Subscribe to our free, weekly email newsletter!


Global Logistics: Optimizing 3PL partnerships

In today’s dynamic, global marketplace, shippers need to execute a checklist of essential action items in order to get the most out of their third-party logistics partnership.
By Patrick Burnson, Executive Editor
November 01, 2012

1. Establish “gain sharing”
For Dittman, it’s all about “gain sharing,” or a mutually beneficial arrangement that is nurtured over time.

“Gain sharing is often a second phase, implemented after the relationship matures to some extent,” says Dittman. “About one-third of all 3PL contacts have gain sharing arrangements. Most gain sharing relationships are based on a 50/50 sharing of cost savings, while some have an incentive payout if key performance indicators are met.”

But agreeing on a method to measure cost savings against a base line is challenging, admits Dittman, and is the main reason gain sharing arrangements are not used. “Those managers that are experienced with it believe strongly that an arrangement should be initiated only after the 3PL has demonstrated that it can meet all of the performance requirements expected.”

Dittman adds that once performance expectations have been met, and a good cost baseline (cost/unit shipped) has been documented, it should be possible to move forward with a plan to share 50/50 in the cost savings proposed and implemented by the 3PL. Service level credits can also be considered.

“A major variable in establishing a gain sharing formula is whether or how to factor in normal inflation,” says Dittman. “For example, if a logistics cost index goes up 3 percent and actual cost/unit stays flat, does that mean a 3 percent savings was achieved?” Dittman adds that the downside of waiting a year or more to initiate a gain sharing arrangement is that the 3PL may withhold its cost savings proposals until a gain sharing deal is begun.

image

About the Author

image
Patrick Burnson
Executive Editor

Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review magazines and web sites. Patrick is a widely-published writer and editor who has spent most of his career covering international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. You can reach him directly at .(JavaScript must be enabled to view this email address).


Subscribe to Logistics Management magazine

Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your
entire logistics operation.
Start your FREE subscription today!

Recent Entries

Join Transplace for this Webcast, to learn how they were able to automate manual processes by tightly integrating their transportation management system (TMS) with the portals of carriers, and 3rd party vendors in a matter of a few weeks.

Following the integration, the new Hapag-Lloyd will rank among the four largest ocean cargo carriers in the world

AgTC will provide unique market intelligence at next annual meeting in San Francisco this June

With no fuel tax increase likely ahead of this year’s mid-term elections, trucking interests in Washington are moving to Plan B in their attempt to shore up funding for badly needed infrastructure improvements.

Crowley Maritime Corporation has acquired majority ownership of Accord Ship Management (HK) Limited and Accord Marine Management Pvt. Ltd.

Comments

Post a comment
Commenting is not available in this channel entry.


© Copyright 2013 Peerless Media LLC, a division of EH Publishing, Inc • 111 Speen Street, Ste 200, Framingham, MA 01701 USA