The Dos and Don'ts of Third-Party Logistics

Although a 3PL can manage your logistics tasks, you still have to manage the 3PL.

The whole idea behind using a third-party logistics provider (3PL) is to avoid having to devote corporate resources that could be better-used on core manufacturing tasks. That doesn't mean, though, that a manufacturer should abdicate responsibility for keeping an eye on what the 3PL is doing, particularly since a logistics provider typically has direct contact with your customer base.

According to Dan Montgomery, vice president of business development for APL Logistics, a provider of third-party warehousing and other logistics services, there are several techniques that manufacturers can use to effectively measure and monitor their 3PLs. The following from Montgomery are some basic dos and don'ts:

Do:

Define KPIs. Develop a set of highly descriptive key performance indicators (KPIs) that include precise times, quantities and other numerical measurements so that everyone is on the same page about what it will take to achieve acceptable on-time, accurate and cost-effective performance levels.

Establish a comfortable reporting schedule. In addition to giving you consistent access to the measurements you value most, the consistency with which your 3PLs stick to this reporting schedule is another good measurement of their ability to meet your company's needs.

Insist on logs or time stamps. Having your 3PLs keep a log of when individual trailers arrive at and leave their distribution centers -- or using time stamps to achieve the same objective -- has excellent measurement potential. It can help your company monitor any performance issues that might be contributing to excessive detention claims.

Take advantage of visibility systems. Have your 3PL set up visibility tools to prompt your company anytime there's a notable exception to a delivery schedule, fulfillment rate or inventory level. That way you can easily pinpoint any minor performance glitches before they result in supply chain disruptions.

"Lean" on your provider. Many 3PLs now participate in continuous improvement programs such as lean. Encourage your 3PL to include your company in these programs, because the tools these programs rely on usually include a variety of detailed performance measurements -- and improvements.

Don't:

Hesitate to sweat the small stuff. While it's imperative to measure and monitor a 3PL's strategic performance issues, it's also a good idea for someone at your company to periodically examine how your 3PLs are handling the details of working with your products, too. For example, ask your provider for information about its OSHA recordable incidents, because these incidents can be costly on several levels, not to mention detrimental in terms of lost productivity. Let your 3PL know you'll want to occasionally review your distribution center's or dedicated fleet's maintenance receipts, because facilities and fleets that are well-maintained tend to be more cost-effective in the long run. And don't underestimate the power of an annual visit, because during a walk-though of any 3PL facility you're more likely to get a good handle on some operational details -- such as facility cleanliness -- that might not be readily apparent on paper.

Be afraid to draw comparisons. Consider compiling a set of performance reports that rank all of your 3PLs based on the same metrics -- and then share the results with all of them. Knowing how they stack up against the competition can be a powerful incentive for 3PLs to either improve what they're doing or keep up the good work.

Underestimate the power of positive reinforcement. Many of the country's most successful companies use their 3PL measurement data to determine the winners of annual awards. And the 3PLs who win them are usually very motivated and inspired by the results.

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