The more challenges and opportunities logistics managers face, the more services and capabilities third-party logistics providers offer to maintain their own competitive edge. Problems arise, however, when the expectations of clients in a 3PL relationship don’t match the business realities of their service provider.
While many 3PLs have certainly expanded the scope of their services, clients must carefully analyze their own requirements and decide which service voids they need filled and to what degree they’re willing to share sensitive data with a 3PL so that all three parties in that 3PL relationship—end customers included—succeed.
As a social cause, environmental sustainability has often been a polarizing issue. However, when the environment is tied to business sustainability, it can galvanize all parties in a supply chain—including 3PLs and their clients. In fact in the case of DuPont Building Innovations (www2.dupont.com/Building_Innovations/en_US) and its 3PL partner Exel (www.exel.com), it has been a bonding experience.
Exel, a Deutsche Post DHL company, was a key partner in the DuPont Building Innovations “Drive to Zero” landfill program. Earlier this year Exel’s Lockport, N.Y., facility was acknowledged for its contribution to DuPont’s effort to reduce its environmental footprint from 81 million pounds of landfill waste annually to zero within three years.
The DuPont Buffalo facility in Lockport was among 15 manufacturing and third-party partner sites worldwide that participated in Drive to Zero. Using free tracking tools provided by the EPA, the Lockport team determined that even after implementing many recycling procedures, it was still left with two waste streams: a small amount of unrecyclable garbage and unsellable fragments of DuPont Corian solid surface material. For Drive to Zero, Exel and DuPont collaborated to eliminate this remaining waste by:
➤ Engaging a company to grind grade B Corian solid surface countertops into a saleable product used in road aggregate, thereby reusing finished goods waste;
➤ Composting food waste and using the compost to fertilize trees on the property; and
➤ Shipping the last remaining waste to a nearby energy-from-waste facility, where it is incinerated and turned into energy to power the electrical grid.
Exel’s Lockport site reached zero landfill status in August 2011, well ahead of schedule. Around that time David Walter, DuPont Building Innovations’ American business manager for inventory, spoke about the Drive to Zero program at a public policy forum in Washington, DC. Executives from Exel’s parent company, DHL, were present, as were several politicians involved in environmental policy. This high-profile approach to sustainability has helped DuPont solidify the level of trust Walter is convinced is necessary between a company, its customers and its 3PL.
Walter puts himself in the 3PL’s position, with the understanding that if a client comes to him saying they want to achieve zero landfill, there can be a tremendous downside if after making the necessary investments to achieve that goal there’s a sudden change in the client’s management and philosophy. That makes trust a best practice in such a relationship, and a necessary element for future success. He has shared that observation with the rest of the DuPont organization and he believes it sends a message to their industry.
“We’ve planted a stake in the ground in the building materials industry and it’s important to our customers that we’re seen as a sustainability leader,” Walter says. “Our architects and designers often get LEED [Leadership in Energy and Environmental Design] certification on their buildings and they want to know they’re working with a sustainability leader. We’ve increased business opportunities as a result.”
Filling Transport Gaps
Transportation efficiency is another important aspect of both environmental and business sustainability, and more and more shippers are turning to 3PLs to help streamline their product movements. For example, drayage services, usually offered by motor carriers for pickup and delivery of ocean or rail containers, is now becoming a 3PL offering. According to Chris Cline, president of Corporate Traffic Inc., (www.corporate-traffic.com), this can cut transportation costs. It relates to a 3PL’s buying power.
“The right 3PL will have the buying power to secure lower rates from drayage carriers, which results in lower total costs for the shipper,” he says. “Rather than feeling beaten down by the 3PL, many drayage carriers welcome the opportunity to become a steady customer of the 3PL, as it secures long-term, repeat business.”
3PLs can also help drayage carriers arrange round-trip bookings, rather than merely single-leg shipments. When shippers arrange drayage directly with the carrier, they are often forced to pay round-trip rates because the carrier has to make a “deadhead” return trip after delivering the outbound cargo. However, Cline explains that under a managed-dray model, the 3PL can often find cargo for the return leg of the dray carrier’s trip.
“The carrier can then distribute fuel and other costs among multiple shippers in a single shipment,” he says. “The same approach works in relation to containers and rail cars. When a 3PL can find new cargo to fill empty containers and rail cars, it makes for more efficient use of those assets.”
In addition to facilitating the local moves of containers coming in from abroad, 3PLs can also help clients succeed in global markets. That expansion often includes a menu of complex relationship management services. But with complexity can come confusion about deliverables on both sides of the 3PL/client relationship.
“As companies get into emerging markets they’re asking for their 3PLs to step up with more complex issues like helping to manage free trade agreements, not only the documentation to support the physical movement, but what you need to do to comply and get concessions,” says Shanton Wilcox, principal with Capgemini Consulting’s Supply Chain Management business (www.us.capgemini.com). “The question is, how much access do 3PLs have to those kinds of big picture conversations on the shipper side? Recent supply chain disruptions have shown how we may need to expand those relationships with 3PLs beyond the core shipping and warehousing needs.”
3PLs can offer new value-added services to help shippers understand, in case of a tsunami, for example, what containers of theirs were at the port, what percentage of them left the port and which were in transit to the port. What must be added to that mix is knowledge of the net impact of that event on product or material so those processes and activities can be managed and updated. In that case each party in a 3PL relationship must have a clear understanding of their own roles and responsibilities.
The Cost of Commitment
A 3PL needs to know, if the client wants it to invest in a commercial visibility platform to analyze the net effect of a disruption on the client’s operations, what level of commitment comes with that? Does that relationship go beyond a transactional two-year term or will the client sign on for a four-year commitment with a likely two year extension—contingent on the 3PL hitting certain performance milestones and providing services over and above their core offerings? That could entail the 3PL becoming the core orchestrator of the client’s logistics operations. That’s the stuff of detailed contract language.
As you go to a cloud-based visibility platform and a centrally based business management arrangement, then you need to decide who gets alerts and what are the roles and responsibilities around receiving those alerts. Is there a set resolution mechanism in place?
“That’s traditionally not defined in many existing contracts,” Wilcox says. “What are the options available on the 3PL side to recommend solutions to a particular event? And if there’s a series of similar events, is there a root cause that needs to be addressed on the shipper or 3PL side? As information expands to fill some of those gaps then it exposes roles, responsibilities and expectations that haven’t been fleshed out [in typical relationships.]”
Get Your House in Order
Before signing such a contract, a client organization needs to be just that: organized. Its own internal information flows must be well mapped out before a 3PL taps into that data stream.
“Even the best 3PL cannot magically improve a company’s non-logistics master data,” says Andy Smith, chief operating officer at Kenco (www.kencogroup.com). “Though we can help improve data as well as match it with newly captured information, if a company’s ERP, or some other corporate system, does not adequately capture and maintain internal operational data, problems will continue.”
Smith adds that 3PLs can’t standardize a customer’s internal metrics, and if those metrics aren’t aligned across all supply chain functions in the enterprise, the ability of 3PLs to significantly impact the customer’s network will be limited.
Indeed, most 3PLs’ IT strengths begin and end with developing, procuring and integrating supply chain information solutions or creating specialized tools such as warehousing carbon footprint calculators or multi-modal shipment optimizers. Resolving enterprise-wide systems issues is not a typical 3PL core competency.
“While some of us may be able to add systems value in many areas, we usually are not your best option for enterprise solutions or even resolving internal conflicts,” says Kyle Oslos, director of logistics for APL Logistics (www.apllogistics.com). “The P in 3PL doesn’t stand for Peacemaker. If various departments of your company—and the players within them—are usually at odds about important supply functions, don’t expect your 3PL to be able to achieve a detente. In the long run, your company’s commitment to teamwork and integration has to be driven from within.”
Marketing Support, Not Rescue
Don’t overlook the role of product marketing on your team as you assess your business and what you need from a 3PL. Oslos has dealt with his share of clients who expect their 3PL to rescue an obsolete or uncompetitive product from oblivion simply by backing it with excellent logistics.
“No matter how good a 3PL’s services are, a low-quality or unpopular product delivered to the right place at the right time in the right condition will probably continue to be a low-quality, unpopular product,” he says. “In the same vein, sales of a badly marketed product will probably continue to lag even if that product’s handling and delivery exceed retailer or customer expectations.”
That said, a 3PL can add support to a marketing campaign, and even participate on the client’s team when that client launches a new product or distribution channel.
“Due to the breadth, complexity and aggressive timelines associated with many of these launches, and the fact that most logistics departments are already handling myriad demands, a 3PL can buy that in-house team the time it needs to get up-to-speed, achieve heavy initial objectives and get through the launch phase,” Oslos says.
These new roles 3PLs are taking on put them right in the middle of your logistics power grid—your supply chain network. In that position, the client must decide how much power to allocate to this partner. The question then changes from “What can your 3PL do for you?” to “What are you willing to let your 3PL do for you?”
Then other questions follow:
➤ Are you willing to give your 3PL more of a partnership role or do you want it to be just an order taker?
➤ Are you willing to let your 3PL be an innovator both in the big picture and day-to-day or is innovation the exclusive province of your internal operations?
➤ Are you open to entertaining a 3PL’s suggested approach to your supply chain challenges? If so, how much of that approach are you willing to consider?
“Bear in mind that supply chain management is an interdependent function, with the sum of services greater than the whole,” Oslos concludes. “That means that if you decide to let your 3PL implement only 25 percent of the improvements it suggests, you may actually get less than 25 percent of the results.”
Of course you must judge if those results were what you wanted—or needed.