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Focus: Distribution/Materials Handling

Feature Article from Our Distribution and Materials Handling Subject Area - See All

From SCDigest's On-Target E-Magazine

- April 11, 2012 -

 
Logistics News: As 3PLs and Clients Hope to get More Strategic, is an “Embedded” Strategy the Way to Make it Happen?


Adding 3PL Manager to Shipper’s Strategic Team will Pay Big Dividends, Kane is Able Exec Says

 

SCDigest Editorial Staff


Many shippers and even more third-party logistics providers (3PLs) say they want their relationships to be more strategic in nature, but the gap between that desire and what actually transpires continues to be a wide one in practice for many.

For example, the annual 3rd Party Logistics Study, released each year at the CSCMP annual conference and led by Dr. John Langley of Penn State, found last year that 30% of shippers were not satisfied with the level of new and innovative ideas that 3PLs were bringing to the table to improve logistics effectiveness.

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This type of relationship "has to be based on trust, with lots of transparency on both sides, and knowing where each other stands,"Marlowe says.
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At the same time, only 62% of 3PLs were satisfied with the level of transparency and openness they have in their relationships with shippers. Previous editions of this report have noted that both shippers and 3PLs share a desire for more strategic relationships, but that a high percentage of both shippers and 3PLs believe many of those outsourced relationships are more transactional and execution focused versus strategic.

 

Is a New Model Needed?

 

Mike Marlowe, Vice President of Operations at third-party logistics provider Kane is Able, believes that a new model for many outsourced relationships is needed that involves a more strategic approach if shippers want to drive out more logistics costs.

"The basic problem is that shippers do not believe 3PLs are being innovative enough,” Marlowe recently told SCDigest. “This is something that has been building for a while, but with some continuing economic pressures it has really come to a head."

One key factor, Marlowe says, is that shippers too often tend to keep the 3PL at arm’s length, limiting the 3PL’s access to information that might enable it to find opportunities for other areas of improvement.

“The 3PLs are being very innovative within the DC itself, but there is other upstream information, strategic information, about where the shipper is going, that we are missing,” Marlowe believes. “That information would allow the 3PL to be more innovative for the shipper.”

Marlowe and Kane is Able have been promoting a new model that would support a higher level of visibility and a more strategic relationship. Marlowe calls it an “embedded” 3PL relationship, in which a senior manager for the 3PL works within the shipper’s logistics or supply chain organization to act as part of the team.

“That means they are part of strategic conversations and the day to day activity of the shipper, so they become part of the staff, rather than just having stuff pushed down to them that they have to react to,” Marlowe said.

Marlowe says it is important to note this concept involves a true senior operations professional, not a “strategic account manager” or other more sales related individual that has in the past sometimes served in a somewhat related role at a client.


(Distribution/Materials Handling Story Continues Below )

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Clearly with this approach, there would be some benefits to the 3PL, as access to more information and the chance to operate at a more strategic level would help solidify its position with a client. But would the shipper also benefit?

Marlowe says yes, noting that today, 3PLs have often reached a performance wall in terms of what they can do in a given distribution operation with the relative lack of upstream information most of them receive currently.

“Especially in mature operations, you’ve pulled every penny that you can out of the costs,” he says, adding that more advanced information sharing is often the only path to further improve efficiencies.

“With this kind of upstream information, we can plan better inside the four walls,” Marlowe says. “We can also be more innovative inside the DC.”

He adds that there are often many cost avoidance opportunities that can be realized with better upstream information, noting that sometimes when new customer order processing requirements are known earlier in the process, the 3PL can come up with ways to reduce the cost impact in the DC.

SCDigest editor Dan Gilmore says that something like this approach clearly makes sense.

“Certainly, a company running its own distribution centers should be sharing this kind of upstream information with its DC managers,” Gilmore said. “So why would you not similarly share the same information with the companies you have hired to run your DCs for you?”

The issue, Marlowe says, is one of trust – shippers are somehow concerned that 3PLs being brought in more deeply into the strategic aspect of the business will use this information for their own advantage.

This type of relationship “has to be based on trust, with lots of transparency on both sides, and knowing where each other stands,” Marlowe says.

Marlowe really believes shippers are ready for this type of more strategic approach with their outsourcers.

Shippers “are craving for something to change,” he says. Shippers have felt the 3PLs were not being innovative enough, he adds, even while the 3PLs believe they are being as innovative as they can given the amount if information to which they have access.

Many shippers “are excited about going down this path,” Marlowe says.

To SCDigest, the proof as usual will be in the pudding. There will obviously be an extra cost in embedding a 3PL manager in a logistics team – and in the end, shippers will be able to measure how that arrangement has led to reduced costs or other operational improvements.

What do you think of the embedded 3PL concept? Are you using such an approach now, or have you on the past? Is the payback there? Let us know your thoughts at the Feedback section below.

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