Why Use 3PL?
•To Save Time: Outsourcing the Logistics function can free up resources to focus on core competencies.
•Because Someone Else Can do it Better: Even if you have resources available, another organization within the supply chain may be able to do it better, simply because its relative position in the supply chain, supply chain expertise and economies of scale.
•To Share Responsibility: 3PL companies can share responsibility for managing global supply chains, keeping customers and stores properly stocked, and delivering the perfect order every time.
•To Re-Engineer Distribution Networks: Logistics outsourcing can be a quick way to re-engineer distribution networks to meet global market demands and gain a competitive edge.
Implementing a Successful Third Party Logistics Project
•Outsourcing Strategy: Without it, there will be no clarity about outsourcing and outcomes to the organizations. It should be well thought-out and measured against the in-house solution and capabilities.
•Document the Processes: To eliminate gaps in understanding and expectations, organizations should develop Standard Operating Procedures for all the processes to be outsourced.
•Analyze SWOT: This analysis helps to understand the strengths, weaknesses, opportunities and the threats of outsourcing logistics versus in-house solutions.
•Conducting a Comprehensive Study: The advantages, challenges and cost benefits of outsourcing should be documented.
•Create a Robust Selection Process: Adopt a scientific selection process. Invite eligible third party logistics companies for formal presentations on without giving any requirements. The organization can also hire a third party to help create a short list of service providers.
•Document the Expectations: Set down expectations in clear terms and include current costs. This will help avoid confusion later.
•Use a Request for Information (RFI): This tool will help gather information and measure strengths and weaknesses. Beware of service provider over commitment.
•Do Your Homework: Making a site visit. Interviewing the service provider’s existing customers. Evaluating responsiveness, ability to meet and exceed the expectations, management team quality, experience, flexibility and other factors important to company.
•Create Good Legal Documentation: Document what is agreed and what is disagreed clearly. Address possible friction points and specify remedies.
•Define Targets: Create specific performance targets not only to measure performance but also to initiate corrective action if needed. Explore the possibility of gain share arrangement for positive performance.
•Measure and Review Performance: The measurement system must be efficient and accurate. Create qualitative measures which focus on effectiveness and quantitative measures which focus resource efficient utilization. Some Fortune 500 companies measure performance daily, weekly and monthly and discuss it on a quarterly basis.
•Develop an Efficient Costing System: This will help in understanding the costs involved in outsourcing and help the organization measure cost efficiency and answer the question, “Are we making any money doing this?” Gather detailed data about the true costs of receiving, storage, pick-n-pack, value-added processing, special packaging, staging and loading. Avoid “pallet in” and “pallet out” costing and consider adopting Activity Based Costing to understand variance between projected costs and actual costs.
•Create a Project Implementation Strategy: Create a project plan or road map. Be clear with the service provider about who does what. Create a project management team should consisting of stakeholders from both organizations. Review progress vs. planned milestones periodically to make sure everything is on track.
•Nurture the Relationship: Both the parties must nurture the relationship to make outsourcing successful, creating mutual trust, respect and a sense of integrity.
September 5, 2008 at 9:11 pm
You wrote:
“Because Someone Else Can do it Better: Even if you have resources available, another organization within the supply chain may be able to do it better, simply because its relative position in the supply chain, supply chain expertise and economies of scale”
This is so true.
Let’s talk about shipping rates for a second. The person that negotiated that original discount rate takes pride in it. They wonder how you could possibly help them.
They don’t understand all of the behind the scenes work that goes into reclassifying freight, building realtionships with the carriers, bidding, negotiating or the power that comes from having superior buying power because of the amount of clients that a 3pl brings to the table.
In the end, all of this translates into serious savings.