“In the end, we’re a day care for inventory,” says Jon Petticrew, vice presidentof operations at ODW Logistics, a third-party logistics provider headquarteredin Columbus, Ohio. He offers that assessment with a smile. Manycompanies, however, do view inventory as their most precious asset andwant to be sure the caretaker understands all their special needs. Petticrewis a strong advocate of communication among managers, associates onthe floor and clients. Toward that end, the back of his business card clearlyoutlines what the client can expect from ODW.
How a business communicates with a 3PL, and within its own organization, hasbecome even more critical as staffs are reduced and companies broaden theirscope with more global arrangements. 3PLs often function as communicationexchangehubs, says Keith Goldsmith, vice president of business developmentat CEVA Logistics, Jacksonville, Fla. Goldsmith was most recently CIO for thiscompany and has a good feel for the electronic part of communication. “The computerpower a 3PL can bring to the table has become a huge part of the bargain indealing with current and new business.”
Two aspects of communication—among humans and electronic interchanges—are important parts of outsourced logistics. The 3PL is in position to standardize,or normalize, communications among its clients and the client’s customers.“In today’s business climate,” says Goldsmith, “communications are about morethan track and trace.”
People to People
How often the 3PL and its client company communicate varies by how comfortablethe two companies are with each other as well as the needs of the product.And, while the customer drives the frequency of reporting, says Tom Giovingo,executive vice president at Fidelitone, Wauconda, Ill., he prefers dealing with theperson on the floor. “The person on the floor is closest to the service we deliver,”says Giovingo. “That might be an office manager or a distribution manager. Ifchanges in the service are required, we’ll go to the people higher up the ladder.”
“Mirroring” is a term often heard when talking about 3PL communications. Itmeans matching a person from the 3PL with his counterpart in the client company.Typically, program managers are in daily contact. However, when it comesto technical issues or financial arrangements, it’s best to match people in bothcompanies.
“I know what our various systems cando,” says Petticrew, “but when it getsdown to how they do it, we like havingour tech people in from the beginningof the conversation.”
At the start of new business, frequencyof communication varies, dependingon how familiar the client company iswith outsourced logistics in general,and the client’s expectations. Meetingsmight be daily or twice weekly until allparties are comfortable. It’s typical forthe 3PL to drive the agenda of meetingsto ensure goals are being met. 3PLswant long-term business, and keepingthe client happy is certainly one way ofdoing that.
Depending on the level of service required,having a person from the 3PLstaff inside the client’s business, andvice versa, is becoming popular. “Inmost of our locations, says Ron Cain,president of TMSi, Portmouth, N.H.,“we have a client representative onsite. It’s all about relationships, and themore touches we have with them [theclient] the better the overall relationshipbetween companies.”
Having people inside the client or3PL’s distribution center has the goalof making the service run as if it were asingle company. Cain says having morehuman contacts with a client companyhas the effect of getting more measurements,or focuses, from peopleon the scene. “As companies cut backon people,” he adds, “it’s tough to getmeaningful dialog established becauseeveryone is too busy.”
Trust is a key aspect in establishing ameaningful relationship between a 3PLand its clients. “We call it candor,” saysPetticrew.
Cain agrees. “Trust has to be established,and that takes time. History betweenthe companies has to be established.If managers at all levels are notmeeting with counterparts in the clientcompany, we’re not properly engaged in what we’re doing for the client.”
Often, the staff of the 3PL is a surrogatefor its client. In distribution centershousing multiple clients, it’s not uncommonfor the 3PL to answer the telephoneusing its client’s name, or eventhat of the client’s client. “We’re assistingour customer with their customer,”says Matt Menner, senior vice presidentof Transplace, Dallas. “Consequently,we play a strategic role in their supplychain and planning tactical operations.Strategic meetings with the customerare required as much as possible.”
While Transplace tries to draw parallelswith its personnel and the clientcompany, says Menner, it ultimatelygets back to what the customer wants.“Some customers want us there all thetime; others are more accepting of frequent meetings,” he says.
And, in a business where perceptionoften becomes reality, how thecustomer sees the performance of the3PL will determine how it respondsto more or less communication, innovationon the part of the 3PL andcontract extensions.
When it comes to establishing theelectronic piece of the communicationspuzzle, the answer is “yes.” Whateverthe customer wants, the 3PL will deliver—in most cases. At the other end ofthe spectrum are the service providersthat specify that the customer must useits IT programs.
“A major part of our job,” saysGoldsmith, “is to normalize the dataamong the various companies withinour client’s supply chain and turn itinto usable data for our client.”
That data can range from telephonecalls, e-mail or any type of electronicdata interchange. Putting it into agreeduponstandards is imperative, he says,in creating a set of metrics the clientcan understand. Since there are varyingdegrees of electronic sophisticationamong clients, the 3PL becomes theinformation manager.
“Especially as more companies areoutsourcing because of globalization,”says Goldsmith, “they don’t care howthe data starts; they just want a set of datathey can use when it hits their system.”
This may, in fact, be why many companiesare turning to outsourced logisticsfunctions of 3PLs. It’s not so muchabout the need for technical sophisticationof the client as it is their focus ondoing business in disparate regions.
Another reason why 3PLs have seenincreased business, says Goldsmith, hasbeen the high level of merger and acquisitionactivity, and the need to get allthe new companies aligned. “With all the activity,” he says, “companies are being driven to standardizeon internal communications. We find ourselves inthe position of normalizing the communication activitiesamong all the partners in the supply chain.”
The result of that normalization can be hourly, daily orweekly reports—whatever the customer requires. Goldsmithsays, with its most sophisticated clients, the 3PL might receiveproduction schedules that it, in turn, has to parse outto the suppliers, which, in turn, report back through the3PL to create one standard protocol for all parties.
“It’s complicated,” admits Goldsmith, “and there issome advantage to scale. Our customer might have todeal with 20 or more types of messaging. However, sincewe’re doing this kind of work for many clients, once theinterface is built, it’s not a lot of effort on our part to addanother company.”
IT integration projects are not for the faint of heart,says Goldsmith. They are intrusive and take a lot of day-todaytime. And, they’re expensive. “While the propensity ofthe client company is to outsource a distribution modelit has already built,” he says, “we [the 3PL] find it more advantageous to work where we are allowed to get muchdeeper into their decision making process.” The difference,he says, is the 3PL has to be able to step in and runthe business the way it should be operated, not how it iscurrently being done.
It’s about letting down that wall created by thinkingyou are purchasing a service and establishing a new environmentof collaboration—a partnership with the 3PL.“When you take that approach,” says Goldsmith, “you getaway from what margin should look like and begin to seewhat real supply chain costs are and into the world of betterservice.”
Transplace handles $2.75 billion in freight—aboutfour million shipments per year, which amount to about70 million EDI transactions. “Our business model,” saysVince Biddlecombe, CTO, “is that we’re a software as a servicecompany.” As such, it will handle a client’s completetransportation needs using the client’s established system,clear through to the other end of the spectrum wherethe client uses the 3PL’s systems. And any combinationthereof.
“In our distribution centers with multipleclients,” he says, “you’ll see bannershanging throughout the building designatingeach client’s merchandise.”
For the IT connection, however,each of Transplace’s systems are customcoded. “The beauty of our system,” saysBiddlecombe, “is that we don’t requirelike systems with our customers. We cantake data via any EDI channel and supportany document format.”
And, even if the carrier, for example,has no electronic format for communication,it can go to a Web-basedportal to access departure and arrivalevents and more. “There’s nothingto install,” says Biddlecombe, “becauseall of our functionality is deliveredthrough a Web browser. We can engagewith the customer or carrier orvendor, and they don’t have to do anythingbut pull up a browser and navigateto an Internet site.”
TMSi is a non-asset 3PL. It managesother companies’ truck fleets, for example,or runs a client’s IT system as ifTMSi were part of the client’s company.“We have some clients using our ownWMS, or maybe we’ll write the bridgesbetween their system and ours,” explainsCain. “Often, it’s a customizedsolution for the client.”
He adds that if the customer prefersto stick with its own system, personnelfrom TMSi will train on that systemand run it for the client. “The level ofcommunication a client wants ties backto the level of service it requires,” saysCain. As examples, he cites the workhis company does for the VeteransAdministration distributing prescriptionmedicine via the USPS. “It [theVA] requires almost hourly reporting toknow where those pharmaceuticals are,while another client that builds refrigeratorsonly needs weekly reports.”
Mike Sadowski, CIO of OdysseyLogistics, Danbury, Conn., says havinga lot of unique expertise can helpframe the value proposition for clients. “Because we focus on a single area ofthe supply chain, albeit quite large, wecan show clients savings in places theymight not otherwise recognize.”
Odyssey Logistics specializes in chemicaland petroleum services. Sadowskisays process manufacturers have a historyof using outsourced logistics thatbegan with plant construction, controlsand, more recently, IT functions.
“As globalization becomes more areality,” says Sadowski, “the trend we’reseeing is that companies don’t have theresources for communications.”
A global shipment of petroleum orchemicals can require hundreds, if notthousands, of data exchanges, he says.“Typically, we’ll implement a schemeof XML messages between us and ourcustomer. We have standard documentsto cover all the touch points. We call it the planning loop, which begins whenour customer gets an order.”
That loop involves the 3PL receivinga message at almost the same instantas the customer, so it can searchits databases for the proper carriersand intermodal services, then gettingthat information back to its customer,so the whole thing appears seamless toOdyssey’s client’s customer.
Another important IT loop exists,says Sadowski, and that’s the freightpayment/billing loop. It’s an auditing,or track-and-trace, process that includeselectronic payments and can involvehundreds of transactions.
“We’re a non-asset company,” saysSadowski, “so we’re providing a serviceand the technology that underpins thewhole process structure and makes itall work.”
What You Need to Know
If you’re considering outsourced logistics,what do you need to know?
It all begins with culture, saysPetticrew. “We look at a potential client’sculture, and they should do thesame, to see if we’ll mesh,” he says.“ODW offers extensive communicationsofferings, internally and externally,to facilitate that.”
With his associates, Petticrew beginswith brief, daily meetings, on througha whole menu of monthly, face-to-faceget togethers. “With our customers,it can range from daily meetings withset agendas, or weekly operational reports,to quarterly review meetings.It’s up to them.”
The key, he says, is that the companiesfind a way to establish trust.
Sadowski recommends that anyonelooking to outsource its logistics functionreview the 3PL’s IT services. “Youwant a company with a common andcoherent technology stack, globally,” hesays. The reason being that the serviceprovider will make it possible for theclient company to leverage the investment (in the 3PL service) worldwide. “They shouldlook for a provider that has shown innovation insystems and continues to drive innovation into theirbusiness with new ideas, processes and technologies,”he adds.
Along with the ability to trust the 3PL, Cain sayslooking at the service provider’s track record is critical.“Are they doing what they say they can do? Dothey have long-term relationships? Are they cultivatingcontinuous improvement? These are the questionsyou should be asking,” he says.
Giovingo says, to work with a 3PL effectively, theclient company needs to know that the 3PL’s offeringsare in sync with its needs. Just because the 3PLhas worked with big-box stores does not mean it canhandle direct-to-consumer services, for example.
“I think the client needs to assess the 3PL’s abilityto integrate the IT systems of all the partners in thesupply chain,” says Biddlecombe. “From a pure technologyperspective, the 3PL’s ability to deliver reportsand scorecards on KPIs is important.”
Goldsmith says, while the 3PL can often work withits client’s business model, it can be more advantageousif the client is willing to accept the 3PL’smodel. “Customers are sometimes surprised at howmuch intellectual power and resources the 3PL canbring to the bargain,” he says. “These resources functionas a supplement to the client’s staff.”
Third-party logistics providers are in the fortunateposition of seeing how many businesses run, whetherit’s finding a shipment that went astray last night, orcreating a five-year plan. Most companies see onlyone way of doing business—the way they’ve beendoing it. Outsourcing logistics functions is becominga major way to create a more efficient supply chain.
For more information, contact any of the followingthird-party logistics providers:
CEVA Logistics, www.cevalogistics.com;
ODW Logistics, www.odwlogistics.com;
Odyssey Logistics, www.odysseylogistics.com;