Dear Miss Lonelycarts

Mar 01, 2004 10:30 PM  By

It’s not always easy to communicate with your third-party logistics providers. Most of them are more comfortable in front of their computer screens or in the warehouse, taking care of business. “Those of us who are good at logistics, at the business of moving stuff around, are not necessarily the best relationship managers,” confesses Bill Gates, CEO of Standard Logistics in Columbia, SC, a subsidiary of UTi Worldwide Inc. Standard works hard to overcome that tendency by posting several relationship managers to a given account, each of whom concentrates on a different level of the business. “In our business, relationships are critical, and when a person leaves a company, your business is at risk,” Gates says. “It just makes good business sense and it does facilitate communications to stay networked at different levels of the organization.” But if your 3PL isn’t so progressive and is more the strong, silent type, what should you do? We asked several experts in 3PL behavior about the keys to getting along with your 3PL, and how you can use those to cement strong relationships.

Dear Miss Lonelycarts: Every time I get into a new 3PL relationship, something goes wrong. What do 3PLs really want, anyway?

A long-term commitment, for one thing. Robert Delaney of the Council of Logistics Management, the St. Louis-based author of CLM’s annual State of Logistics Report, says that companies that frequently rebid their contracts are hurting the long-term prospects of the industry. “They’re using these guys like Kleenex,” Delaney says bitterly.

While demand is high for certain kinds of outsourcing, and most companies are convinced now of its benefits, Delaney sees few genuine partnerships being created — and he believes that long-standing partnerships are where the third-party outsourcing model creates value. “The longer you work together and the closer the relationships become, the better outcomes you get. It’s that simple. You’re not going to get the same outcome if the day you give somebody a contract you’re already starting to rebid the process,” he says.

Dear Miss Lonelycarts: I have a problem and nobody can figure out how to solve it. My colleagues think we should hire someone to fix it for me. Is this a good idea?

No. In fact, several experts say that it’s the first half of a classic recipe for disaster. Cliff Lynch, of CF Lynch & Associates in Memphis, says that the most common problem in outsourcing is that “a company tries to outsource something that they don’t totally understand how to do themselves to a company who in their zeal to get the business commits to something that they don’t know how to do.” Or as Gates of Standard Logistics puts it, “If clients are trying to outsource a problem, they’re going to end up with an outsourced problem.”

Dear Miss Lonelycarts: My 3PL thinks I should move into his place, but I’m not sure. What should I do?

Most 3PL gurus say that you need to make a real commitment for your partnership to work. “You just about have to jump in the pool,” says Ken Ackerman, president of K.B. Ackerman Company in Columbus, OH. “Of course there are two ways to do it. You could have the contractor come into your building and run your warehouse for you or you could go into his building. Probably the advantage of controlling the real estate, having it be in your building or a building that you control, is if things go wrong you can throw him out — you don’t have to move.”

Dear Miss Lonelycarts: Where should I look for the Right One?

Directories such as Richard Armstrong’s Who’s Who in Logistics are a good resource to find which of the country’s 1,000 3PLs is right for your firm, but some experts recommend relying on word of mouth. “Peers, partners, and professionals are your best sources,” says Rick Hallal, president of Cleveland-based Logistics Development Corp., a logistics consulting firm. “You can go drill the directories and do desktop stuff in terms of priming some of the thinking,” he says, “but your contacts are probably going to have the best insights.”

Dear Miss Lonelycarts: Why should I worry about finding the “right” 3PL for my warehousing? Aren’t they all alike?

“Fulfillment is lots of little tiny shipments and lots of small packages, and it’s a far tougher kind of warehousing than handling pallet loads of fertilizer or something like that,”says Ackerman. “So you can get a bulk warehouser who is competent to do bulk warehousing of agricultural products or pig iron or something and you throw a fulfillment thing at him, you’ll drive him right to the wall. It’s a harder kind of warehousing to do.”

Love’s Labor’s Cost
3PL SERVICE GREATEST COST BENEFIT
% of respondents
Warehouse management 30%
Rate negotiation 16%
Shipment consolidation 14%
Freight payment service 10%
Direct transportation service 10%
Fleet management/operations 8%
Carrier selection 6%
Source: Northeastern University/Accenture
Note: Survey of 500 U.S. manufacturers

Armstrong says that the business is now increasingly concentrated among the 20 largest players. He speculates that some players who have under $100 million in net revenue may face tough times ahead. And Lynch says that with warehousing systems alone running $50,000 to $200,000, it’s becoming a more expensive business to enter all the time.

But Tom Nightingale, a spokesman for Schneider Logistics in Green Bay, WI, is not so sure about the trend toward consolidation. “I think you’re going to see a continued metamorphosis of that market. I don’t know that that means a trend toward bigger, or a trend toward smaller, it just means a trend toward continual change.”

And most experts say that there are some good niche players and probably always will be. “There’s no relationship between size and quality in this industry,” says Ackerman. “There are some very small guys who do a superb job.”

Dear Miss Lonelycarts: What should I watch out for when I get a bid for services?

When the bidder promises too much. “These people who offer outsourced services aren’t miracle workers,” says Ackerman. “Because they’re specialists, they sometimes can be 5% or 10% more productive than the guy who doesn’t specialize in this, but they’re not going to do it for half the price. It’s not realistic.”

Hallal agrees that extremely low bids are cause for suspicion. “I find that generally if it’s too low it’s one of two things: Either they have a great mousetrap, or they’re clueless,” he says.

Dear Miss Lonelycarts: When a contractual dispute starts, what’s it usually about?

An unanticipated change in volume is one common problem. Lies are another. “A misrepresentation,” says Hallal charitably. “Any kind of variable that was conveyed throughout this process that either party looks at later and they say, hey, you know, that wasn’t what we were thinking about, or that’s not what we contemplated when we entered into this.”

Dear Miss Lonelycarts: How can I improve my odds of making sure our relationship works?

“Have a clear understanding of what your expectation is,” says Hallal. “Are you thinking, ‘Gee, I’ve got to enhance service, or gee, I really need to work to refine this process and I can’t focus on it, so I want to have a partner help me focus on it to drive out costs?’ You really should try and frame those [goals]. You don’t necessarily need to be empirical about them, but you must have a good idea of what you’re hoping the process is.”

Dear Miss Lonelycarts: What do 3PLs look for in a client, anyway, besides a checkbook?

Gates of Standard Logistics says that he looks for clients who have a reputation for working with their logistics provider to solve the issues that come up — clients who are really looking to create a partnership. “We’re all going to have bumps in the road, we’re all going to have problems, [but] they’ve learned how to solve those and work through those and get to the root cause and collaborate,” he says.

And the degree of desperation varies by firm. “Pricing is still terribly competitive,” says Gates. “There’s a lot of pressure on margins because of the excess capacity and simply because of the numbers of players.” Firms that own their own real estate are hurting because the decline in manufacturing has emptied a lot of warehouses, but business is fairly good at asset-light firms such as Standard or Schneider National.

“Those who have an asset-based model — in other words, they own a lot of warehouses or lease a lot of warehouses and hope that they fill up — those are the ones that are hurting,” says Gates. He adds that his business was up 20% last year, and that there’s a good flow of requests for proposal coming in now.

Dear Miss Lonelycarts: I’ve met someone who says he wants to be my lead provider. Is that a good idea? Should I trust one company to handle the whole thing for me?

The advantage of working with a lead provider is that the company can help you find and manage your entire distribution strategy, while giving you arms-length advice on what makes the most sense for your business. Most asset-light lead providers are also reportedly in better financial shape than asset-heavy logistics firms, who have to worry about keeping their warehouses filled — a tall order in an economy where inventory keeps getting reduced and much of the manufacturing base is heading to the Far East.

Dear Miss Lonelycarts: I’ve heard that in Europe, companies have better relationships with their 3PLs.

When it comes to third-party logistics, some experts say that European companies do have a certain savoir faire in their outsourcing relationships that we don’t have. CLM’s Delaney theorizes that it’s just something about differences in our cultures. “It’s part of their culture and it’s never been our culture,” he says. “We started out with canals and railroads and economic regulation, which meant that the government was in the middle of everything.”

The Europeans, on the other hand, have been running third-party logistics firms for hundreds of years, Delaney says. Think of the British West Indies Company and the Dutch West Indies Company, he points out — bringing settlers to the Americas, importing tobacco on the return trip. “Those were third-party logistics providers if you think about it. That was 1620, but they were bringing people to the country … they were finding markets for the crops. And they were making money on the margins.”

Bennett Voyles is a business and financial writer based in New York City. He can be reached at benvoyles@yahoo.com.