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Supply Chain & Logistics: Are Your Logistics Partners Making the Grade?

April 8, 2013
Some manufacturers are measuring the effectiveness of their 3PL relationships by using a scorecard, which grades 3PLs on how well they perform in any number of logistics functions.

Consumer packaged goods giant Procter & Gamble Co. doesn't have to be sold on the benefits of using a third-party logistics provider (3PL); P&G uses 53 of them. Nestlé (42), Unilever (36) and PepsiCo (35) are also prolific buyers of 3PL services, according to research conducted by consulting firm Armstrong & Associates. The same can be said for automotive OEMS (GM uses 51 3PLs, Volkswagen 42, Ford 41), industrial conglomerates (Philips uses 32, Siemens 30, General Electric 29) and high-tech companies (Hewlett-Packard, to cite but one example, uses 39).

See Also: Lean Supply Chain Logistics Best Practices

Some manufacturers even use a specialized 3PL (variously known as a lead logistics provider or a 4PL, for fourth-party) to manage all of their 3PL relationships. Henkel Consumer Goods Inc., for instance, recently hired a 4PL to serve as liaison for all of its logistics activity in North America while providing support for such functions as order management, shipping, warehouse and transportation development, and supply chain network improvements. When asked why Henkel is going the 4PL route, Torsten Pilz, senior vice president, supply chain, says, "Outsourcing our logistics division will help to reduce costs throughout our logistics operations while allowing us to focus on core competencies."

"Outsourcing our logistics division will help to reduce costs throughout our logistics operations while allowing us to focus on core competencies." -- Torsten Pilz, SVP, supply chain, Henkel Consumer Goods

But at some point, all manufacturers ultimately have to own their supply chains, and many measure the effectiveness of their relationships by using a 3PL scorecard, which grades 3PLs on how well they perform in any number of logistics functions. Not all scorecards are created equal, though, according to David Frentzel, vice president, global contract logistics with APL Logistics, and not all manufacturers use them effectively.

"It's easy to assume that every 3PL is solely responsible for every grade on its individual scorecard," Frentzel notes. "But in reality, most supply chains are the equivalent of a relay, which means events -- such as shipping delays -- that happen before providers get the baton often play a role in the success of their run."

Good scorecards, he says, call attention to this reality, "whether it's by color-coding performance attributes that were negatively impacted by another party or by including a measure for a 3PL or company department farther up the chain. In the process, they help their users do a better job of assigning credit and blame where they're due."

Don't Overcomplicate the Process

Manufacturers should resist the urge to micromanage every last logistics detail they've outsourced to a 3PL. "Scorecards that are over-stuffed with measurable attributes can easily become too labor-intensive for 3PLs to maintain," Frentzel points out, "and just as much of a burden on your personnel who are responsible for reviewing and responding to them."

He also suggests that manufacturers concentrate their attention on their major logistics providers, e.g., a 3PL in charge of managing a distribution center, rather than attempt to grade everybody. Some of these 3PLs, he notes, "probably don't handle enough of your business to justify the time and expense involved," especially if the manufacturer is employing a couple dozen 3PLs for various tasks.

Frentzel adds that 3PLs appreciate detailed feedback about their performance because they have a vested interest in making sure their personnel are living up to the manufacturer's expectations. "If your scorecards identify even the slightest disappointment with one of their operations, they want to know, and they want to know sooner rather than later." He recommends that manufacturers give their preferred 3PLs prompt visibility to their scores, which will improve the likelihood of timely performance improvements.

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