< Back to NEWS

Performance Based Logistics: Trucking Profit Opportunity

Integrating 3PL Especially Essential to Growing Private Labels
By Tom Torcomian
President, CEO
Leading Edge Logistics

Private label marketing is about much more than sourcing. It is about delivering a complete package of services and solutions better than existing suppliers.

This is significant, as the private brand retail business has reached over $65 billion in the US.

An integrated logistics service provider is at least as critical as a low cost product source, and the trucking component is the ‘last mile’ key to making the whole system profitable. The trucking industry and retail will have to integrate planning and operational information flows to ensure success.

Accountability for phases of the process must be clearly established, together with metrics and incentives.

In the beginning of a new private brand sourcing project, the logistics provider is excited…a new client, and they want to live up to expectations. But what about six months or one year down the road?

One of the best new tactics to make sure that the interest level stays elevated is by utilizing Performance Based Logistics. PBL is a new business model specifically designed to align the interests of everyone in the complete solutions supply chain. It is a completely new paradigm for providers of the trucking component of the supply chain.

The Department of Defense (DOD) was the first to really champion the idea of Performance Based Logistics. As a result of the success PBL has achieved in the DOD it is now being applied to other various industries.

Creating the PBL Contract

If a company decides to venture in to working with PBL then the first step must be to set up a Performance Based Agreement (PBA). It is critical that everyone involved is on the same page.

The PBA provides a comprehensive outline from which each element of support… sourcing, shipping, warehousing and delivery… can be held accountable. It also serves as the basis for the scope of work, performance metrics and the criteria for payment.
The logistics provider will get paid according to how well it succeeds in delivering on the goals that are established. The trucking component will ideally sign on for the same performance based payout.

Some of the rewards for a trucking services provider could be increased profits, longer-term contracts and the opportunity to earn even greater profits through a variety of incentives.

An award and incentive contract must include customized cost reporting in order to manage the contract correctly and to aid in future cost predictions and price analysis.

Assessing PBL

An evaluation of PBL as a viable support option is necessary. The evaluation process takes place at every stage of application. Keep in mind that the analysis must stand on its own because it will have to go through rigorous analysis and review of both customer and various supply chain partners.

The pre contract trucking services analysis provides a comprehensive view, not only considering cost, but other factors including:
• Performance
• Reliability
• Maintainability
• Supportability Enhancements

When considering cost in the contract, trucking solutions should be assessed in terms of how much exactly it will cost to meet the logistics performance objectives of the company compared to the support strategies already in place.

On-Demand Transportation

On-demand transportation (ODT) has become a mandatory capability for today's successful 3PL providers in offering client specific solutions to supply chain needs.

This business is not nearly as price sensitive as some available new opportunities and can be very profitable to both the 3PL and his trucking partners. Quotes to customers for on-demand services are based on present and future specific specifications and requirements. These prices potentially offer enhanced margins based on specific performance goals.

ODT is essential to Performance Based Logistics and represents a continually expanding subset of the overall PBL. The on-demand model depends on but are not limited to some of the following integrating techniques:
• Full Truck Load
• Hotshot (Custom Courier)
• Next Flight Out (Commercial Airline Shipping)
• International Expedited 

What To Consider

First of all consider the risk in selling performance instead of movement of goods. There occurs a shift in the risk towards the trucking company. While the PBA is in development, decide whether or not 100% of the profit is worth 100% of the risk. Consider the profit objectives and desire for control.

There are few PBL providers around. Most employ a risk transference strategy, and consider themselves an outsource as opposed to a resource. You might opt to spread the risk and investment.

The goal of a PBL is focused on value creation and achieving desired outcomes – not simply in achieving service level agreements or squeezing the outsource provider for the lowest price.

The performance based approach is about buying results, not goods and services. PBL shifts resources, risks, and responsibility to the private sector to motivate improved reliability, accelerated logistic response and improved performance of both the production and underlying logistics.

It represents a financial win-win by aligning the objectives of both the client and the outsource provider. To be successful, PBL support in this environment will require a true public/private partnering across platforms, manufacturers, delivery systems and support structures.

About Leading Edge Logistics

Leading Edge Logistics, headquartered in Philadelphia, Pennsylvania, is a 3PL provider that guarantees customer cost reduction by using a proprietary approach to focus on the root causes that effect logistics costs.

For More Information on LEL services, go to http://www.leadingedgelogistics.com