Third Party Logistics: How to Avoid a Service Disaster

PHILADELPHIA, Sept. 4 /PRNewswire/ -- A third party logistics provider (3PL) can be a great ally for heavy duty truck and automotive components manufacturers. Outsourced services now may include transportation, warehouse management, inventory replacement and order fulfillment.

Aftermarket service has not only proved to be a critical component of customer satisfaction but is a key component of top line revenue and profit. According to Leading Edge Logistics in Philadelphia, aftermarket service generally accounts for up to 20 percent to 30 percent gross revenue and 40 percent of profits of parts suppliers.

To satisfy increasing demands for visibility into inventory levels, correct poor customer service, stop overflow of inventory and stock-outs...along with blunting pricing pressure and revenue demand... manufacturers have begun outsourcing procedures that are not core competencies to strategic partners who are better equipped to drive efficiencies.

"There are, however, some things that you should consider before you join forces with a 3PL provider," warns Leading Edge Logistics president Tom Torcomian. "To simplify the process, we've boiled it down to six key questions to ask before you spend a dime on the project":

1. Know if you are ready for a 3PL.
   Make sure that your company is ready to venture into outsourcing... everyone has to agree that logistics is not a core component of your business... including the managers in charge of the process.
2. Have realistic expectations of a 3PL.
   Do not expect more out of the provider than you do of yourself. Trust, flexibility, and responsiveness are indispensable elements on both sides of the 3PL provider-user relationship to move ahead. What will help with all of this is communication and relationship.
3. Understand that sometimes things just go wrong.
   The 3PL provider that you chose might not be the right fit, or they might not deliver on all their promises in a timely fashion. Try to be offensive before having to be defensive. You can set up an "Exit Clause" on the contract, and after six months you will be able to reassess the situation and decide whether or not things are working out with the partner you have chosen. Third Party Logistics: How to Avoid a Service Disaster (continued)
4. Know your problems and guess at possible solutions.
   If you do not know the definition of the problem yourself, then it is unrealistic to think that the provider will be able to find the solution.
5. Document your requirements and your current service levels.
   As you document requirements, it forces you to look at the operation in depth. Companies should first go through a meticulous self-evaluation and establish a standard against which the 3PL's performance can be measured.
6. Give the selection process the proper amount of time and assessment.
   Create an initial list of three to four providers and from that list narrow down the choices to two providers. The five most important criteria in selecting the 3PL are price, technology capabilities, financial stability, customer service capability, and creativity in problem solving. Take site visits and interview the 3PL's past clients in order to get a realistic view of their performance.

"A 3PL study published by Georgia Tech found that in order to improve the quality of this specific business relationship, both parties should think of 3PL providers in three related contexts:

• As a key resource directly to 3PL user organizations;
• As a key link between supply chain organizations, and;
• As a key to supply chain integration.

You just can't afford to shortchange any of these," LEL's Torcomian concluded.