strategicinsight OUTSOURCING
the consulting company Supply Chain Visions.
Langley agrees, noting that constant rebidding emphasizes short-term performance at the expense of long-term
innovation. “A 3PL doesn’t have any chance to settle in and
provide good service if it’s spending all its time trying to
regain the business,” he explains. In his view, a contract
should run three to five years in duration in order to give a
provider enough time to study your business, understand it,
and come up with some suggestions for improvement.
2. Are you preventing your 3PL from getting the big picture?
It’s hard for a logistics service provider to come up with
innovative ideas when it has a very limited view of your
operation—say, if it only deals with a buyer or supplier
relationship manager or interacts with just one
department. “If we are stuck within the confines of
a traditional transportation unit, we are unable
to take a holistic approach that ties in purchasing, distribution, and sourcing,” says Brian
Catron, director of product management
for third-party service specialist APL
Logistics.
To avoid this, Vitasek urges shippers to
bring representatives from all parts of their
supply chain—such as purchasing, sourc-
ing, distribution, and manufacturing—
into discussions with the third
party. “You need to think of it
as being like a joint ven-
ture,” she says. “When you are a joint venture, you have a
board of directors guiding the operation instead of a single
account manager or supplier relationship person.”
compensated for transactions or activities, like number of
lines picked or orders shipped, rather than for overall
desired outcomes—such as a reduction in transportation or
inventory costs or an increase in on-time complete orders.
3. Do you talk only about daily operations with your 3PL?
While lots of shippers are good at communicating with
their logistics service provider about day-to-day operational matters, few are eager to share the details of their
overall strategy with an outside company, says Tim Pyne,
vice president at Tompkins Associates and co-author of the
Outsourced Distribution report. But withholding that kind
of information can be counterproductive. In order to be
innovative, a 3PL must be familiar with your overall strategy, says Langley. He urges shippers to share key elements of
their strategic plan with their providers.
These discussions should include where the company is
going and what changes it is planning to make, says Pyne.
For example, is the company moving into e-commerce?
Does it plan to start serving a new market? Has it gained
any new customers? Does it intend to open a new distribution center or close an existing one?
5. Are you unwilling to pay for innova-
tion? “Innovation is not a costless exer-
cise,” says Langley. Whether you’re
implementing new equipment and technolo-
gy or redesigning a process, there’s going to be some
expense involved. “At the end of the day, someone has to pay
for it,” Langley says. “But relatively few customers want to
pay for an extra line item.”
Of course, the same holds true of LSPs—few, if any, will
want to take on the full cost burden themselves. Which is
why a shipper that’s reluctant to invest its own capital or
resources in any improvements probably won’t be seeing
many new ideas from its provider. “There’s no question
about it, it limits our ability to pursue innovation,” says
Catron of APL Logistics.
4. Are you paying your 3PL for activities instead of outcomes? Often, the biggest obstacle to innovation is the standard pricing model used by most 3PLs and shippers, says
Vitasek. That’s because under the standard model, 3PLs are
WHAT YOUR PROVIDER CAN DO
Of course, the fault does not all lie with the shipper, when it
comes to lack of innovation. There are many things that
providers can do to ensure they’re not missing out on
opportunities for improvements.
These can be as simple as training personnel to maintain
a “process improvement” mindset or making it clear to all
of their site managers that they’re expected to be innovative, Pyne says. One way to get managers to focus on continuous improvement is by implementing a Six Sigma or
Lean program, he notes. A formal program that pushes
managers not to be satisfied with the status quo goes a long
way toward encouraging innovation. ;
