Making the moves on 3PL
From the February 2020 print edition
Third party logistics (3PLs) play a massive role in today’s supply chain. It’s about leveraging expertise, gaining access to technology and transportation fleets and having a team monitoring, analyzing and optimizing the logistics to cut costs and increase efficiencies.
There are many reasons why a company would look to outsource its logistics. Perhaps a small company is growing and needs help dealing with cross-border shipping or access to a more international supply chain, or maybe it requires warehousing closer to its core market. Quite often, outsourcing logistics and supply chain management to a 3PL allows a company of any size to focus on its core competencies.
“There are great benefits for small, medium and large companies,” says Doug Harrison of Harrison & Partners Consultancy and a board member for several companies. “The first thing is that you made a decision to outsource what is a non-core part of your business. Secondly, you’re partnering with a company that’s going to bring expertise in an area that’s beyond what you have. In outsourcing their supply chain, the customer is moving into a better, more efficient network at a lower cost.”
As well, 3PLs offer the flexibility of being able to scale business up or down depending on demand and manage warehousing on behalf of clients. “Sometimes it just comes down to a decision on core competency,” says Darryl Nelson, managing director of Supply Chain Alliance. “For example, if a retailer is prioritizing use of capital in its store network, it might be more focused on expansion, renovations and/or inventory rather than investing in distribution facilities and material handling equipment. It can also be about access to systems. When you get into warehouse management systems (WMS) and warehouse execution systems (WES), they can be both expensive and time consuming to deploy. Companies may prioritize to utilize their resources in different ways.”
For C.H. Robinson, one of the largest global third-party logistics companies, the focus is on navigating the extremely complex global supply chain by leveraging expertise and technology to achieve efficiencies. “What’s really important is a combination of local expertise and global knowledge,” says Scott Shannon, vice-president of North American surface transportation for C.H. Robinson. “It’s not just about decreasing costs, but how we can improve the overall process. When you look at it more holistically, there are multiple winners when you do it that way.”
The relationship with a 3PL can be as simple as employing a carrier service when needed or as complex as outsourcing all aspects of your supply chain management. But when considering 3PL services, having a clear understanding of your company’s needs—present and future growth—and being as transparent as possible are paramount to finding the right partner.
Starting the conversation
While the term third party logistics may be used by providers that only offer freight or warehousing services, a true 3PL will bring a bundle of services to the table that can be customized to the customer’s individual needs.
“My recommendation is to identify what you really need from a 3PL,” says Harrison. “Send out RFIs and analyze the responses in line with what you really need.”
To start, look at whether or not the 3PL meets your requirements. “Do they live your values? These can be very close relationships, so is it someone you can work with? How are they going to respond in a crisis or moment of need?” suggests Harrison. “Once you have that narrowed down, ask them to tell you how they would operate the network. Let them analyze your data and come back with a proposal of how they would run all or elements of your supply chain. You will get a chance to see how capable they are in terms of using engineering tools and standards and modeling to see how they’re going to manage your supply chain.”
Nelson agrees, “You really want to prequalify the market and make sure that you’re lining up with the most suitable 3PLs and educating yourself thoroughly during the process. These solutions are highly customized, so you need to fully understand and clearly articulate your service requirements, starting with the amount of space you’ll require, whether it’s to be shared space or standalone, and what kind of technology you’re likely going to need to facilitate the process that you envision and the degree of integration that will be required.”
3PLs have different strengths and often play in different industry verticals. Nelson suggests touring their facilities, talking to their references to make sure there are credible people with similar requirements doing business with them today that will promote them or offer a testimonial. “You want to get to know the people that will run your account—the general manager, operations manager, customer service and senior systems or IT people are all people that you will come to depend upon should you choose to outsource.”
You want to provide visibility through integrated planning and timely communication, Nelson adds. “Tie the 3PL into your forecasting process, and make sure they’re at the table when talking about seasonal increases, new product launches and other planned events that will impact on volumes or otherwise impact their day-to-day operation,” he says. “One common mistake we see is businesses looking at outsourcing as a quick fix or a means to offload problems affecting their organization—such as a lack of planning and/or a lack of compliance.”
And lastly, being as transparent as possible will allow 3PLs to understand your scale and propose a price accordingly.
As technology evolves and the global supply chain grows in complexity, data analytics has become one of the most powerful tools for 3PLs. Being able to harvest business intelligence out of raw data is increasing visibility into the supply chain and is a key driver for many customers.
Today, predictable analytics and forecasting are the key drivers for optimizing logistic processes. Whether it be a seasonal change in demand, weather patterns, political events or even traffic issues, having access to real-time data allows shipments to be rerouted on the fly, and provide information for companies to react to their clients’ needs more effectively.
“3PLs can manage licensing, data storage and technology issues such as fire walls, transportation management systems (TMS), and use all of that information to provide dashboards that allow customers to monitor how their supply chain is operating on a daily basis, and alert them when there’s failure points,” says Harrison.
That flexibility and visibility is very important. “You can’t improve something you’re not measuring, and you can’t measure something that you don’t have visibility or access to,” says Shannon. “Ninety-nine per cent of all data that exists today around the globe was created in the past two years. If you think about the future and how many data points will be out there, it’s mind-blowing. And that’s where technology comes in. You need to turn that big data into solutions and make that data work for you.”
One way that C.H. Robinson has employed data is through an AI pricing tool that its client, Anheuser-Busch, uses to manage demand outside of its normal shipping patterns. This application allows the macro-brewery to access the best spot rates for freight in seconds. “When they have freight that falls outside of their normal supply chain, we can use live data to get them the best price and service for these loads,” says Shannon. “That’s a good example of how we’re using visibility, data, supply chain collaboration and AI to access the best rates.”
Today’s end consumer is finicky, the service standards are high and the cost of mistakes is exorbitant. Such a rate of change is forcing companies to make decisions much more frequently. Nelson says, “This constant state of change is forcing 3PLs to be as innovative as they have ever been, and clients need to keep looking for that expertise and leveraging it whenever it can add value.” SP