Relationships between shippers and third-party logistics (3PL) providers commonly focus more on tactical and operational elements rather than strategic elements.
When sourcing to 3PLs, the shipper’s RFP often focuses on lane costs rather than strategic elements such as systems integration, real-time visibility, and total-cost performance. The transactional lane-focused relationship is appropriate for companies looking for basic lane coverage and not currently operating at a level of maturity to understand total-delivered costs.
For organizations that have matured beyond the tactical focus on lanes and coverage, a 3PL partner must play a strategic role, moving past just transporting and storing to identifying problems, implementing solutions, and adding systems-wide value.
The 3PL must guide the shipper in shifting its management system to better reflect the role supply chain plays in the business. It starts with decision making between the two partners. The shipper and its 3PL partner should re-evaluate:
- What is our core purpose?
- What value do we create?
- Are we strategically aligned?
- Are we culturally aligned?
The core purpose and value proposition of some 3PLs is lower individual transaction costs and lane coverage, while others have focused on building robust carrier networks with delivery disciplines, high connectivity levels, and advanced optimization techniques. Some 3PLs have rotating carrier networks with underfunded equipment and undertrained operators, while others invest long-term in infrastructure, technology, relationships, and human development.
Each plays a role in today’s logistics world and will flourish when the right match is made.
Why Partnerships Fail
When organizations are strategically or culturally misaligned, the partnership often dissolves with reluctance to advance toward common goals. This usually results when the two parties rush the sales and negotiations process and focus on functional area budgets, only to find out they are misaligned and stuck with five years of conflict.
Organizations that appreciate the need to align on purpose, value, strategy, and culture will avoid the 1980’s-style 3PL selection method of identifying three vendors, letting them fight it out, and negotiating tactical deal points.
Instead, they will opt for an executive-interview method where shippers and 3PLs get to know each other, verify areas of alignment or misalignment, and wade into a relationship with the expectation that each party comes out knowing about one another’s business and understanding how to maximize value for each other.
In the final stages of this type of negotiation, the focus is not on shaving 1% off final fees, but on strategic connections that will produce 4x multiples on returns. It includes the upfront changes the organizations must implement to maximize relationship effectiveness.
A 3PL partner aligned on purpose, value, strategy, and culture can provide far more value than what is seen in a transportation budget variance report.
Avoid old-school commoditized approaches to negotiation and selection, and don’t underestimate the value that can be created with a partner aligned with your maturity level.