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 the Federal Railroad Administration (FRA) has long stated its goal of having Positive Train Control (PTC) technology installed on 40 percent of its network by December 31, 2015, railroad industry stakeholders have repeatedly stated that reaching that deadline would be a stretch. It now appears that the railroad sector has some members of Congress sharing the same line of thought with legislation rolled out this week that pledges to extend the PTC deadline to 2020.

West Coast port authorities may be overstating the obvious when they decry “business as usual.” But it’s refreshing to see them finally coming around.

Transportation stakeholders reliant on North Carolina’s major seaports are welcoming news this week, which outlines plans to enhance the intermodal and cold chain network in the region.

The index ISM uses to measure non-manufacturing growth—known as the NMI—was 56.9 in February, which was 0.2 percent ahead of January and also 0.1 percent ahead of the 12-month average of 56.8. Economic activity in the non-manufacturing sector has grown for the last 61 months, according to ISM.

Non asset-based third-party logistics (3PL) services and logistics technology services provider Transplace said today that Brooks Bentz has joined the company in a newly-created role as president of Transplace Consulting in conjunction with the launch of the company’s new North American consulting services practice.

Comments

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


© Copyright 2015 Peerless Media LLC, a division of EH Publishing, Inc • 111 Speen Street, Ste 200, Framingham, MA 01701 USA