Outsourcing all or a part of your firm’s supply chain to third party logistics (3PL) providers has now become the norm across the industry. However, it is important to identify the right provider who can meet your particular requirements and maintain an enduring and healthy relationship, after the contract to engage him/her has been inked. This article outlines ways to get the most from your 3PL relationships, so that these are mutually beneficial to both the parties to the contract.

Managing Relationships:

The relationship with your logistics provider does not end with the signing of the contract. In fact, in many ways, it is just the beginning. You have an equal responsibility to nurture the relationship so that you get the benefits you had sought at competitive prices.

• Top Management Support: Logistics costs represent a substantial portion of a company’s budget. It is therefore important that the relationship with the PL provider is part of the firm’s strategy and sustains over the long term. This is possible only if there is top management support and commitment right from the outset. Such commitment then pervades to the lower echelons. The executive in charge of this function should be in tune with the corporate vision and goals, besides having logistics experience. Efficient supply chains have a major bearing on corporate performance and can lead to improved service levels.

• Contracts: 3PL providers have a proclivity to over-emphasize their abilities and promise more than they can deliver. A precise contract, with expectations, responsibilities and performance parameters clearly defined, will form the basis for an enduring relationship. Avoid generalities and stick to quantifiable standards of performance. Contracts form the basis of the relationship, but it will be futile to refer to it every other day in an attempt to enforce it. Rather, create an environment of trust so that functional efficiencies are optimized. The conflict resolution mechanism should also be clearly included in the contract.

• Functional Leeway: Once the services of a 3PL provider have been engaged, he must be allowed full operational freedom. If your research has been good and you have engaged a competent agency, it is his responsibility to leverage his expertise and provide the services contracted. Your role hereafter is to manage the relationship and not the services being provided. Generally, being experts in their field, service providers have the latest technologies suited to their field of operation. It will be in the interest of the hirer to upgrade their own systems to bring them at par with those of the 3PL provider, so that synergies are fully exploited.

• Integration: The client will have to ensure that all systems involved in the supply chain are fully integrated. Individual functions like procurement, manufacturing, finance and sales should be fully integrated with the 3PL provider. This alone will ensure that the larger corporate goals are met.

Selection of a competent and ‘best-of-breed’ 3PL provider is in important decision. The outsourcing decision is strategic in nature and must have the commitment of top management. A lot of responsibility weighs on the client to ensure that the relationship is well managed and delivers maximum value.