Mhlnews 2081 3pl Provider Partner

3PL: Provider or Partner?

Jan. 1, 2011
The ability to analyze these qualities in a 3PL will help you base the relationship on a solid footing and establish realistic goals for supply chain efficiencies.

Businesses are emerging from the recession with a stronger need for business partners. This requires a new level of quality management to determine if 3rd party logistics (3PL) suppliers can add value to a business’s supply chain processes. This new look may consider the traditional types of 3PL supplier as well as more strategic business partners. What’s the difference?

Supplier: provides goods or services to your organization, allowing your organization to perform its key processes; a supplier typically will not have direct contact with your customers. They are in a contractual agreement with your organization.

Business Partner: provides goods or services direct to your customer. They perform in parallel to your key processes and will likely have direct contact with your customers. They are in a contractual agreement with your organization.

The 3PL may be a commodity supplier or try to differentiate through value-added technology and logistics solutions. In either case, it’s important to gauge their quality.

Quality Management System

The quality management process involves:

• Setting-up a supplier approval system;
• Pre-screening to ensure they are capable;
• Setting-up a feedback system on performance: a supplier scorecard;
• Visiting and auditing;
• Supplier ratings (approved, preferred, certified);
• Corrective & Preventive Action (CA/PA) response;
• Supplier development: ability to perform current and future supply chain needs;

• Reward & recognition: supplier of the year; special terms for those with high performance.
By establishing a robust supplier management process you will keep costs out of the supply chain and ensure that the costs of non-value and poor quality are at a minimum when it comes to doing business with the supplier base.

Given that 3PL suppliers may offer a variety of options and services, it will be important to look at each of these for their effectiveness. Learn what they are really good at, and identify what they are still trying to get good at. Their value is that they can leverage the costs of logistics and the improvements to gain efficiency across all their key accounts. Learning who else they do business with and how well those customers drive improvement on the supplier may help you determine if you will be joining a base of customers that will continue to make the supplier a great one.

Partner Management

One could assume the term “partner” is nothing more than what we have always said we want from our suppliers. On the other hand, a progressive company would see that this opens the door for implementing a quality management system (QMS) to help the organization succeed with its strategic use of business partners. Supplier quality management can take the same approaches as business partner management:

• Pre-screen them;
• Set-up a feedback system on performance;
•Visit and audit them; and let them visit your organization;
•Business partner development; people in both organizations work closely with their “peer” to make things happen; there is less of a funnel through a purchasing function;
• Reward & recognize them; it re-enforces the purpose and critical importance of the partnership. In this case high-level leaders are involved.

This requires a different business acumen and relationship skills than what quality professionals might get when working solely with suppliers. So consider who is involved from the quality function, and how they may need to “sharpen the saw” to bring value to such partnerships that have the attention of the senior leaders.

Here are three additional methods to consider for business partner management:

Use a strategic partnering process; steps to build the partnership have a routine for on-going partner quality management:

• Create the criteria to assess each partner’s performance;
• Develop an initial SLA (service level agreement); and accountability matrix;
• Define the internal key people who must work with this partner; all possible business functions must be considered;
• Pull team together and finalize the SLA, including who on the partner side (functionally) must be part of the accountability matrix;
• Identify possible partners;
• Meet and screen, using the SLA and accountability matrix;
• Select final partner based on acceptance of SLA terms and the responsibilities/ opportunities in the accountability matrix.

Establish a service level agreement that specifies the fundamental measurements and expectations of the partnership. While it does not replace a legal contract, it can help make the expectations measurable.

Implement the accountability matrix. It sets up who in each of the two organizations has what responsibility, and how to get in contact as needed. This matrix helps each party (customer & partner) set-up a clear expectation for roles and on-going communications. It avoids having a single-point of contact that tends to funnel (and bottleneck) partner management. The on-going system of meetings creates a “boundary fee” interface between the two organizations, a key to success in the relationship and intended deliverables.

Making Relationships Work

Forming and managing strategic partner relationships will offer your business a competitive edge. However, it’s important to realize that getting the attention and buy-in of your senior leaders will be crucial to success as they are often an integral part of choosing and guiding key business partners based on strategic planning. Be sure to include leaders in early meetings and make sure they are involved and kept updated.

Tim King is senior partner in TheTupelo Group LLC, a management consulting firm based in Burlington, VT. He is also a faculty member for the ASQ (American Society for Quality). For more information, visit