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

While it feels somewhat hard to fathom, the stage is set for the Council of Supply Chain Management Professionals (CSCMP) Annual Conference in San Antonio, Texas.

Carload volumes were up 1.4 percent at 300,388, and intermodal volume for the week ending September 13 was up 5 percent at 279,052 trailers and containers.

Company says the Cloud offering allows customers to respond more quickly to new business opportunities, without significant upfront cost and implementation times.

As e-commerce continues to take a bigger piece of the holiday package delivery pie, it stands to reason that companies need to be proactive and prepared in order to deliver premium service during the busiest time of year, which is rapidly approaching. And that is exactly what transportation giants UPS and FedEx are doing this year. How are they doing it exactly? The primary step they are taking is to up their numbers of seasonal staffers.

A recent hearing of the Subcommittee on Coast Guard and Maritime Transportation suggests that the U.S. Merchant Marine industry may be poised for a major comeback.

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