Optimizing 3PL Relationships
The 3PL is an increasingly important part of key manufacturing and retail sectors, and business is going very well. A 2014 study by Capgemini consulting found strongly positive statistics for many aspects of the 3PL/customer (or “shipper”) relationship. The survey found that logistics costs were reduced by 11%, inventory costs were reduced by 6%, and there was a 23% reduction in average fixed logistical costs. Both the 3PLs surveyed and the customers they served expressed satisfaction with their partnerships, with 70% of shippers and 69% of 3PLs giving high ratings to the openness, communication, and transparency of their partnerships. A recent SCM advisory survey of 557 shippers also suggested strong positives for 3PLs, with 50% of respondents rating 3Pls as “good” or “excellent” at core qualities like reliability and speed.
Despite these positive signs, however, there are still several ways in which the 3PL/shipper relationship could be better optimized for future partnerships.The key areas for potential improvement are innovation, collaboration, and security.Many shippers noted that it was difficult to get 3PLs to accept innovation as worth the risk of potential new costs, while others admitted that shippers need to do a better job of communicating their desire for greater innovation, and to incentivize the risk 3PLs might take on in such situations.
We believe that thinking more about these three areas, and how 3PLs and shippers can work together to create stronger partnerships in these areas, can allow each side of the relationship to plan for a more profitable, long-term future.
As one respondent in the SCM survey put it, “Innovations don’t typically sprout overnight.” Whereas in the early days of 3PL development, the outsourcing model for shipping and warehouse storage was itself an innovation (as were later IT breakthroughs around mapping order management and fulfillment), the rapidly changing and increasingly global nature of the 3PL/shipper relationship demands new modes of innovation and creativity. The aforementioned Capgemini study suggested harnessing Big Data as one way of mapping and rethinking chain supply problems; others have suggested rethinking partnerships around talent management as another source for untapped creativity and new ideas.
In order for these or other sorts of innovative ideas to sprout, the shipper needs to make it worth the 3PL’s risk. One problem cited in the SCM survey is that a “self-perpetuating cycle” of low risk/low innovation occurs when 3PLs believe there will be no cost savings payoffs in implementing new strategies. In order for real innovation to occur, there needs to be a strong sense of…
Clearer communication about the nature of a shipper’s business can provide one pathway to innovation, as can providing incentives for new processes or technologies, as can the willingness of shippers to not put a given 3PL partner “in a box” when it comes to the services or ideas they could provide. The SCM survey suggests that horizontal collaboration (manufacturers sharing assets for mutual benefit) and supply chain sustainability (integrating environmentally sound, cost-effective changes around risk and waste costs) are also often untapped by 3PL/shipper relationships. These and other outsourcing innovations are all enhanced by genuine strategic partnerships between 3PLs and shippers that allow for an exchange of ideas and talent. Doing so will allow 3PLs to innovate while budgeting to economies of scale when it comes to procurement, and thus find a strong balance between value and pure cost.
Technology, Risk, and Security
One 3PL consultant suggests that investments in Transportation Management Systems (or TMS) could be one way to strengthen relationships with shippers (the Capgemini study found that only 28% of shippers outsource their transport planning and management). It is important, though, to make sure that 3PLs are flexible in their billing capabilities, and utilize a configuration setting that can work across multiple systems, as those of their shippers might vary. It’s also important to utilize a TMS that can work for multi-mode, multi-leg, time phased planning and execution. This can help predict potential problems over month-long (or longer) shippings. 3PLs should also utilize a system that provides maximum security for a shipper’s specific information; particularly for 3PLs that work with multiple clients, it’s important that rivals cannot see each other’s material and billing information. While a recent Accenture study suggests that 3PL transport management savings might vary according to business and capabilities outsourced, it also suggests that “shippers must view the situation through the lens of risk management. And they must move quickly—because market conditions will continue to tighten, threatening shippers’ competitive position.”
A strong 3PL/shipper partnership that focuses on improving collaboration and innovation in order to harness new processes can best face the risk of shifting markets and tightening costs.