Lawyers have a maxim: If youre wondering if you need a lawyer, you need a lawyer. In the world of logistics, if youve asked yourself if youd be better off outsourcing your shipping and logistics, you should seriously consider it. And you should know what to expect from a 3PL (third-party logistics) provider.
Businesses succeed by focusing on their core business. Do what you do better than anyone else, and your businesses will grow. Outsourcing shipping and logistics allows business to focus on their core mission and better succeed against their competitors.
Outsourcing to a 3PL provider can help create a higher performing supply chain. Why? The same reason that you do what you do well 3PLs specialize in and can take advantage of a level of scope and scale that non-3PLs cant. 3PLs build the performance platform, the infrastructure, relationships and the skill set necessary to make logistics as efficient as they possibly can.
Four Aspects of Value
So you have concluded that your company would be better off focusing just on your core competencies now what? For businesses looking to make the move towards a 3PL provider, four questions should drive the decision to outsource. Companies should evaluate current or potential 3PL partners in their ability to provide:
1. Demonstrated expertise and proven performance-based results
A potential 3PL provider needs to inspire confidence. Any company that you seriously consider collaborating with should provide clear case studies to prove its ability to execute and achieve demonstrable results for a client with a similar distribution or supply chain challenge. A 3PL should be able to prove that it has successfully confronted logistics challenges like your company faces before you sign on the dotted line. Furthermore, these examples should include an accountability recipe a methodology or approach that makes clear how the 3PL and client measured results.
2. Clear and mutually agreed upon key performance metrics
Your 3PL should report line item detail of costs, quality and performance weekly to the Key Performance Indicators (KPIs) you develop together. This brings a needed focus on what matters and impacts the operation. A Cost Plus and KPIs structure creates a closed-loop type of accounting system for the actual costs associated with a given level of performance and allows you to measure real results.
3. An annual plan for cost-out and continuous improvement initiatives
One of the main advantages to partnering with a 3PL is its ability to provide cost savings that businesses cant achieve on their own while still maintaining a high level of service. 3PLs keep a close eye on the inter-relationship of costs and services. As service levels expand, costs can increase, requiring the 3PL to maintain a balance between implementing service levels that achieve your objectives within an economical cost structure. Since understanding and optimizing that balance is a 3PLs core area of expertise, it can quickly identify synergies between services and processes that result in efficient solutions. Because logistics are a 3PLs core mission, it makes it its business to do logistics the best it can, day in and day out.
An effective 3PL wont view this as a one-time event or a once-a-year focus. 3PLs should be constantly striving to identify potential cost savings in a clients supply chain not wait for the client to say what projects to work on. Six Sigma/DMAIC methodology is an invaluable tool to uncover and track improvements. A 3PL should also meet regularly to prioritize these cost-out/improvement opportunities and manage the entire program, from funding to approval, until we reach the desired results.
4. Demonstrate an uncompromising focus on a true partnership
As businesses work to expand their markets and increase their customer bases, a strategic partnership with a 3PL provider who understands their business cycles is an invaluable asset. One of the reasons that 3PLs can act as strategic partners is that they bring the benefits of scope and scale to the table.
By leveraging their scope, 3PL providers are able to act as a highly specialized extension of the companys own team, focusing on solutions that will drive down costs, increase efficiencies and help identify opportunities for future development. Most 3PLs make significant investments in their core capabilities to develop the people, processes, technology and infrastructure to support the array of services they offer. Combining these capabilities with the business acumen and significant industry expertise allows 3PLs to provide their clients with scalable solutions that support their distribution requirements.
Economies of learning, which are most often linked with organizations experiencing high growth, enable a consultative 3PL organization to draw upon its myriad of experiences across many industries and applications to develop unique solutions, tailor-made to optimize your supply chain and logistics processes for today and into the future. By leveraging the economies of learning of a 3PL provider, your company is able to concentrate its focus growing what you do best your core business functions.
Stephen Olds, Executive Vice President of TMSi, has over 18 years as a logistics practitioner. He can be reached at stepheno@tmsilog.com or www.tmsilog.com.
