Chain of Thought

Logistics: Three Parties May Not be Enough

As a mature adult, I don't like being called “Tommy.” It doesn't sound dignified. Nevertheless, there are people in my life who continue to do so because they've known me since childhood and the name just stuck. If you manage a 3PL you may feel my pain. You may not like the name 3PL because it no longer matches the business you've become. You may prefer LSP—for logistics service provider. You may feel that “third-party” stuff implies a separation from your clients—like being the fifth wheel on a date.

And that is probably the biggest misperception people have about LSPs—that they are outside vendors. I heard this from several service providers while doing interviews for a feature to appear in MH&L's April issue. It was one of the first things they cited when I asked “What are the most common misperceptions of the role of a 3PL?”

None of them chastised me for calling them the 3-word, but most of them gave an answer similar to the one Rich Miller did. He's UPS's global marketing manager and he said one of the biggest misperceptions of third party logistics providers is that they are strictly vendors.

“We're an extension of your business and must be seen as partners in order to be truly effective,” he added. “As a partner we can help solve complex problems related to your company's supply chain. We can also help you identify opportunities to build more flexibility into your supply chain to streamline operations, reduce costs, improve customer service, expand into new markets and deliver on your key business objectives.”

Some customers are more comfortable with the old name 3PL and the role implied by it. That's because the idea of opening the door of their inner sanctum to an outsider seems dangerous. But as Miller explained, in order to develop the most effective supply chain solution, an LSP must collaborate with a client to understand its challenges and goals and then integrate with that company's purchasing, production, packaging and distribution functions. That's more than three parties already.

Some companies are justified in their discomfort because they don't do the necessary homework before approaching a “3PL” about a piece of business. Part of that homework calls for understanding all the contractual obligations that come with a relationship.

Shanton Wilcox, principal of Capgemini Consulting's Supply Chain Management business, said a shipper must accurately reflect what his expectations are in a contract if the relationship is going to work. It's a matter of clarifying what information is available within the organization, understanding what they're willing to invest in and then netting out what is needed for the service provider to officially support operations.

“You have to pony up certain information and access in order for your partner to fulfill those responsibilities and then you have to measure both sides in a closed loop mechanism,” he told me.

One of the more challenging aspects of a “3PL” relationship involves management of green initiatives like gauging carbon footprint and fuel efficiency. The question becomes, how can those details become part of the traditional key performance indicators between a shipper and a service provider so that shipper can report back to customers as well as to their board and be accountable for their sustainability claims?

Accountability requires trust among all parties in a relationship, no matter how many there are. And face it, the more complex life becomes, the more parties you have. Hey, I like the sound of that.

Related Editorial:

Supply Chain Managers Get Physical with the Internet

How Warehousing will Cope with 2012

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