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Transportation Best Practices: Savvy logistics managers are rethinking 3PL contracts

In this new era of collaboration, some third-party logistics providers (3PLs) are working with enlightened shippers on a new approach rooted in recognition that better logistics management can have a direct impact on the bottom line for both parties. Here’s one example of how it’s being done.
By Peter Moore, Adjunct Professor of Supply Chain
September 01, 2013

In conferences and candid discussions, third party logistics provider (3PL) executives have shared their desire to be more strategic with their customers in an effort to add significant value to the relationship. 

However, 3PLs are all too often seen by shipper organizations simply as a way to reduce the cost of managing a necessary, but not a terribly interesting part of their business. Some 3PLs are beginning to work with enlightened shippers on a new approach rooted in recognition that better management in logistics can have strategic implications to the shipper’s business. 

For example, last year, Grocery Haulers Inc. (GHI), a leading food transportation 3PL, began a concerted effort to change its
relationship with a current customer, a major food producer. GHI was providing contract carriage and extensive third-party transportation management under multiple agreements at multiple locations for this shipper. The work involved both outsourced fleet operations and the management of common carriers in the dynamic business of fresh food delivery.

Like many 3PLs, GHI team knew they could add even more value to the shipper’s operations, but the contracts they had did not encourage continuous improvement and innovation. 

With several dedicated carriage, fleet, and transport management contracts coming to an end, GHI and the shipper engaged the authors through Supply Chain Visions, a logistics management consultancy, to take them through a process together that would yield a new, long-term master agreement based on “vested” principles.

Simply put, the vested approach preaches a best-in-class, transparent relationship based upon mutual goal setting and the elimination of nonproductive tactics, habits, and tribulations. “Vested has not only afforded us an opportunity to create a win-win opportunity with our customer, but also with ourselves,” says Marisol Culley, chief administrative officer of GHI. 

Getting started
The first step was for the joint shipper-3PL team to perform a compatibility and trust (CaT) survey as a part of a current deal review process to discover if they had a good working relationship at all levels of the companies. “The review provided welcome perspective from the day-to-day business relationship and allowed the parties to decide to cement the relationship further by focusing on discrete areas to improve,” says Mike O’Malley, vice president of engineering and operations at GHI. 

According to O’Malley, one of the most valuable lessons of a current deal review is the exercise of reviewing the state of the relationship first independently, through self-assessment, and subsequently with customer and service provider representatives together at a day-long retreat. For GHI, the authors found that the survey revealed that GHI continued to be a good fit with the shipper, but that the new agreement would have to have a strong governance component and a mutually beneficial pricing component to drive continuous innovation.

“The process underscored the value that we have always placed on having a transparent relationship with our customers” says Mark Jacobson, president of GHI. “Vested is not an off-the-shelf solution. It requires the parties to spend time and resources exploring solutions to their existing relationship.”

Supply Chain Visions serves as a center of excellence for vested way resources and was able to provide access to templates as well as draft language as certified deal architects (CDAs) knowledgeable in vested methods. The joint business team comprised of GHI and their customer counterparts in logistics operations, legal, finance, and sales.

About the Author

Peter Moore
Adjunct Professor of Supply Chain

Peter Moore is Adjunct Professor of Supply Chain at the University of Denver Daniels School of Business, Program Faculty at the Center for Executive Education at the University of Tennessee, and Adjunct Professor at the University of South Carolina Beaufort. Peter writes from his home in Hilton Head Island, S.C., and can be reached at .(JavaScript must be enabled to view this email address).

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