The third-party logistics (3PL) sector is increasingly sophisticated and diversified. According to Logistics Management, the global 3PL market is projected to hit $1.3 trillion by the year 2024. The reason for this growth has been the need to meet the growing requirements of the e-commerce industry. As a result of this growth, the 3PL sector has recognized the need to develop deeper and more strategic relationships.
According to the 2016 Third-Party Logistics Study, about 75% of all shippers say that 3PL companies help their businesses find more effective and innovative ways of improving existing logistics systems. Also, 70% of them claim that their 3PL providers help reduce logistics-related costs. One of the biggest supply chain problems that exporting firms face is rising transportation costs.
However, 3PL providers can do more for a business than just help reduce costs. Since 3PLs share shipment information, integrate business processes, invest in tech, divide supply chain accountability and responsibility with their 3PL providers, these partnerships are becoming long-term investments.
In today’s environment, both sides in the partnership must share common objectives while also ensuring that planning, management, and execution are properly coordinated to reflect these interests. Red Bird Logistics presents you with a complete how-to guide on working with a logistics company effectively.
What are the Best Practices for Managing a Relationship with a 3PL Provider?
When it comes to logistics and working with a third party, your 3PL partner is there to help you create and maintain an effective and robust transportation management strategy. To engage in a successful and frictionless work relationship, it is important to view the relationship as a partnership. Failing to maintain a mutually-beneficial relationship with their 3PL provider is often the reason behind various failures in logistics and supply chain processes.
- Set Clear Expectations
As a manufacturer or distributor, you expect to improve production/distribution, satisfy customers, and ultimately grow as a business. These are some general expectations that stand as catalysts for each of your business decisions. Therefore, what you expect from your 3PL partner should mirror the needs of your supply chain. An effective logistics strategy has to be guided by your company’s objectives.
Define the types of services you need or want. Explain your expectations for how their services will improve your business. Describe your current processes and ask them to provide feedback.
Don’t withhold any information, but be completely honest in your expectations. Most 3PL companies ask their partners to sign an NDA (non-disclosure agreement) to keep all information safe and secure.
- Always Think About Risk Management
What happens in case of a disaster? Does your logistics provider have a process in place to ensure the timely delivery of your goods? Risk management is an essential part of every effective transportation management strategy. They should be willing to explore all potentially risky scenarios so that you can understand what they will do to protect your processes. If you feel like their logistics plan for addressing a certain issue doesn’t align with your company’s vision, you should communicate your concerns and discuss it. Your 3PL partner will respect your input during the creation of risk mitigation plans, which can always be improved and altered.
- Communicate Openly with 3PL Representatives
Typically, business leaders communicate with a particular representative of the 3PL company. This is usually the person they had the initial interaction with. The value of communication is immeasurable in business, but some business owners still fail to recognize that. With all the dashboards, technologies, and established KPIs that enable you to see all the information right away, communicating may feel less important. However, it is vital to improving your business processes continually. Make sure you create a communication schedule with specified times for conference calls and meetings from the very beginning of the partnership. Your MSA (Master Service Agreement) should contain the contact information of everyone important for you to know within the 3PL.
- Regular Performance Measurement
What does success look like for your company? What does it look like to your 3PL partner? What are their KPIs, and are there ways to work with them in order to reach your benchmarks? Perhaps it is about processing a given number of orders per day or a 100% customer satisfaction on fulfilled orders. Define the KPIs that your business uses to illustrate the success of its 3PL partner.
Communicate the KPIs to your 3PL partner and check in regularly to make sure that they are meeting them. Making performance and quality standards a part of the contract with your logistics partner is easy to forget (despite being one of the most important aspects of it). KPIs and benchmarks, as well as the ways of monitoring them, are standards that must be discussed when formalizing the agreement and revisited regularly.
- Incentivize Success
Defining KPIs and success metrics are great first steps in maintaining an effective relationship with your 3PL partner. If they are meeting their milestones and deadlines, you can incentivize them to go even further.
First and foremost, you need to schedule regular check-ins. Just because you’re outsourcing your logistics process to an expert logistics firm doesn’t mean you shouldn’t be involved in the process. You cannot always see the complete picture just by looking at the data. On-site visits make it easier to measure performance and discuss potential changes that your company wants to make.
Schedule regular check-ins with your logistics provider to examine whether everyone is living up to their commitments and address any issues or challenges. You can do it on a monthly or quarterly basis either over the phone or during on-site meetings. Regardless of the frequency or type of meeting, be sure to check in with one another.
Is your logistics partner running into recovering issues? Are there any challenges you should deal with to improve a particular business process? This is a partnership, so you should work together to find the best solution.
Upon seeing that your 3PL provider is going above and beyond to provide the best service to your company, you can incentivize them. For example, you can offer a bonus whenever they meet or exceed your success metrics. If they perform better, it directly affects your business positively, so this scenario will be a win-win for both parties.
- Your Employees Should Embrace the Change
Many companies decide to outsource functions, such as IT, human resources, and accounting. You’ve decided to outsource your company’s supply chain processes (logistical operations) to a third-party logistics company, but have you discussed that with your employees? They are the heart of your company and have spent many hours working to ensure that the company grows. Unfortunately, not all of them will be willing to trust your decision to outsource a critical part of your business operations.
That is where you should resort to change management. Change management refers to how management can effect implementation of new company processes. It may include training sessions, webinars, seminars, and conference calls. If your team members don’t embrace the changes you bring in, it can make the partnership with a 3PL tougher to handle. You should explain to them why you decided to enact the change and how it will benefit the company overall. Successful entrepreneurs are leaders, and they stand as a role model for their employees. If you seem to be under pressure or stressed by the 3PL partnership, your personnel will have a reason to doubt your decision. A 3PL partnership is there to make things easier, not more difficult.
- Do Not Expect More Than Reasonable
Trusting others with your business’ responsibilities, entering long-term contracts, and making purchases are often things that companies are hesitant to do. When it comes to collaborating with a 3PL, it is essential to understand what your 3PL partner can provide as well as that you may be required to adapt to certain changes. Working with a logistics provider will require your company to adapt to certain changes.
A 3PL partnership can reasonably improve a business. Still, many businesses fail to realize the limitations of a third-party logistics provider. For example, when it comes to customs processing, some of them can provide access to fast-track programs, but there will still be some delays. The crucial thing to taking full advantage of a 3PL is understanding what is reasonable and what isn’t. If you can see that, then your company is ready to start the process of finding and choosing a third-party logistics provider.
The third core concept involves how a 3PL can reasonably improve your operations. This seems redundant, but many companies fail to realize the limitations of a 3PL. 3PLs have limits, and while some may be able to provide access to fast-track programs for customs processing, there will still be some delays. The key to truly taking advantage of a 3PL is knowing what is and is not reasonable, and if you can make this distinction, you can be ready to start the process of looking for and selecting a 3PL to outsource logistics.
- Use a Strong Data and Software System
Freight processes can be more efficient when using the right technology. Your 3PL provider should understand that technology and data are at the core of any supply chain strategy. Data science, at its highest function, should help them integrate information between and within their systems.
For example, using cloud technology has proven to be an excellent way of helping shippers improve inventory management, increase visibility, and reduce costs. Shipping companies that can’t afford the technology they need to keep up with changing markets can also rely on 3PL to provide the latest tech. As for your company, it should offer data consolidation to help manage all aspects of your supply chain. You should also have a way of tracking and analyzing data in a usable and consistent way.
- Plan for Succession of the Partnership
Developing a strategic plan that includes priorities related to the dissolution or termination of the partnership is one of the most valuable elements of a partnership with a 3PL. Both parties are organizations with their own strategic direction and future. The time may come when the reasons for your existing partnership are no longer relevant. When this happens, it’s important to modify the partnership or even transform it to include a new logistics provider. Without dispute resolution processes and procedures for the eventual termination of the partnership, you might end up in court.
New Market Growth
To enter a new market, your company needs to build a new supply chain network, which is a time-consuming and expensive process. Instead of doing that, you can benefit from your logistics provider that likely already has a logistics network in the market you want to penetrate. That saves you the labor costs and time it would require to build a new supply chain and logistics system, allowing you to focus more on your core competencies. Also, it means you can go to market in that new area faster, which translates into a competitive advantage and increased profits.
Since a 3PL deals with transportation management processes, they can manage the transportation of raw materials to your factories and finished products to your customers or warehouses. Also, they can deal with product storage, pick and pack, order fulfillment, and returns processing. Since they are responsible for material handling and delivering to your customers, it is important to invest in building a good relationship with your 3PL.
A 3PL provider is there to help you improve your supply chain and create effective logistics processes. Learning how to work with a logistics provider more effectively is just the beginning of your journey to improving your supply chain processes, which is not a journey without a risk. With frequent communication to achieve common goals, your 3PL provider will become a valuable extension of your company’s team. Maintain a positive relationship with your logistics provider and stay engaged by following this how-to guide.
We understand and appreciate the power that new technology can and will deliver. However, in the search for one’s place in the market, it is still about relationships. Your company’s ability to develop a good logistics relationship is a prerequisite for its future success.
Redbird Logistics Services will work with you, no matter your needs. This ultimate guide about your logistics strategy is only the start. Our logistic services and supply chain solutions will be sure to cater to all of your requirements. We will work to implement the services you need, maximize the efficiency of your supply chain management and network optimization, and ensure customer satisfaction. With our real-time technology, we will provide you with complete visibility of your products every step of the way.
If you’re looking for a top logistics company, Redbird Logistics Services can help!! Contact us today!