Putting the pieces together

Once you've selected a third-party logistics provider, what steps can you take to ensure the implementation goes smoothly? Here's advice from the providers.

By Tony Seideman -- Logistics Management, 1/1/2000

In today's "plug and play" environment, where so many of us expect everything to be simple, quick, and easy, making the switch to third-party logistics (3PL) offers a special challenge for many companies. Whether a company is turning over management of a single warehouse or its entire distribution system to an outside contractor, developing an effective third-party logistics relationship can require enormous amounts of homework and preparation on the part of both vendor and shipper.

Although some may question whether it's worth all that time and effort, those who have been through the process know how valuable it is. It is possible to simply splice third-party logistics into a company's operations, experts say, but such an approach almost guarantees buyers will get less than full value for their dollar. Instead, a company must create service and support structures that will allow third-party providers to do the best possible job.

The process of implementing a third-party logistics arrangement will be unique to each company, but there are several important considerations that can help every shipper make the most out of these relationships. Here are some recommendations on how shippers can make a 3PL implementation go smoothly.

Clearly understand your requirements. Putting a third-party logistics provider to work requires shippers to step back and conduct an exhaustive self-examination. That means "taking a look at the overall function of the supply chain--not just one specific area," says Michael Power, a lecturer in supply chain management at Boston's Northeastern University. Dan Ludwig, vice president-operations, chemicals sector, for third-party provider Exel Logistics of Westerville, Ohio, expands on that point. For logistics managers, he says, this should include looking at the way goods are handled "from raw materials right to the end consumer," including customer service.

The purpose of this exercise is to learn exactly how a company operates, what its needs and goals are, and how well its current operations are meeting those needs and goals. Only after a company truly understands its own operations can it reap real benefits from a third-party service provider.

The 3PL can and should participate in that analysis, says Eric Wolfe, a senior vice president at Cardinal Logistics of Concord, N.C. Without that knowledge, it would be impossible to design operational systems that improve on or work efficiently within existing organizational structures. "What we do is document and blueprint in the implementation phase exactly what processes, what services, what functions, and what job descriptions are involved," says Wolfe. This step is time consuming: Companies that hire 3PL providers must be willing to allocate the necessary time and personnel first to analyze and explain what they do, and then to look at the provider's detailed operational plans to make sure they're on the mark, he advises.

Get backing from the top. Putting an effective third-party logistics program in place will affect every aspect of a company's operations--from sales and marketing to billing and accounting. This may require making changes in corporate policy, culture, and behavior--and to make that happen, the top executives have to be fully behind the program.

How high up the ladder should the program's champion be? At the very least, executives who support the project should have "chief" in their title, Wolfe recommends. "If a company has a chief logistics officer, it's got to come from there. If a company is more traditional, it's usually a CFO or top marketing executive that has to get behind this because of the service and cost impact," he explains. "You need somebody who can push the project down through the organization."

But having support at the very top isn't enough. In Wolfe's experience, one of the biggest mistakes companies make in the first stages of a 3PL relationship is failure to obtain companywide support. "You need to ensure all the department heads have embraced the concept," he says.

Recognize that implementation requires extra time, planning, and resources. Getting a 3PL relationship off on the right foot is enough of a challenge that providers often have personnel and even entire business units specifically assigned to manage the process. It's a model shippers should take to heart.

Managing a startup is an area of special expertise, observes Gary Williams, who is president of the chemicals sector at Exel Logistics. That's why his company has an office that is exclusively dedicated to managing startups and operating special projects, he says.

At Collierville, Tenn.-based AIMS Logistics, Craig Cameron has held the title of "implementation manager" since the company was created, says Mike O'Briant, vice president of freight operations. "From our experience, we knew that implementation would be very complex," O'Briant says. "That's why we wanted to [appoint an] implementation manager and really own that entire process," he says.

Some 3PLs have created entire methodologies to deal with startup situations. Cardinal Logistics, for example, uses a model it calls the "START" process. Each letter in START stands for a different step in the implementation process. S is for "strategic vision"; T is "tactical planning"; A is "assembling" the solution components--people, information systems, hardware, facilities, and communications; R is "resource development"--mainly human resources such as account managers and supply chain managers; and T is for "training people" to use new procedures and technologies, explains Wolfe.

Failing to follow the START model or similar programs increases the chances a company won't get off to a great start with its new logistics provider, Wolfe and other industry insiders say.

Break down barriers to communication and acceptance within your company. Without excellent communications, both internal and between vendor and shipper, companies are likely to encounter resistance to successful implementation of a third-party logistics arrangement.

For example, providers say one of the most common problems they experience when they start working with a new customer is receiving conflicting messages. "You're receiving different information from a traffic department versus a finance or an accounting or marketing department," says Cameron of AIMS Logistics. To clear up such problems, managers from both sides need to work closely together. "You have to dig deep," Cameron says. "You need to get people together and find out where the miscommunication is happening--to discover whether we were under a wrong impression or whether the client wasn't communicating internally."

One way to prevent communication problems is to give someone the direct responsibility of supervising the relationship and making the necessary changes happen. "Usually on these logistics deals, you're dealing with a lot of different siloed areas. It's difficult to get them all to work together," Wolfe says. That's why most companies assign somebody to break down barriers to communication and acceptance across those divisions.

Include IT in the planning and implementation stages. Logistics is a data-intensive activity, and almost every third-party logistics arrangement includes information processing, sharing, and reporting. Thus it's common sense to get information-technology departments involved right from the start in any third-party logistics project. Getting the right individual involved, moreover, can make a big difference to the success of an implementation. "You need to have somebody who understands all of the various technologies in the company, and somebody who can specialize in [obtaining] data--whether it be demand data, payment data, or order data," Wolfe says.

Reaping the Benefits

Once companies and their third-party logistics providers have mined the necessary information and have put all the other pieces in place, they can go about the business of reaping the full benefits of a 3PL program. With a smooth, efficient startup process behind them, says AIMS Logistics' Cameron, companies can begin to make effective decisions that help them make the most of the third party's capabilities.

From that point on, shippers and providers alike need to monitor and measure performance They also need to recognize that their relationship is bound to evolve as business conditions change. It's important to prepare for that in advance, just as they did for the project's implementation. In fact, whatever a company's goals are, the right kind of advance preparation will increase the likelihood they will be achieved--and that working with third-party logistics providers will prove to be a rewarding rather than a draining experience.

Tony Seideman is a New York-based freelance writer who writes on logistics and technology issues.