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

From SCDigest's On-Target E-Magazine

- Oct. 19, 2015 -

Supply Chain News: Highlights from the 20th Annual Third-Party Logistics Study Part 2

Six Key Steps to Gaining Shipper-3PL Alignment


 SCDigest Editorial Staff

As we reported two weeks ago, for the 20th consecutive year, Dr. John Langley of Penn State University has led the annual Third Party Logistics Study, released again this year at the CSCMP conference in San Diego the last week of September.

The report is largely based on two sources of information: (1) data from survey responses from hundreds of shippers and 3PLs worldwide; and (2) a series of three forum type discussions with both shippers and 3PLs on key outsourcing issues that were held earlier this year in Chicago, Rio de Janeiro and Sydney.

SCDigest Says:

83% of 3PLs and 80% of shippers agree that improvement is needed in how shippers, 3PLs and service providers manage relationships with one another.
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In part 1 of our review of this year's report, we focused on some of the key survey results from areas that are measured each year, such as the level of outsourced spend as a percent of total logistics spend, and the ever present (but declining) "IT Gap," reflecting the dissatisfaction that many shippers have with 3PL IT capabilities. (See Highlights from the 20th Annual Third-Party Logistics Study.)

In part 2, we look at bit more closely on the focused section in the report on shipper-3PL alignment.


The report notes that perhaps the biggest challenge of outsourced relationships is achieving high levels of alignment between shippers, 3PLs and carriers/asset providers, when each party has its own goals, objectives and constraints.


Developed from the three discussion forums held globally, the report offers six keys to gaining shipper-3PL alignment. Those are:


(1) Mapping Out a Clear Process: Of course, expectations of the relationship need to be discussed and agreed to by all parties. Both partners need to agree on what benefits or results are to be achieved and how to make decisions that are best for the relationship, the report says.

(2) Meeting with Senior Management: There is a need for 3PL users to have internal alignment with senior management regarding value to be derived from the 3PL relationship, the report notes. Meetings between senior management from both the shipper and 3PL are essential to successful on-boarding.

(3) Creating a Formal Plan for Managing Relationships: There should be a clear understanding of what is to be expected by which party and when, along with plans and priorities for managing relationships between executive, management and operational representatives of involved parties, the report says.

(4) Having the Capability to Scale Operations to Demand: Shippers need to test a given 3PL's ability to scale its operations up and down based on demand, the report advises. 3PLs with prior experience in scalability can produce great benefits for their clients.


(5) Drafting Mutual Agreements: Non-disclosure agreements should be understood and agreed to by all parties, and dispute resolution procedures should be agreed to by all and used when necessary, the report recommends.



(Distribution/Materials Handling Story Continues Below )


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(6) Understanding Roles and Relationships with Asset-Based Service Providers: Those using non-asset  based 3PLs need to fully understand how asset-based providers will be used to execute logistics activities that are central to the use of a 3PL, the report notes. Ideally, 3PLs should have a formal plan for managing their relationships with asset-based providers.

These keys are pretty common sense, but certainly far from all firms well execute all six of these actions across their 3PL relationships.

Of course, the level of such alignment activities should usually depend in part on the nature of the relationship between shipper and 3PL. The report says there are three main types of such relationships:


Tactical Relationship: Heavy focus on cost and execution. Service provided is largely viewed as a commodity.


Service Partner Relationship: Shipper focus on getting the right solutions. Cost is important but not necessarily the deciding factor in selecting a 3PL.


Strategic Relationship: 3PL player is treated as a key strategic resource by the shipper. Both parties invest in the relationship and share the returns on their investments. High levels of alignment are key.


The report also contains the interesting chart below that shows the percent of adoption by shippers and 3PLs of various techniques that can lead to better alignment:



Adoption of Various Facilitators of Alignment in 3PL-Customer Relationships



Source: 2016 3PL Study


It is interesting to observe that almost across the board, 3PLs claim higher levels of adoption of each practice than shippers do.  How can that be? Hard to say, but we wonder if in some cases 3PLs are reading more into some relationships than shippers are. SCDigest also finds it interesting that few shippers or 3PLs say they use "pay for performance" - we assume that means a form of gainsharing - rather than just pay for services.


Also interesting was how often shippers and 3PLs say they are in communication with each other. 20% of shippers and 15% of 3PLs say they are in contact in some way (phone, email, in person) on an hourly basis. The preponderance - 53% of shippers and 65% of 3PLs - say there are daily communications. About 15% of both shippers and 3PLs say their communications are weekly.


All that said, 83% of 3PLs and 80% of shippers agree that improvement is needed in how shippers, 3PLs and service providers manage relationships with one another.


The full 2016 3PL Study is available with free registration at


Any reaction to this year's 3PL report views on shipper-3PL alignment? What can be done to improve that alignment? What percent of 3PL relationships do you believe are strategic? Let us know your thoughts at the Feedback button below.

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