Successful 3PL Relationships
“I think this is the beginning of a beautiful friendship.” That line, spoken by Humphrey Bogart to Claude Rains in Casablanca, sums up the hope of every business entering into a relationship with a third-party logistics provider (3PL).
And make no mistake: it is a partnership, not merely a business agreement. You will be sharing closely-hidden corporate information, customer data, and your supply chain – the very lifeblood of your business – with the 3PL.
This information-sharing is critical: Inbound Logistics magazine suggests that the primary reason that relationships with 3PLs fall apart is a failure to communicate.
This blog post will discuss how you can make the most of your relationship with your 3PL, how to communicate effectively with your 3PL, and how to set terms and standards up front to ensure that your partnership will be a success.
Step 1: Ensure that your 3PL understands your business.
This, above all else, is key. You must make sure that the 3PL you choose analyzes and understands your business processes, and can duplicate the logistics aspects using its own resources.
Your RFP is a good start to outlining your business requirements, but you should consider inviting the 3PL into your business to see for itself how it works.
Once your 3PL fully understands your business requirements and the required service levels, you can move on to set KPI expectations as concrete measures for those service levels.
Step 2: Set KPI expectations.
If you already have a supply chain integrated into your business, then you know that metrics and key performance indicators (KPIs) are vital to your company’s success. What is not measured is not known. If you don’t know exactly how your business is operating, that’s a recipe for failure.
At the outset, it’s extremely important to set standards for what you consider acceptable performance – and the 3PL must agree to them. Whether it’s inventory accuracy, shipping and receiving turn times, facility space utilization, or transit times, you and your 3PL need to draw up a list of what KPIs are to be monitored, and what bounds they should fall within.
This is where your partnership with your 3PL can stand or fall. It’s critical for you to lay out your expectations and what you consider to be success clearly to the 3PL, so there can be no confusion later on.
Step 3: Set up regular KPI reviews.
You and the 3PL will need to review the KPIs on a regular basis. Whether they’re communicated via report or in-person meeting, the KPIs are your X-ray into how the 3PL is doing. You may want to receive KPI reports from the 3PL as often as once a week at first. Again, regular, thorough communication is key.
Step 4: Set up an issue resolution process.
Problems will happen – it’s the nature of all business. The key is to plan for these issues from the start, so they don’t drag everything to a halt when they do happen.
You will need to work with the 3PL to determine how to resolve any problems that arise. Consider who at the 3PL should contact your business, and which contact(s) at your business need to be informed of the issue.
What kind of timeline is involved? Can the 3PL notify you within 24 hours? Do you require a quicker response?
Which team within your company will need to work with the 3PL to resolve the issues? Does it depend on whether the issues are related to the goods, their delivery, or the warehouse?
You may ask the 3PL to design a standard issue communication form so that you can be sure they will capture all the information you need.
Don’t expect that you will have to resolve the issue yourself; that’s what the 3PL is there for. In fact, if you’ve chosen a 3PL with deep expertise and experience in logistics, you can rely on their knowledge for handling the most common problems, which they’ve likely already run into in the past.
Consider this template for a standard way to identify, analyze, and resolve logistics problems:
- What is the problem?Set out exactly what the problem is, using the information provided by the 3PL (for example: goods are damaged when customers receive them).
- What is causing the problem?Analyze the problem and list the factors that are causing it (for example: goods are not being packed well). This may take some time to investigate and determine, especially if there are multiple causes.
- What are potential solutions for the problem?Use standard brainstorming techniques to come up with a variety of solutions to the problem (for example: change how the goods are packaged, or how they are handled).
- Can you break the problem up into smaller pieces and find solutions for each part?Sometimes problems will have multiple causes. It may be easier to break a problem down into its different components and find solutions for each of those, rather than try to create an overall blanket solution (for example: replace the packing material, use more packing material, or instruct warehouse workers on proper package handling).
- Which of the potential solutions will you try?Determine which solution is a) most cost-effective and b) has the greatest chance of success. You may want to limit the changes you make to one change at a time, so that you can determine which factor successfully solved the problem.
- Implement the solutions.Ensure that you have metrics in place to determine whether or not the solution(s) worked.
- Document the solutions for the record.If the solution was successful, write it up formally so that you can refer to the solution in the future. If the solution was unsuccessful, try the remaining solutions, or go back to the drawing board and return to Steps 3-4.
Regardless of which template you end up using for issue resolution, the key is to leverage your strengths and the strengths of the 3PL wisely.
Your strengths are knowing your business inside and out, understanding your product and your customers, and having a clear vision of the end product of the logistics outsourcing process.
The 3PL’s strengths are its experience and expertise in logistics, its ability to provide you with objective, third-party analysis, and its ability to measure KPIs and log errors as you both work towards an efficient outcome.
Clear expectations and communication throughout the course of your partnership with the 3PL will ensure a “beautiful friendship” in a business sense – both productive and mutually rewarding.