Relationships between shippers and third-party logistics (3PL) providers frequently focus on tactical and operational elements rather than strategic elements.
When sourcing 3PLs, the shipper’s RFP frequently focuses on lane costs rather than strategic elements such as systems integration, real-time visibility, and total-cost performance. The transactional lane-focused relationship is appropriate for companies that require basic lane coverage but do not yet have the maturity to understand total-delivered costs.
For organizations that have progressed beyond the tactical focus on lanes and coverage, a 3PL partner must play a strategic role, going beyond just transporting and storing to identifying problems, implementing solutions, and adding system-wide value.
The 3PL must help the shipper change its management system to better reflect the importance of supply chain in the business. It all starts with the two partners making a decision. The shipper and its third-party logistics partner should reconsider:
What is our primary goal?
What kind of value do we generate?
Are our strategies in sync?
Are we culturally compatible?
Some 3PLs’ primary goal and value proposition is to reduce individual transaction costs and increase lane coverage, whereas others have focused on building robust carrier networks with delivery disciplines, high connectivity levels, and advanced optimization techniques. Some 3PLs have rotating carrier networks with underfunded equipment and undertrained operators, whereas others invest in infrastructure, technology, relationships, and human development over the long term.
Each has a role to play in today’s logistics world and will thrive if the right match is made.
WHY PARTNERSHIPS FAIL
When organizations are strategically or culturally misaligned, the partnership frequently disintegrates due to a reluctance to move forward toward common goals. This usually happens when the two parties rush through the sales and negotiation process, focusing on functional area budgets, only to discover that they are misaligned and stuck with five years of conflict.
Organizations that recognize the importance of aligning on purpose, value, strategy, and culture will avoid the 1980s-style 3PL selection method of identifying three vendors, allowing them to compete, and negotiating tactical deal points.
Instead, they will use an executive-interview method to get to know each other, confirm areas of alignment or misalignment, and wade into a relationship with the expectation that each party leaves knowing about each other’s business and understanding how to maximize value for each other.
The emphasis in the final stages of this type of negotiation is not on shaving 1% off final fees, but on strategic connections that will result in 4x multiples on returns. It consists of the initial changes that organizations must make in order to maximize relationship effectiveness.
A 3PL partner who is aligned on purpose, value, strategy, and culture can provide far more value than a transportation budget variance report.
Avoid commoditized old-school approaches to negotiation and selection, and don’t undervalue the value that can be created with a partner who shares your maturity level.
ProConnect Integrated Logistics – Your Freight Forwarding Partner
A third-party logistics firm can help shippers mitigate a variety of risks throughout the supply chain by outsourcing certain logistics functions. By partnering with a 3PL, a shipper can free up time to concentrate on his or her core competencies without suffering from the ever-shifting logistics landscape.
If you are looking for a partner to take care of all your logistics hassles, talk to us.