How to Gain More from a Logistics Company Relationship
All companies work with an outsourced logistics company in some way. Whether we are buying small-package delivery, truckload services or warehousing, it is unlikely we can internalize all the required services. To meet our logistics challenges, we develop collaborative relationships with a number of suppliers, from trucking companies to freight forwarders to third-party warehouses. Economic conditions are changing with dynamics of these relationships, which typically have followed business cycles, especially in transportation services. To meet current challenges, many companies are moving toward hiring a third-party logistics company to manage the entire logistics function for the shipper. Although this third- part logistics company approach can bring significant benefits, it must be implemented methodically and with due diligence.
Collaboration with a third-party logistics company is enormously important if we are to achieve our lean goals and execute effective logistics strategies. In order to develop meaningful and successful strategies for a future within this changing environment, we must be persistent and determined to learn new ways.
In most industries, transportation costs typically represent the lion’s share of total logistics cost. As a consequence, we tend to manage transportation cost above all others. The much said, there is a tremendous need to focus on transportation issues. Transportation costs follow the cycle of trucking rates, fluctuating dramatically with the variation in capacity. Although many companies talk about partnerships, the unspoken reality is that capacity drives the price. This seems reasonable; the shippers win for a time and then the carriers and service providers win in a sellers market.
Third-Party Logistics Company – The Importance of Sharing the Same Values
Choosing a third-party logistics company (3PL) is a serious strategic sourcing decision. In most cases, when a company considers outsourcing to a 3PL, it is making a decision to give a piece of its business to the 3PL. This decision has lasting impact, as the 3PL will have direct communications with the company’s suppliers and customers. This direct contact means that the 3PL be an agent for the logistics organization. As an agent, the third part logistics company must share the same values and customer service principles as the organization itself.
The third-party logistics industry is growing consistency at a double digit pace each year. Unfortunately, as new third-party logistics company relationships are born, existing ones are disintegrating in a milieu of failed promises. These failures tend not to be the fault of any one party but rather the result of poor planning and lack of effective strategies. The main reasons why these relationships are doomed from the state are:
- The customer did not give accurate information from the beginning, which resulted in the 3PL unknowingly under pricing the contract in the initial proposal.
- The 3PL was so eager to get the business that it did not consider all cost and operational components and therefore underpriced and overpromised.
- The customer thought all aspects of the logistics function could be left to the 3PL.
- The 3PL took on new business without the resources to implement and operate the account effectively in the long term.
- The customer did not set expectations, standards, and measurements to define success in the relationship.
- The 3PL have no formal continuous improvement infrastructure in place, which resulted in a stagnant relationship after the initial state-up phase.
- The relationship was based solely on cost-reduction goals, which are virtually impossible to calculate, confirm, or deny after the operation begins.
When we review this list, it is apparent that many third-party logistics relationships begin for the wrong reasons. Successful business relationships do not live and die by cost reduction. The successful relationship is driven by common goals, shared vision, and complementary expertise. A successful third-party logistics company will bring skills and talents to the relationship. Skills and talents are not technology or trucks or trailers; they are the expertise of the people involved. Successful 3PLs will employ people who are professionals in their field, experienced and talented logisticians. This is crucial, in particular, for lean organizations seeking to outsource logistics, as few 3PLs understand lean.
Posted by LeanCor Supply Chain Group
LeanCor Supply Chain Group is a trusted supply chain partner that specializes in lean principles to deliver operational improvement. LeanCor’s three integrated divisions – LeanCor Training and Education, LeanCor Consulting, and LeanCor Logistics – help organizations eliminate waste, drive down costs, and build a culture of continuous improvement.Facebook LinkedIn Twitter Google+