What is your 3PL’s mission?

Third-party logistics (3PL) providers have been widely reported as continuing to grow as companies seek to outsource the operations of shipping, warehousing, returns, and even packaging and fulfillment.

The challenge for buyers of 3PL services has been selection, creating a mutually beneficial contract as well as governance during the contract term. As a former 3PL provider and several times a buyer of these services, it has become apparent to me that early mistakes in the process of outsourcing can result in unplanned costs and, worse yet, service failures that hurt both parties as well as their mutual customers.

There are methods for reducing risk in 3PL contracting. So, when taking the three key steps of selection, contracting and governance, the logistics services buyer has some research to do.

The first step is to check with a current provider to see if they can handle the new tasks. The buyer should meet with key personnel at the service provider to discuss the provider’s current business and to share the objectives of the buyer’s initiative. The Vested Outsourcing folks (vestedway.com) talk about “skinny dipping” as a process in which both parties fully disclose their situation and their comfort, or discomfort, with the current business and the future requirements.

If the buyer expects the provider to make financial investments, it’s critical to know what the provider’s capabilities are and what both the return on investment and term needs to be in order to be attractive for the service provider. Only after clearly understanding the mission and business rules of the current provider should the buyer consider going to the market with a search for multiple bidders.

An example would be asking a current 3PL to help manage a private fleet for the buyer. The provider needs to know what the buyer is trying to achieve. If they’re considering a private fleet, perhaps dedicated carriage would be a better innovation.

Can the buyer provide the volume and density of lanes that could support a successful fleet operation? Could the two businesses find synergies in their operations to help both achieve cost and service improvements through dedicated carriage, leasing or some hybrid solution?

If there’s real transparency, the two parties could reach an understanding of the fit between them. Logistics providers can save on selling costs by avoiding chasing deals that they’re not a good fit for. They can further save sales costs by avoiding the bid process and having an executive-level meeting with the buyer to openly share if they’re comfortable with the requested services.

Contracting in a step-by-step process that emphasizes trusting the provider to get the job done without telling them how to do their work is a key tenant of collaborative outsourcing as recommended by the Vested methods.

The contract then has two key parts. First, create a list of results and metrics. Second, understand the terms and conditions required by the lawyers. The first part is a living document reviewed and modified regularly to reflect real-world conditions—think pandemic—and the second part is locked down and requires legal review to change it.

Governance is the procedure used for daily oversight and periodic management reviews. In logistics, there should be plenty of operational data available from daily activities driving decision making and providing quantitative support for innovation—the best way to get cost and service improvements.

The best 3PLs are helping their customers innovate for success. What’s your 3PL’s mission?