Chain of Thought

3PL Selection Starbucks Style

Some supply chain professionals give about as much thought to choosing a third-party logistics (3PL) service provider as they do to picking a frappuccino. But even Chris Honsberger, director of distribution for Starbucks will tell you that choosing the wrong 3PL is a more effective way to stay awake at night than ingesting caffeine. And selecting the right one doesn't end once the contract is signed, he told colleagues attending a session on this topic at the annual conference of the Warehousing Education and Research Council (WERC) held in Atlanta a couple weeks ago.

He said that even if the work you're entrusting to a 3PL is no longer your core competency, engagement in their work has to be. He suggested that new 3PL clients walk the workplace with their contacts from the service provider—especially if they're not getting the results they expected.

“We engaged with a third party and weren't seeing the turnaround we expected,” he said. “So we started walking the building together with a specific audit list of operational health indicators. This way you're looking at the same things through the same lens. Things like inbound quality, stock location accuracy and order accuracy are a few examples. When you both look at it at the same time and you see inefficiencies it's easier to identify areas for improvement.”

It's fine to trust the 3PL you hire, but many service provider/client relationships have been busted up by misunderstandings. That's why lawyers and sales people consistently rank pretty low on Gallup's annual list of most trusted professionals. The financial crisis in recent years accentuated that distrust. So in the world of logistics it's heartening to see third-party logistics professionals getting a little more respect from their customers.

That was evident at WERC and it was borne out in the results of an Outsourcing Strategy survey conducted recently by Eyefortransport, a provider of business intelligence for supply chain professionals. Turns out the shippers this organization surveyed had a higher regard for 3PLs than those surveyed the year before. More shippers rated their 3PL's performance as outstanding and higher than expected in the current survey than the last one. The majority also indicated their use of 3PLs would very likely or likely increase in the coming year, whereas in the last survey many more indicated it was unlikely that they'd increase their use of 3PLs.

What was more interesting, though, was the divide that still remains. In the survey, shippers and 3PLs were asked to identify what shippers are looking for when choosing a 3PL. 3PLs believed shippers always looked for lowest price, while shippers said quality service was most important. The irony of that divide is, as long as both sides hold those beliefs neither side will be happy.

3PLs that believe their customers are price driven will probably skimp on service—depriving their customers of what they want most from them.

Jim Kruza, director of distribution projects for St. Onge Consulting addressed that divide on the same WERC panel with Starbucks' Honsberger. In fact he offered a bit of a different spin on what was reported in the Eyefortransport survey. He tends to side with the 3PLs who believe the number one criterion shippers use when selecting a 3PL is cost. However, he added that the number one reason for getting rid of a 3PL is service. That's why the most important part of such a relationship is the time spent up-front in working out service expectations. That should be done in-person, he told the WERC attendees.

He advises potential 3PL clients to start the qualification step by bidding up to six 3PLs. Once you get a qualified list comes the request for proposal phase. Even if you have a preferred supplier, you generally get the best pricing from that supplier in a competitive situation, he said.

“To make sure communication is consistent with all the providers, put them all in a room together, give them the opportunity to ask questions about the RFP and give a common answer to all of them,” Kruza advised. “Also see the sites of the providers who have similar applications to what they're proposing for what your needs are.”

In other words, they may do a great job on pallet in and out applications, but maybe your applications require each-picking. Seeing their successful applications and meeting and understanding their leadership teams is vital to establishing common ground.

“You need to interview that person like you're going to put them into your own organization,” he added. “If you're not comfortable with them the relationship won't work long-term.”

Once you've narrowed the candidates down to two finalists who best meet your criteria, keep them engaged all the way through the negotiation stage to get as many contract elements agreed to and in place before dismissing that final candidate.

“Things can happen during the contracting phase and if you dismiss everybody too quickly you lose a lot of your negotiation leverage,” Kruza concluded.

The Eyefortransport study identified building trust-based relationships as a “new opportunity” for clients and their 3PLs. Logistics professionals like Honsberger and Kruza are linking their careers to that opportunity. If logistics goes away there's always the marriage counseling business.

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