It’s no secret that rising transportation costs are one of the greatest supply chain risks faced by exporting firms. A 2016, Third-Party Logistics Study found that 70% of all shippers attribute successful collaboration with their 3PL providers as a main driver in logistics cost reductions, with a further 75% saying that 3PLs help businesses innovate and find effective ways of improving existing logistics.
It’s clear that nowadays 3PL providers are providing more than just cost-savings; increasingly partnerships with 3PLs are becoming long-term investments that benefit both parties. Now businesses invest in technologies, integrate business processes, share vital shipment information and divide responsibilities as well as supply chain accountability with their 3PL partners. In this environment it is necessary that both organizations share common objectives and that planning, management and execution are all coordinated to reflect these interests.
Here are some key elements of successful 3PL collaborations.
Research before Making a Selection
Many businesses make the mistake of rushing the decision to choose their 3PL provider without considering their objectives. This means the 3PL partner you select might not have the capacity or reach to ship to your target destinations, or they may have different expectations regarding contract pricing.
Make sure that your 3PL provides a stable unified platform with consistent processes across the enterprise. Many of these firms are the result of several acquisitions and mergers with a resultant variability in services. Amongst other details you should assess before making your choice are the 3PL’s level of service, technological capabilities, management, proven reputation, strategic direction, expected results and corporate culture.
An Integrated Logistics Relationship
It is important to establish the relationship with your 3PL provider in quantifiable terms, without restricting innovation and decision-making for either party. Agreeing to a Service Level Agreement (SLA) with commonly agreed KPIs will help you track the effectiveness of your partnership through real metrics. It’s important that common processes and objectives such as customer service, IT, cost reductions, logistical improvement and high standards are also codified in this agreement to provide a framework for shared functions.
It is important that this agreement is reviewed periodically. If changes are necessary due to changes in the industry or your relationship, then these can be commonly agreed upon as well.
Great partnerships are cemented through consistent and effective communication, as well as the sharing of vital information. This includes internal and external sharing between partners as well the measurement of results and their communication. Good communication will help you resolve conflicts before they occur, and when they do, it will help you resolve the issues at hand and make decisions towards changing processes, so that those scenarios don’t occur again.
Sharing Risks and Rewards
This is a business partnership, so your 3PL should function as an extension of your own business. It may be necessary to share joint premises with your 3PL in order to foster better communication and to aid joint planning. Gain-sharing agreements are another way to show your business’s commitment to partnership by sharing risks and rewards in a 50-50 split.