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.

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