Outsourcing logistics services to 3PLs is a risky business.
Even the biggest companies can get wrong. Remember KFC and DHL – and this wasn’t even a first time outsourcing.
So, take a considered approach to the benefits and disadvantages of outsourcing. Then if it is right for you, take a managed approach, supported by external professional and experienced resources. This will mitigate the inherent risks and lead to a successful outsource with minimum disruption to your business.
Outsourcing Logistics Services – getting the best possible deal.
Using experts in this key area leaves you free to focus on the things you’re best at – your core business. You’ll get a 3PL supplier who through their expertise and cutting edge technology will save you money and allow your supply chain to develop much quicker than you could have achieved on your own.
A 3PL outsource will generate significantly more value to your business than doing it yourself. If done properly it will also dramatically reduce the risk of change.
Value, of course, can be determined in many different ways.
Operational cost reduction, getting capital off the balance sheet, having a more flexible future-proofed solution are all legitimate justifications for an outsource. However, don’t forget that you are outsourcing the means of fulfilling your customer’s requirements and hence an essential element of your core business.
That’s fine but this is something you’ll very unlikely to be able to take back in-house again if it all goes horribly wrong.
So that’ s the doom and gloom out of the way.
Outsourcing has huge benefits. Getting instant access to skilled and experienced logistics resources, proven tried and tested systems, new technology and infrastructure are always at the top of the list.
Outsourcing of logistics services once decided upon, will always benefit from a bit of professional and experienced outsourcing resource. This will allow risks to be mitigated and facilitate the establishment of a value-adding relationship with a 3PL.
Removing the risk when you outsource logistics services.
We have worked across both sides of the logistics service outsourcing process. We are very familiar with the frustrations of both potential suppliers and the outsourcers themselves and the fact that problems that can arise.
An example of this would be cost increases or service level disruptions occurring as soon as the 3PL takes over the operation. This is often viewed as a clear case of commercial opportunism by the outsourcer but often arises because new unplanned and un-budgeted services are requested. A clear sign of an inadequately detailed specification.
We often come up against situations, where trust between a 3PL and their client have broken down. These usually occur for historical reasons because the expectations of both parties were never properly aligned in the first place. Quite often the contractual and account management framework was of insufficient quality to facilitate correction.
So, given you have decided to outsource 3PL services what are the risk areas and how should these be dealt with?
The first and most basic requirement for any outsourcer is the need to describe the operational environment accurately and in detail. By “detail” we mean covering flows, processes, timings, and customer requirements.
This needs to be accompanied by a logistics data set. The greater the detail at this stage the higher the chances of success.
So we would expect to see details of transactions, orders, order lines, product code, product classification, quantities and customers. Finish off with an accurate master data file and inventory information.
It is important that the outsourcer is completely open and honest about likely future changes in the business and communicates this to potential bidders. Not telling them now will only ‘kick the can down the road’. That helps no one. Both parties will find themselves locked into a solution which may no longer be appropriate.
It’s all about the right relationship – get it right first time.
The open and honest approach should also be used when considering the type of relationship you want from an outsourced partner.
Given their essential role in your supply chain, it needs to be very different from a typical relationship with a supplier of commodities or basic services. Questions about how to ensure that changes in business profile, ongoing cost reduction, service level development and introduction of new technology are all something that needs to be enshrined in the contract.
All the major 3PLs will have their standard contract templates defining responsibilities, liability levels, basic requirements, rates and costs. However, you’ll want a configured SLA, (service level agreement), which will go into the details of the operations and relationship, to ensure both parties remain strategically aligned.
If this is done well, then both parties can look forward to a fruitful and successful partnership based on value creation.
Bisham Consulting is an independent supply chain consultancy with a hands-on, practical and highly commercial approach. We have a 30-year history of successful project delivery in the UK, Europe and around the world and only recommend solutions which we are happy to help our clients implement. Have a look at our website www.bishamconsulting.com to see the full range of our services or contact Caren Tomkins on 0044 1628 487000.