potential

Obviously the main aim of any business is to grow.

The 3PL service provider that you select should also be capable of, or have the potential to grow with you.

This does not just mean they have the flexibility to provide a larger warehouse to hold more inventory and to support an expanding customer base or product offering.

It also means they have the capability or potential to offer other services that are not currently provided  in both the local market or globally if that is what is required to support your growth.

As further explained below, the relative size of the 3PL should also be taken into account when assessing growth potential.

4. Financial stability

The third party logistics (3PL) market is a relatively fragmented one.

Its participants range from global organizations to local operators all vying to provide international freight forwarding , customs clearance, warehousing and domestic transportation services to companies that have chosen to outsource these functions.

Given the multitude of options that will be available it is important to ensure that proper due diligence is undertaken to establish the financial stability of the organisation that will significantly influence the satisfaction of your customers and ultimately control the realization of your revenue.

Things to consider include an understanding of the ownership structure and funding, the recent financial performance , the currnet credit rating, the existing customer base for diversity and the level of insurance coverage.

5. Relationship equality

The relative size of any potential partner should also be considered.

If you are a small to medium organisation then it is probably better to seek out a small to medium 3PL service provider rather than selecting a larger organisation.

In this scenario both parties are as important and as reliant on the other to grow and succeed.

A large organisation will always be given priority over a small to medium organisation when the large 3PL service provider is faced with making a choice on which customer it will be better off serving.


The “Weekly Logistics List ” is a weekly email especially curated for logistics and supply chain managers and provides tips, tools and techniques for managing 3rd party logistics service providers.

Try it out. You can unsubscribe at any time and you can also rest assured that we do not share our list with anyone – ever!

To sign up to the Weekly Logistics List and to download a FREE copy of the my guide “52 Tips for Reducing Logistics Costs” please enter your details below.



Feel free to provide feedback on the above list or share your “Logistics Lists” with the 3plmanager.com community by making a comment below