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Third Party Logistics: How to Avoid a Service Disaster
Six Things You Need to Know to Work with a 3PL.
By: Kelly Holliday and Thomas Torcomian
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
fort 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.
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:
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As a key resource directly to 3PL user organizations;
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As a key link between supply chain organizations, and;
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As a key to supply chain integration.
You just can’t afford to shortchange any of these,” LEL’s
Torcomian concluded.
For More Information on LEL services, go to
http://www.leadingedgelogistics.com
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