Improving 3PL Relationships: Finding the right balance of expertise & trust

As Armstrong & Associates’ 6th annual summit gets underway, the consultancy plans on helping shippers gain fresh insights on third-party logistic (3PL) provider trends and forecasts.

And, shippers will be seeking advice on how to establish and sustain relationships of trust and mutual benefit. In this exclusive roundtable discussion, we’ve asked four summit speakers to share their views on the current state of the industry.

Joining us in this dialogue are John Larkin, CFA, managing director of transportation and logistics at Stifel Investment Banking; Chris Caplice, executive director of MIT’s Center for Transportation & Logistics; Ravi Dosanjh, executive vice president of international advisory for Armstrong & Associates; and Rich Hamilton, managing director of Cushman & Wakefield’s 3PL Advisory Group. 

Logistics Management (LM): What are the greatest challenges facing 3PLs today in the domestic and global marketplace?

John Larkin: The biggest challenge relates to sustainably maintaining a technological edge over your customers and competitors without pushing the edge of the envelope out to an impractical, unreliable, and uneconomic frontier. And like all businesses, 3PLs struggle to find a sufficient number of qualified and motivated associates.

Chris Caplice: New ideas and approaches. While technology is excellent at improving the efficiency of existing operations and procedures, it takes an experienced and forward-thinking professional to come up with a dramatic improvement or change of business processes that delivers a real breakthrough.

Rich Hamilton: The rapid development and zeal to deploy new technologies that enhance visibility within the supply chain means investing—and reinvesting—and constant reevaluation of leading edge technologies to stay current and lead the competition. The development and deployment of these technologies is very expensive, and in many cases, it’s the price of entry to pursue new business or retain existing customers.

Ravi Dosanjh: Evolving expectations around transit time and visibility are a challenge in today’s environment. Faster transit times mean 3PLs must have interconnected networks with efficient hand offs supported by predictive analytics. Visibility necessitates system integrations with those networks supported by 3PL platforms that, in real-time, can share detail that allow the user to mitigate disruptions, stay agile and predict market trends.

LM: With that as a baseline, how can 3PLs best demonstrate competence in an ever-changing business arena?

Dosanjh: The respective freight markets have always been constantly changing and posing challenges such as supply and demand, cost management and service issues. The 3PLs that can navigate those issues and execute well are the leaders that rise to the top in their respective fields.

Larkin: Indeed, we also feel that 3PLs must improve supply chain velocity and reliability while reducing inventory, lowering logistics costs, and meeting more stringent customer expectations. Once accomplished, they should use successful case studies to pitch services to other potential customers.

LM: From your unique perspectives, what do shippers need to do when evaluating the best 3PL provider?

Larkin: Many rely on old relationships where a high level of trust already exists based on demonstrated competence. Others conduct small-scale tests to determine if claims by 3PLs are reasonable. Still others continue to look only at what appears to be the cheapest option. The problem with that strategy is that it does not consider the lifecycle logistics costs—it’s just the cheapest compilation of freight rates.

Caplice: I suggest that shippers consider the knowledge of the 3PL’s strategic planners to come up with an innovative approach to the business as well as the operational expertise at actually executing to the plan. The technological expertise, in my opinion, really comes in during the daily operational efficiency. Once that plan is in action, shippers should then ask: How can the 3PL speed up the entire transportation process for every transaction?

Hamilton: Keep in mind as well that shippers should recognize that perfection doesn’t exist, but it’s totally reasonable to expect something very close. The most important thing for shippers to evaluate is how the 3PL partner reacts to an issue. Do they respond with speed, dedication to getting it right, and a postepisode review of what went wrong and how it will be avoided in the future? Also, shippers need to assess whether your organization and processes—or lack thereof—had any hand in the episode and then to work with the 3PL to jointly anticipate issues before they become problems in the future.  

Dosanjh: I think we all agree on this issue. Shippers should have a firm strategy in place supporting best-in-class total cost planning, procurement and operations teams and be aligned on what that means to the enterprise and what the best ways are to execute as a group supported by each category. Once these strategies are adopted, shippers should understand the strategies as well as what drives the behaviors of their 3PL base. Many 3PLs have unique offerings based on their own strategies and have different targets and capabilities. Leveraging these capabilities effectively will drive high performing supply chains.

LM: We hear a lot about shipper/3PL collaboration. How is that actually achieved?

Caplice: Collaboration is a funny word. Growing up, the only time you heard the word collaboration was with the rest of the phrase “…with the enemy.” It has obviously changed over the years. The mathematics of finding where different shippers can leverage their complementary loads is actually well understood and easy to implement; however, the difficulty is making it happen on a regular basis with minimal external or extraneous effort. That is the big challenge in leveraging collaboration in this context.

Larkin: Collaboration kicks in when the amount of freight exceeds the available supply of freight transportation capacity. Many shippers still revert to rate bashing when slack returns to the supply/ demand dynamic, as not all shippers are enlightened quite yet.

Hamilton: Today, with supply chains as complex and long as they are, collaboration is the only path to success. Collaboration begins with the client’s self-assessment, continues with the joint assessment of the right shipper/3PL partnership and how that will be designed to work. It continues with the client and 3PL coordinating with other providers the client may have hired for other areas of the supply chain or other locations to insure that there’s synchronization across the entire supply chain. In addition, there are the administrative elements of the organizations where collaboration is critical. These can include accounting, IT, legal, human resources, and engineering—to name a few. Finally, and probably most important, it includes the client and the various other supply chain providers collaborating with the client’s ultimate customers. All parties provide inputs and outputs within a working supply chain. The collaboration across and among these various audiences is the key to success.

Dosanjh: I’ll add that collaboration, cooperation or “co-opetition” between 3PLs will help drive efficiencies in the market as well that will benefit the ecosystem. An example would be driving visibility, predictive information and enhancing cargo flow at major gateways supported by numerous players—carriers, terminals, truckers, regulatory agencies, and intermediaries. So, collaboration is not only practical, but a necessity between 3PLs as well.

LM: Finally, how many 3PLs should most shippers engage every year? Can one alone meet all their needs?

Caplice: I believe it’s always best to have more than one supplier unless there’s a strategic reason that overrides the economics. Having more than one firm that is familiar with your operations and way of doing business reduces the pain—and cost—of switching.

Larkin: Our sense is that it’s wise to use a primary 3PL and a secondary 3PL that can help keep your primary 3PL from becoming complacent. It’s also wise to solicit proposals from a wider variety of 3PLs periodically, say every five years. This puts pressure on incumbents to keep pace with the state of the art.

Hamilton: The 3PL industry would want you to believe that “sole sourcing” is possible. In fact, in some specific situations, it may well be possible. However, that vast majority of outsourced supply chain networks are a collection of best-in-class providers linked together to provide the best solution for the client. I’ll add that there are many clients who have what I will call dominant 3PL relationships—where a single firm performs the vast majority of the work. But invariably there are other 3PL firms supplementing the primary 3PL because of geography, service line, skill set or some other variable.

Dosanjh: And as we wrap up this discussion, we should recognize that the other trend we’re seeing is the ability to segment what we call “commodity” type business, or the ability to rotate 3PLs based on their capability and need. A commodity type business supports nonspecialized and general transportation where there are many players offering a similar service. In this scenario, we see up to 10 different 3PLs participating in and supporting these programs.