Companies are discovering that working with their third-party logistics (3PL) providers is becoming a lot like working with one of their own in-house departments. These companies recognize the dedication 3PLs have to their customers is on the same high level as that of their own company executives in discovering successful solutions for supply chain efficiencies. Although the functions of 3PLs in the past have been limited somewhat to providing warehousing and transportation services, today’s 3PLs are assuming a lot more responsibility in planning, operating, and managing clients’ supply chains.

To achieve these premium levels of service and responsibility, 3PLs are turning to advanced technologies and methodologies that examine and better understand their clients’ supply chains. One example includes engineering groups, which measure, map, and model customers’ supply chains to discover areas of opportunity for even deeper optimization.

At your service

The partnerships between 3PLs and their clients continually strengthen and deepen. “I think it’s important to note that as a 3PL you are initially hired to do a job,” says Matthew Harding, vice president of consulting for Dallas, Texas-based Transplace. “If you perform extremely well over time, companies will be more open to discussing processes that extend beyond the core and that are more integrated to their supply chain. From here, great things can happen because the nature of the relationship can be elevated beyond KPIs and the terms of the contract into opportunities that help both parties in a more strategic sense.”

Some companies started off thinking that warehousing was part of their expertise, notes Tony Zasimovich, vice president of international logistics services for APL Logistics in Oakland, California. “But now, more and more companies are moving from their costly and older processes to outsource their logistics in favor of focusing on their core competencies,” he says.

Service offerings provided by 3PLs are evolving to ever-more advanced solutions that meet overall supply chain requirements, adds Gary Allen, vice president of new product development and innovation for Exel in Westerville, Ohio. “Although our core business is still warehousing and transportation and managing the flow of goods and inventory, being a part of the larger Deutsche Post DHL corporation allows us to offer services related to the broader supply chain as we get to understand the businesses of our customers a lot better,” he says. “We are involved in every part of the supply chain, from planning, sourcing, management, optimization, and even sales and customer service.”

To get to know its customers better, Exel uses a business development approach, explains Allen. “The methodology we use focuses around knowing our customers’ industries more deeply. We focus on understanding the trends in order to be proactive in developing solutions in advance of customer requirements, rather than waiting for new opportunities to come to us. We invest in the customer relationship using a formalized structure. This means we invest in account management and optimal support groups who examine and leverage standard operating measures so Exel can offer consistency in process improvements we implement across the globe.”

Just a mere five years ago, things were a lot different in the 3PL world when the economy was healthier, notes Jeff Taylor, director of research for global logistics at AMR Research in Boston. Taylor was the lead logistics negotiator for the Asia Pacific division of a large U.S. corporation that was attempting to consolidate five of its divisions into one Singapore warehouse. “I had already established a network of key freight forwarders I had been using in that region,” he reports. “I saw no reason to switch from those freight forwarders who had been giving us great service in Asia Pacific.”

But when he approached several 3PLs for RFPs, they told him unequivocally that he would have to use their service providers. “That was five years ago,” Taylor continues. “But if you were to ask them today, they would say ‘no problem’ to using our providers. So, lead service providers are a lot more flexible today than they were just five years ago.”

Providers are a lot more eager today as well. Taylor points to a next-day service recently launched by Holland Transportation. “Holland realized this was a product many customers wanted without having to use traditional next-day service providers. As a new player in the marketplace, they distinguished themselves by promising delivery at a certain time and if the shipment arrived even one minute later, the shipment would be free. This attitude shows how crucial it is for 3PLs to maintain relationships with their current customers and provide them with a higher level of service by understanding what they really need and then providing it for them.”

At DSC Logistics, there’s been an uptick in business activity related to lead logistics provider (LLP) services, or as Scott Morgan, Vice President of Customer Care says, “Lead logistics partner services.”

Morgan emphasizes the need to form a strategic partnership in order to create value for the customer. “It’s two companies working together and us really understanding or customers’ goals.” That means being involved more intimately with the customer and “talking through the business challenges they face and bringing our knowledge capital to the table,” he explains.

And, the current climate is ripe for this more integrated approach. “Companies are becoming more comfortable with sharing information, in other words, letting go of things they consider not to be their core competencies,” Morgan observes. “You also have to earn their trust over time, which is supported by a proven track record.” The spirit of collaboration is evidenced not only between logistics providers and their customers, but even among competitors, says Morgan. “We’ve seen our customers collaborating with their competitors. They’ve exhausted the low hanging fruit within their own four walls, so in order to gain more substantial progress they sometimes have to collaborate with a competing company.”

Beyond the four walls--8 great examples

No doubt about it, 3PLs are innovative and quick to bring new solutions to the marketplace—often before customers even request certain services. Here are several examples, each providing service solutions identified by providers who took the time to understand their customers’ supply chain requirements more intimately.

Network Optimization. The engineering group at APL Logistics conducts a network-wide analysis on where a client’s DCs and stores are located. “We then recommend where they could replace their current DCs with other locations for greater efficiencies,” says Zasimovich. “At times, we have even recommended that they not open a DC, but instead utilize our West Coast facility where we can handle the deconsolidation and redirection of product to their network. This would eliminate the need for them to build another DC.”

Kenco’s engineering department conducts an in-depth examination of clients’ network optimization using supply chain planning software from LogicTools, Inc. to analyze where DCs need to be, how big they need to be, and how many are required in order to balance out the cost of service, reports David Caines, senior vice president, logistics for Kenco Logistics Services in Chattanooga, Tennessee. “It’s a full optimization picture. We consider where their materials enter the ports, where their manufacturing operations are, and what gets manufactured at which site in their network. We consider all modes of transportation that are required between those points.”

Demand Supply Planning. Demand supply planning is yet another function that Exel is handling for several of its retail clients who had traditionally operated this in-house. “We are helping these clients understand how much inventory they are carrying across their network based on ultimate demand,” reports Allen. Using Manugistics Software as its planning tool, Exel advises clients on how much inventory they need to carry in particular locations within their network based on point-of-sale consumption, which drives the planning process. Allen points out that this is one of many examples of how the company is advancing upstream in clients’ supply chains to provide higher levels of service and efficiencies.

Centralized Booking. APL Logistics’ Solutions Implementation team conducts supply chain mapping to identify where clients could optimize their supply chains by changing some processes. One large international client with 30 divisions wanted control over the disparate pieces in its booking process and PO management process overseas, reports Zasimovich. “We centralized these processes by becoming the central booking party for them. We were able to control, organize, and standardize the booking process among the different divisions to achieve optimization and meet their in-DC dates.”

APL Logistics was able to help the company reduce costs, in part by optimizing the inbound process through moving some freight from air to ocean and by using larger containers rather than LCL. Savings after the first year of implementation was about 29 percent over the previous method the company had been using.

The process involved learning how many vendors the client had overseas, how many DCs they were delivering to, what ports they were covering, and how many carriers were in their network. “We did process mapping, supply chain mapping, and developed a plan for them to have the function centrally managed in Asia,” explains Zasimovich. “We were able to streamline the process, making it more efficient and cost-effective.”

Value-Added Services. Kenco’s auditing process conducted by its engineers can, through best practice methodologies, discover hidden opportunities in the supply chain. The company recently streamlined a packaging function for a client who had been carrying extra inventory to offset a cumbersome and time-consuming process.

What Kenco did was reconfigure the client’s warehouse to include a packaging operation consisting of about 200 Kenco personnel. “We absorbed the entire packaging function right there in their warehouse, where we had seven different types of packaging operations going on,” Caines reports. “We received product in bulk and raw forms and held the material until it was required on a pull system to transform into finished goods. This process significantly reduced the number of touches required, allowing the client to achieve about an 8 percent reduction in its finished goods inventory.” Caines notes that these kinds of special value-added projects—including kitting and combining SKUs into different mixes as required—are trending in the industry.

Bob Spieth, President, Contract Logistics for OHL, confirms that trend: “More customers are asking us to perform value-added services within the warehouse to minimize transportation costs, inventories, and that includes promotional packaging, building displays, and changing sales units for retail,” he says, adding that in one case OHL even included embroidery operations for a customer.

OHL has also experienced an increase in business due to e-commerce sales. “We’ve been very active in the e-fulfillment space. That business continues to grow for us, especially as companies that may not have had a direct-to-consumer presence add that to their services. In some instances, we also provide gift wrapping and personalization services.”

Weber Distribution added two assembly lines to one of its facilities in Southern California to accommodate production for its customer, California Innovations, the world’s largest manufacturer of soft-sided insulation products like coolers and lunch bags. The arrangement helped California Innovations turn inventory quicker by assembling the products on-demand, improve delivery times, and save money on transportation and storage costs.

“We used to build large volumes of product at another facility in Los Angeles and then ship the finished goods to Weber where it would sit around before it was sold,” explained Carlos Garrido, California Innovations’ Director of Operations for logistics and operations. “Now we are producing our product locally at the distribution center and it’s assembled as required, which has significantly decreased our costs and improved our turnaround time.”

Antidote to Chaotic Trucking Prices. Transplace has been monitoring irrational pricing practices occurring over the last year and a half, reports Harding. “The capacity surplus has put a lot of financial pressure on carriers and our customers want us to help them understand what happens (relative to pricing) when the balance of capacity alters significantly from where it is now.”

Carriers are providing significant savings, in fact, reductions of over 20 percent in some instances. But shippers are actually opting to take savings of between 5 percent and 10 percent, Harding reports. “The question became: What level of savings are our customers comfortable with as they try to bring some degree of rational thinking to this uncommon environment?” It’s all about the balance of power in the market and not squeezing carriers too hard during a bad economy. Because when the balance shifts back to carriers, they might not be willing to offer capacity to shippers who took advantage of them during times of surplus capacity levels.

Designer Negotiations. In a partnership with CombineNet—a provider of best-of-breed procurement optimization software—Transplace is developing processes that include best practices in negotiations. “We use the capabilities of CombineNet, which includes the design and structure of an RFP,” explains Harding. It is a Software-as-a-Service (SaaS) application presented to carriers in any mode so they can provide rates, capacity, and information relative to their RFP. “Shippers then have the opportunity to weigh alternatives presented to them through that bid process and it becomes the foundation upon which you design a structured negotiations process. We then manage against a set of KPIs ongoing as part of our global sourcing support service, which provides compliance and procurement services for all transportation modes.” Depending on a shipper’s specific strategy, shippers can save anywhere from 10 percent to 25 percent in the current market.

Adapting to Clients’ Changing Needs. When clients decide to change their sourcing strategies, APL Logistics can modify quickly and bring a customer up and running within 30 days, notes Zasimovich. “For example, a client might decide to stop importing from China in favor of India. As they move to cheaper source pricing, we can be flexible as an organization to meet those changing requirements.”

With a long history and large presence in Asia Pacific, APL Logistics knows the landscape well, interacting on a daily basis with vendors. “We do a lot of vendor interaction, vendor management, and vendor measuring that allows someone to import from a particular factory and be certain that the process will be handled well, will hit the timelines, and will be managed properly throughout the supply chain,” Zasimovich reports. “We can receive product into our facilities and load them for outbound. We capture all the pertinent data and send the information in an EDI to our customers so when they receive the shipment at their DC, they can scan the shipment more efficiently rather than having to manually unload everything.”

White Glove Service. Kenco offers dedicated services for manufacturers and retailers of large, bulky, hard-to-handle products such as appliances and fitness equipment. “This is another value-added service we provide to our clients,” says Caines. “We operate the warehousing and transportation, as well as the delivery and installation of these items, so our clients can focus on serving their own customers better by not having to use multiple partners to provide these services. Many times we even handle the removal of old appliances.”

From warehousing to planning

Providers continue advancing initiatives to drive value and efficiencies for their customers. Transplace, for example, works with leading academic institutions to host events where its customers’ senior executives can participate in strategy sessions to discover the latest techniques and best practices to manage the supply chain. Harding reports that a recent event at a major university focused on improving techniques for forecasting future scenarios. “Using point forecast to say your business will go up or down by a certain percent is not enough when there are a number of different scenarios that can evolve. So, there is the opportunity to understand how you are trending,” Harding says.

The key approach was to study extreme events to determine how a strategy fits into key events and how Transplace could design the supply chain for those extreme scenarios, continues Harding. “From that point, we work back to a solution that dictates how much time there is to plan and what those plans should look like, based on changing conditions.” So, the 3PL community is much stronger when academia and the industry meet to create events in an environment for the community to network and learn about cutting-edge thought around the supply chain.

Clearly, 3PLs are more involved than ever before with the deeper mechanics of their clients’ supply chains. They are assuming responsibilities beyond only warehousing and transportation to include tactical planning and operations to guide overall supply chain efficiencies. “The next evolution for 3PLs is the involvement in the planning process beyond execution and fulfillment,” says Allen at Exel. “I see the industry continuing to advance in capabilities and service offerings much more upstream in the supply chain. The opportunity will be to integrate all the pieces involved in the supply chain as 3PLs advance their services to provide end-to-end supply chain solutions.” wt



Contributing writer April Terreri writes frequently on a variety of transportation and logistics issues.