Player, coach or both? (page 2)

-- Logistics Management, 3/1/2005

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Keeping Score

Regardless of which organizational model they choose, shippers need to keep "scorecards" to monitor their 3PLs' performance. "Scorecards are a good way to manage success," says John Gentle, global leader for transportation affairs at Owens Corning. Years ago, few companies measured employees' or service providers' performance, but that has changed. "It's gotten a lot more sophisticated, and certainly corporations like ours look for [3PLs] who can and do measure processes," Gentle says.

3PLs that have good technological systems in place can furnish the data needed for scorecarding. But a smooth relationship depends on a lot more than good technology and data.

In addition to monitoring a third party's performance against specified metrics, shippers should evaluate 3PLs against their companies' internal goals and corporate supply chain strategies. That's typically part of the selection process, but it's even more important during the operational stage, Gentle believes. He recommends that shippers ask themselves, "Does the mantra of this 3PL mirror the guiding principles that my company has established?"

In the end, shippers need to have a high "comfort level" with their contract logistics providers before they give up control of logistics functions.

The shipper and the 3PL must also share the same philosophy and have a rapport between the management teams. "A philosophic sense of having a true partnership is important," says Smith & Nephew's Blythe. "It's somewhat of a cliché, but I've personally experienced a true partnership. When people who run the 3PL feel they are part of your business, you've arrived… That's the definition of a true partnership. That's part of [the reason for] our success."

Author Information

John D. Schultz is a veteran transportation and logistics journalist and industry consultant.

7 Principles of a successful 3PL relationship

Shippers that have good working relationships with third-party logistics service providers (3PLs) follow some basic principles that ensure success for both partners. Here are seven suggested guidelines that can help you do the same.

1. Share the benefits. Use a cost-plus pricing framework so that a true partnership is formed. When both sides collaborate and share information about true operations costs, genuine savings can be obtained—and shared to the benefit of all.

2. Put out a realistic RFP. Some requests for proposal (RFPs) are overly optimistic, while others can be outright false. "The critical thing is that the parties be absolutely honest and straightforward," says Richard Armstrong, president of consultants Armstrong & Associates. "Don't play games."

3. Do a "hype-vs.-reality" check. An RFP is an opportunity for 3PLs to tell what they can do for your company. But it should never be a license to sell "air"– services and capabilities that will only exist if you give the company your business. To avoid potential problems, make sure the 3PL can do what it says it can do.

4. Measure everything. The only way to know for sure that a 3PL is making a difference is to measure productivity, benchmark against the best in the industry, and continually strive for improvement. Structure the arrangement so that it establishes accountability for performance.

5. Keep accurate records. "In God we trust," Schneider National President and CEO Chris Lofgren is fond of saying, before quickly adding: "Everybody else bring data." Anecdotal evidence may be acceptable in some circumstances, but hard facts and figures are almost always better.

6. It's not an all-or-nothing game. If you've mastered a certain aspect of your operation, don't feel compelled to outsource it. Rather, outsource functions that require a level of expertise beyond what is available in-house. Recognize what isn't being done optimally within your organization, find a 3PL that excels in that area, and utilize both sets of skills for a beneficial long-term relationship.

7. Nobody's perfect. Few shippers or service providers get everything right all the time. Be prepared to take a hard, honest look at both parties' performance, then work together to make improvements. —John Schultz

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