5 Steps to a Better Third-Party Logistics Relationship

In assisting multichannel companies decide on third-party logistics and contact center selection, we have found many have been able to grow their businesses profitably by outsourcing. Our blog “10 Ways A 3PL Can Help Multichannel Companies Operate Profitably” shows how many of our clients use them.

Outsourcing is not for everyone. Many clients feel they want total control of customer service, and that they can deliver a lower cost per order by handling fulfillment internally.

But for those that use a 3PL, here are 5 ways we have seen a number of clients get the most out of the outsourcing relationship, including for contact center services. Some of these points need to become part of the negotiation process and setting of expectations from the beginning.

Creating a “Win/Win” For Both Parties 

I was talking with a very large 3PL recently about a prospective client, who said their average client has been with them 11 years. They have dozens of facilities and millions of square feet of warehouse space in the U.S. and offshore. Think about that for a minute – that says a lot about finding the right partner in a time when quality, service and low cost are key to your business, profitability and ROI for your stakeholders. 

3PL

Admittedly, the word “partnership” has become overused. But are you truly looking for a long-term partnership and a platform to grow your business on, or for a low cost per transaction service?  Here are a couple thoughts about this:

  • Many smaller 3PLs can only take on a certain number of clients and process a given number of orders. Understand their business drivers. For example, in fulfillment don’t turn their DC into a parking lot for slow-moving product; this may lead to higher costs. Timely liquidation of overstock will be best for your business by creating lean inventories.
  • From your perspective, what are the near-term and long-term services you need to grow your business? These include changes in merchandising and forecasting systems and business intelligence applications. Are there new systems and services your 3PL partner will invest in to provide better services for your company?

Creating a true partnership and win/win scenario is the end goal; what do both parties anticipate and desire?

Measuring Performance 

We often see companies failing to make quality and performance standards part of the contract. For sure they are discussed in the sales process, but need to be formalized as part of the agreement.

You’ll definitely have daily discussions about how the 3PL is getting the work out. However, senior management mostly likely delegates the day-to-day oversight to a company liaison. It’s often easy to lose touch with the big picture performance against the standards. As part of the negotiation process specify the benchmarks, how they’re defined and how they’ll be monitored. What will you get in terms of a dashboard or summarized operations reports?

Some contact center metrics include call abandonment rate, service levels and cost components. In fulfillment they include freight cost plan to actual, error rates, service levels against the standard (e.g. times for receiving to put away, order turnaround and percent of orders shipped same day, returns processing) and cost per order.

As part of the negotiation process, establish a scorecard approach to reviewing performance monthly or quarterly. Have a monthly 30-minute telephone review with management. Each team should review the scorecard and keep each other updated.

Regular On-Site Visits 

You can’t always get the total picture from the data. We have found that many users of 3PL services don’t make on-site visits frequently enough. Some smaller users get more attention for their account by getting to know people working on their account personally.

On-site visits may also make it easier to discuss major changes your company wants to make to procedures and policies.

Another aspect to consider is how to continually keep the service provider up to date as your merchandise assortment changes. In the contact center this includes agent training. For fulfillment this can include any changes in packing and shipping for new categories of products, and finding ways to protect items from damage without excessive dimensional weight charges.

Provide Short-Term Planning and Forecasting 

Many 3PLs require ongoing forecasts (receipts, orders, shipments, etc.) a couple months in advance within agreed upon tolerances. For companies that have not done this well it might be seen as restrictive, but it’s the only way the 3PL can ensure it has the right number of people available to service your account. Better planning will also help your business.

Involve them in Your Long-Range Planning 

Involve the outsourcing provider in your long-range planning. This includes early involvement in discussions about possible acquisitions; new brands; changes in volume; major changes in marketing; changes in merchandise assortment that may affect dimensional weight; and changes in analysis that may lead to IT upgrades.

These five activities will greatly enhance your experience with a 3PL partner, enabling them to provide quality services at your anticipated costs.

Curt Barry is founder and president of F. Curtis Barry & Company

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