There are many reasons why a manufacturer or retailer will choose to outsource its warehousing and fulfillment operations to a third party—from increased speed and flexibility to specialized skills and capacity. And here-to-stay trends like e-commerce make it an even more appealing option. However, what many shippers fail to realize is that making the decision to outsource is not the hard part.
[Editor’s Note: The COVID-19 pandemic-induced upheaval of nearly all aspects of your distribution network has surely taken its toll. In the best of times, a good relationship with your 3PL partner is a valuable asset. Because of coronavirus, these relationships become more important than ever.]
Companies are increasingly outsourcing their operations to 3PLs—often without a clear sense of what to expect in terms of clear-cut or long-term expectations. My team has witnessed this both from supporting 3PL implementations as well as helping “insource” failed 3PL experiments.
This is true even if the company has done the best due diligence possible. Some firms rely on Gartner’s Magic Quadrant to find a 3PL that offers a complete set of integrated services with consistent and reliable availability, wherever needed, at a competitive price. Others painstakingly craft the greatest RFP in the world, clearly defining operational needs, requirements, and expected service levels.
Whatever your sourcing journey, there are common stumbling blocks at the beginning of every shipper/3PL relationship that you should keep an eye out for and address with these three process-oriented steps:
1. Eliminate the gap between the perceived scope of work and the real one.
Every shipper that prepares an RFP for 3PL services has its own notion of how its operations work—that is, a perceived view of effectiveness and what it needs from a 3PL in terms of service and value. However, most shippers (especially those who haven’t worked with a 3PL before) are so close to their own operation that it can be hard for them to be objective about their true needs and requirements. Plus, the operation in place today may not be the operation that’s needed to meet future requirements.
This lack of objectivity forces potential 3PLs to “interpret” the bid requirements. And down the road, if this gap isn’t addressed, it will ultimately lead to implementation delays, a rocky launch, and an easily avoided post-launch recovery period. If you are struggling to paint the whole picture and/or stay realistic during the RFP creation phase, consider working with an independent third party as they will be able to develop a non-biased view of your current and future needs and the true requirements the 3PL must design their proposed solution against.
2. Collaborate more than negotiate.
Too many parties approach the contract negotiation table ready to fight for the biggest slice of pie, and quickly forget their reasons for wanting to find a partner in the first place. As you finalize the terms of the award and define the implementation and operating conditions, stay focused on creating a pragmatic and mutually beneficial arrangement. This collaborative posture becomes even more helpful if there is an unaddressed gap between your actual operations and what is presented on paper, as discussed above.
In either case, be diligent about presenting an accurate view of current and future business plans. And – if possible – allow your chosen 3PL partner to visit a representative facility to better understand your operations. These are both precursors to being able to achieve integrated innovation.
3. Evolve together.
Before the relationship rubber hits the road, plan for and set reasonable expectations for the transition period. Depending on the complexity of your operations, it could take anywhere from six months to three years to build a good foundation. During this period, a 3PL must be free to make mistakes and try pilot programs. Two-way communication and agreed-upon metrics should be established to pave the way for innovation.
Innovation can come in many forms—from small operational ideas all the way through to major findings, ideas, and breakthroughs. Integrated innovation also involves physical meetings and brainstorming. This is where you can take the relationship to the next level. Your 3PL can demonstrate that they have your best interests in mind and want to make you better and more competitive. And you can reaffirm your commitment to your 3PL and stay invested and engaged in the relationship.
Together these steps will help you and your 3PL to get—and stay—on the same page. And over time build a solid partnership that is mutually beneficial.
Relationships can be tricky, but they don’t have to be. Chainalytics’ combination of top supply chain talent, proven methodologies, and proprietary market intelligence consistently puts our clients ahead of the curve. Reach out if you need help deciding whether to outsource your operations and, if so, how to set your 3PL relationship up for success.
Kirk Waldrop is Vice President of the Supply Chain Operations practice at Chainalytics where he is responsible for leading engagements related to logistics and operations strategy, facility design and optimization, 3PL advisory and selection, warehouse technology advisory and selection, order-to-cash, procure-to-pay, customer segmentation, and transformation planning and implementation.
