According to an interview I recently came across with Rob O’ Byrne at the Logistics Bureau, many companies are dissatisfied with their Third Party Logistics (3PL) provider.
Robs mentions that the majority of companies that have used his consulting services over the last ten years, feel that their providers “don’t understand them, and don’t respond to their needs.” Typically when he starts working with them they have had it with their 3PL and are looking for assistance in moving on to a new relationship. While this is an option, it is also worth working to rebuild and re-evaluate the relationship with your existing provider.
Open communication will always be one of the most important things to maintaining a third party logistics contract. This is something that needs to be worked on by both parties.
Rob mentioned that 90% of cases where 3PL contracts are underperforming it is not always solely the logistics providers fault. Many times logistics contracts are awarded without taking the proper steps to understand the details of the logistics program.
One of the biggest problems that typically happen in 3PL relationships is that companies provide inaccurate information regarding their programs and in return the Logistics provider doesn’t budget accurate resources.
Logistics Services are quoted using very strict criteria, and it is essential for 3PL’s to have accurate inventory information to bid on. When data supplied during the RFP process turns out to be inaccurate or understated, this is typically when problems arise, but this is also the time when open communication helps the most.
Logistics companies by their very design exist to provide flexible services. Inventory fluctuates and 3PLs are ready to react. But when the program completely deviates from how it was initially quoted, the contract needs to be revisited or the relationship has a chance of deteriorating very quickly.
According to the Logistics Bureau there are six key areas to focus on when evaluating a failing 3PL contract.
“1. Commercial arrangements – firstly, how is the contract resourced and costed? And secondly, what pricing mechanism is in place to ensure cost visibility as well as incentives for operational improvement.
2. Contractual arrangements – are the expectations of the customer clearly articulated in the contract, along with appropriate Key Performances Indicators (KPIs)? Does the contract term fairly reflect the required investment and commitment? What are the business risks involved in termination?
3. Service and cost performance – what has been the real performance of the contract, when compared to expectation? What has contributed to under performance?
4. 3PL processes – is the 3PL adopting appropriate processes in fulfilling the contract? Can these be jointly improved?
5. IT systems – are there IT issues that impact the performance of the contract and are there some easy fixes that can be employed?
6. The customer/3L relationship – at both the operational and account management level are there issues with the relationship? These might be due to a mismatch of culture, or more often due to individual clashes.”