Home' MHD Supply Chain Solutions : MHD Spt-Oct 2015 Contents The various companies that can perform this
work do have specific software applications
that usually have some form of proprietary
knowledge attached to them. This is one of
the reasons you are paying them. The software
being capable is an essential prerequisite,
however, on its own it is insufficient.
The two most successful 3PL in which I have
been involved both had software systems that
the client company did not have, could not have
developed, and had better use for its funds
than trying to develop them. This software was
not why these two implementations worked.
One of them was actually performing in a fairly
mediocre fashion when I first encountered it.
The key to the success of the 3PL operations
was the skills and collaboration of the human
beings in the key operational roles of both the
client and the 3PL business.
Your board may buy the 'brand' of the 3PL
company. The project does not work based upon
the brand, it will work -- or not -- based upon the
relationship of the key people in both compa-
nies, who are charged with making it work.
This group needs to be collaboratively focused
on a great outcome for the external customer of
the client company, AND be commercially astute
for both of their companies. This is not always
easy to achieve, and involves the two groups
developing a high level of trust. The stereotypical
adversarial purchasing approach to this supplier
relationship will kill you.
The saving come through
not a one off change
Usually there is an expectation that the initial
changeover to a 3PL operation provides some
immediate benefits. You no longer have to
maintain an obsolete and unreliable forktruck fleet.
A few people who have plodded along for years in
your logistics operation are no longer there. The
reliability of your deliveries (inbound or outbound,
or both) is improving. This is just the start.
When structuring your 3PL contract, building
into the contract an incentive for both parties
to collaborate to improve performance even
further is essential. This will require some form
of gain sharing and probably an open-book
approach to the cost structures and opportuni-
ties in both enterprises.
The best 3PL project I have ever been
involved in continuously lifted service levels,
coped with new products and emergencies, and
reduced the cost base by over 10% each year.
The approaches used to deliver all of this were
not envisaged when the first three-year contract
The process to identify and work collabora-
tively on future improvements was. Build contin-
uous improvement into your contract.
Financial controls must be robust
Measurement matters! A feature of 3PL
can often be the use of consignment stock,
where the customer party owns the goods
when they are delivered into the customers
facility. In a typical environment where 3PL is
worth the effort, this can be many thousands
of transactions every day. All of these
transactions must be recorded, auditable,
checked, and traceable. If they are not, the
financial impact on you, the 3PL provider, and
the supplier base is mind-bogglingly huge. If
you have 10,000 transactions a day -- not a
large number for an inbound and outbound
3PL project -- and 0.1% are faulty, that is
10 failed transactions a day. If each failed
transaction has an average value of $250, (a
very low assumption,) this builds up to a loss
of over half a million dollars over a standard
The data integrity, handshaking and tracking
are absolutely crucial.
The trust of suppliers is essential
Your suppliers have been dealing with you for
years. Suddenly, there is a third party imposed
upon them who will be handling all of the
transactions with them, taking control of their
product, and providing a point of separation
between them and you, their precious customer.
This third party has control of their product.
The third party will likely be aware of many
aspects of their business. The third party can
sometimes have a separate division of its
company that directly competes with the supplier.
These issues raise many questions for the
supplier, especially if they have not been part of a
3PL system before. Typical questions include:
• What does this mean for insurances for loss
• Who has title of the product?
• Who is my contract for supply actually with?
• Who is actually paying me for my work?
• If you go broke, whom do I sue?
• How are quality issues handled?
• How do design changes occur
• Am I about to be told to lower prices again?
• How can I trust them?
The suppliers are critical to your operation.
Many of them provide very unique components
to you that are not easily or rapidly replaced.
Building the trust of a key critical mass of sup-
pliers is essential, and will require a consistent
and considerate communication strategy.
Building your 3PL plan so that the supplier's
lives become easier should be a key consider-
ation for you. Talk to them about what it is about
doing business with you that is difficult, and see
if you can improve that situation with the 3PL
project. Make sure you deliver on the promises!
MHD SUPPLY CHAIN SOLUTIONS --- SEPTEMBER / OCTOBER 2015 57
FREIGHT, DISTRIBUTION & 3PL
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