Steps to creating a successful 3PL partnership
You’ve decided to outsource your company’s transportation and delivery and now face the task of engaging a third party logistics company (3PL) or pool carrier network to do the work. Whether operating a fleet of vehicles or one or two vans or box trucks, outsourced transportation is increasingly common across businesses in the retail, medical, IT, food, automotive, construction and hospitality industries.
Transportation is a top five business cost that can require significant management time overseeing hiring, firing and payroll; scheduling and route management; vehicle maintenance and repairs; record keeping, certifications, insurance and more.
Handing over the daily running of your transport arm can free up your best employees to oversee other primary operations within your organization. Outsourcing your company’s transportation also can provide your business greater flexibility since the service agreement can be flexed to up-scale when business is good and scale back resources when business is soft.
As you examine your choices in transferring the movement of product or business supplies from an internal fleet to a transportation service provider, you should first do a needs assessment to determine what level of service you need from the provider. Next, consider what are the advantages and disadvantages to outsourcing your transportation needs in order to identify potential barriers to a successful relationship.
If you find the right company, then trusting your transport to a transportation specialist should provide a high level of professionalism and strong delivery performance from drivers who specialize in delivery.
Here are some common pitfalls to avoid before putting out an RFP to service your business’s logistics needs:
Lack of key performance indicators
Creating a successful contractor relationship requires setting clear processes and expectations to give you and your managers confidence that service and delivery performance will meet the standards of an in-house operation. The outsourced solution needs to become a part of your team, working within the agreed upon parameters and performance indicators established in the proposal and contract.
Lay out specific timelines, delivery and frequency times, handling instructions and other special considerations prior to startup so you have the assurance your company and your customers will receive the quality service you require. This will provide a measurable set of expectations to help identify if the service you are receiving is lacking and a guide for achieving your goals.
Cutting costs vs. quality service
While cost savings is a reasonable expectation of a well-managed 3PL arrangement, it’s important to set a realistic goal for what you hope to achieve and what you are willing to pay for the level of service you require. That means making an honest review of the costs you are accruing currently--including vehicle expenses, maintenance, payroll, insurance, management and money paid out to employees when there is downtime--before setting the terms of the contract you are planning to put out to bid. You may be surprised to find that you are spending a lot more than you realized.
All companies are conscious of profitability and the bottom line; however, if your contract is based solely on keeping your company’s costs low, service may suffer since the 3PL will need to balance your needs with their own business and financial needs. Likewise, if you hire a fly-by-night company that is hungry enough to lowball to get your business you may be setting your company up for failure should they close up shop and leave you holding the bag.
Once you have completed the selection process, you will sign a contract with the outsourcing company that will cover the details of the service that they will be providing. Anything not covered in the contract will be the basis for you to pay additional charges. If your contract is too narrow and doesn’t allow the flexibility your company needs, you may be setting yourself up for additional expenses that could have been avoided.
Look past your immediate needs and take the 1,000- or 5,000-foot view first. Review your delivery needs at peak periods and slower months over the past several earning periods to provide a clear picture of your business flow. Detail your projected needs in terms of freight mode, lead time, territory, carriers, frequency and order volume before requesting a proposal from logistics service providers.
Data Security & Confidentiality
Any time you send work outside of your company that would otherwise be performed internally, you are faced with sharing confidential and proprietary data with outside individuals.
Evaluate the outsourcing company carefully to make sure your data is protected and the contract has a penalty clause if an incident occurs. To protect your company at the outset, consider companies that have a good track record and solid reputation. Are they involved in professional organizations that serve their industry? Are they respected members of the business community? Do they have a careful hiring process and run background checks on their drivers? Do you know their other clients? Have you checked their references?
Tracking and Visibility
How do you know your product will get to the customer when it’s supposed to?
The same-day delivery service industry is benefiting greatly from the use of mobile technology that provides customers complete visibility to track in real time each delivery, driver and route.
Seek out transportation partners who are investing in today’s sophisticated tracking technology. With the latest technology, a 3PL customer can be “sitting” next to their customer service representative electronically and knowing everything that is going on with their orders, product and shipments.
One of the advantages of managing your own employees in offering any service is having some level of control of the culture of your organization and building on the loyalty of your staff. In reviewing and considering a 3PL it’s very important to get a feel for the company’s culture and values to see if they are aligned with your own. Check references, review insurance documents and certifications, ask for a description of the company’s policies and management style. Do they have a vision and mission statement, and does it project the sense of corporate responsibility and commitment to service you are seeking?
Bumps in the Road
Many companies will promise a seamless transition in taking on the outsourced function, whether it be HR, accounting or transportation. Invariably the transition process will involve some lag time and potential hiccups.
In managing the transition, your company will benefit from having one main manager or director who is the key point of contact to channel information and provide stability as the new provider gets up and running. When problems or unexpected issues do crop up, are you confident the 3PL can flex and adjust to meet the realities of your business? Will they provide access to senior level decision makers to address problems, make adjustments or add services when needed?
Loosening the reins
The right transportation solution provider will serve as a strategic partner, delivering logistics support in a rapidly changing landscape so that your company can focus on its core business functions. Once you find a competent and professional partner to manage your logistics, be open to the expertise the contractor has to offer from the vantage point of working solely in the logistics market. Regional 3PLs are familiar with your desired delivery areas and in a position to increase route optimization and efficiency. Their specific experience could save you headaches, time and money.
If you are planning to form a true partnership that will benefit your company for the long haul, then it is paramount that you get to know who you are working with and are confident they are worthy of your business and your trust.
Do your research, get quotes and choose wisely: find a 3PL who can meet your customized needs and your company will reap the benefits.
Call QCS Logistics’ at 504-940-6262 or email Jason to see if we can serve your business's regional logistics needs.