Skip navigation
2011

A short time ago I mentioned a new trend that I see developing, and growing, with 3PL outsourcing relationships; true two-way partnerships based on mutually beneficial objectives and opportunities.  I believe that this trend will flourish when more relationships develop into these mutually beneficial types of partnerships.  This trend will expand and build momentum as 3PL clients begin to understand the potential benefits that can be gained by developing a mutually beneficial relationship based on the open, and two way, sharing of strategic plans and forecasts that benefit both sides of the relationship.

 

The window of opportunity for this type of partnership has developed, and is expanding, to support the B2C types of fulfillment along with an expansion of the vendor managed inventory methods to take into account the 3PL actually managing the retail presentation and product replenishment and management in the individual retail stores.  This provides the opportunity for the 3PL clients to take advantage of the ‘best practices’ and enhanced capabilities of their 3PL partner, while the client focuses on their strengths in product development and marketing!  The natural outgrowth of this type of relationship is the opportunity for the 3PL clients to treat their supply chain and fulfillment that is supported by the 3PL partner as a ‘black box’ capability, I also refer to this as a ‘FMO Box’ capability (where the “‘f’ing miracle occurs”).  I see this trend as a progression and extension of the software capabilities that the major software vendors like Manhattan Associates or Red Prairie have been developing.  The 3PL will develop and perfect services as their clients demand these services.  This does require a strong trust between the partners in order to be successful and extend, and build, the relationship.  This can be a challenge for many organizations and I see this as a differentiating factor with the leaders in this market, and trend.  It is also more likely to occur with the newer organizations, and that coincides with the potential of 3PL’s to support new B2C clients in search of a partner to support their supply chain requirements! 

 

This allows the 3PL to extend their capabilities and cost effectively utilize software and operational capabilities to increase performance and reduce operational costs, while it allows their clients to utilize the latest capabilities and cost efficiencies that can be realized through the shared volume savings that can be obtained through combined client volumes available to the 3PL.  The 3PL client can treat this as a managed service (‘Supply Chain as a Service’ if you will), similar to the way that payroll services are now supported in most large and small organizations!  An additional benefit to the 3PL client is the immediate ability to provide world class services to their customers via their 3PL partner!

 

The leading 3PL’s have been extending their services to support clients in supply chain fulfillment and improved operational capabilities.  They have been developing these new relationships with their clients as the client extends their business into the B2C market place.  This market has been growing dramatically but many organizations have not been able to support the market with their internal supply chain that used to be able to support their retail, or B2B requirements.  This opens the market for the leading 3PL’s and they will continue to extend their services to support their client’s needs.  This is really a similar direction as the early days of the supply chain software vendors!  I think this will also provide the same type of growth opportunity for the leading 3PL’s.

 

Now for the audience participation portion of this program……

 

How would you define your relationship with the Third Party Logistics Provider?  Is it a traditional customer / vendor relationship that focuses on one-sided benefits and short term objectives? Or, is it based on a partnership that provides mutually beneficial benefits and long term objectives?

 

Have you extended your relationship with your 3PL to develop these types of extended services?  Are you open to sharing your forecasts and strategy with your 3PL provider? 

 

Do you see an advantage to extending your relationship into a mutually beneficial partnership?

 

Do you see organizational benefits and opportunities to improve based on the partnership relationships that I describe above?

 

If you see the benefits to this type of relationship, will you be taking steps to implement this type of relationship?

 

Developing a partnership is very hard work and requires focus and dedication from both sides of the partnership.  I suggest that a productive partnership includes proactive focus and relationship as a base definition and even a critical building block in the foundation of a productive partnership.  I suggest that in order to provide value to each member of the partnership, or each partner, requires a proactive view and related activities in order to build and maintain the relationship.  This can be difficult to develop because, in order to be successful and build a productive relationship, each member must view the partnership as a means to develop and maintain this mutually beneficial relationship.  As such, a pro-active approach is critical to developing and maintaining this relationship.

 

The guiding principal for the successful relationship must be one of a mutually beneficial relationship, in simple terms the members is this relationship can be viewed as a ‘family’.  As such, each member should go into and maintain the relationship as one that develops and focuses on the mutually beneficial objectives of each member of the relationship!  It would seem to me to follow that a critical piece of a mutually beneficial partnership is the pro-active view and activities to ensure that each member of the partnership, or family, is developing and maintaining the relationship in a manner that develops mutually beneficial opportunities and objectives.  The foundation to this partnership is the ability of all partners to be viewed as equals, this view encourages each of the partners to focus on the other members in a way that develops the relationship and benefits without favorites.  The underlying concept is that all members will benefit as each individual does!

 

This concept can be extremely challenging to implement and will require each party to ‘give’ more in many situations than they would have in a traditional customer / vendor relationship.  It must be remembered and continuously voiced and practiced that the objective is to develop a long term and mutually beneficial relationship.  In fact, I think that the downfall of many potentially beneficial relationships is the challenge, and hard work, required to get past the traditional customer / vendor relationship!  This requires that each member of the partnership take the long term view in their actions and decisions.  This will be a challenge due to the traditional short term view of many organizations where they focus on the next quarter, rather than the next two to three years.

 

In order to help develop and maintain the partnership and the relationships, I suggest developing guiding principles that support the relationship and focus on mutually beneficial objectives.  These guiding principles would support the missions of each of the partners and would provide the basis for the long term objectives.  The long term objectives would then provide the guidelines for effective and mutually beneficial service levels.  These service levels would be mutual to all partners within the relationship.  In order to support the pro-active partnership, I suggest that the Service Level Agreements and Key Performance Indicators be mutual across all members of the partnership.  This framework provides the foundation to develop the mutually beneficial partnership and even ‘institutionalizes’ the practices and measurements.

 

Now for the audience participation portion of this program……

 

How would you define your relationship with the Third Party Logistics Provider?  Is it a traditional customer / vendor relationship that focuses on one-sided benefits and short term objectives? Or, is it based on a partnership that provides mutually beneficial benefits and long term objectives?

 

Do you see organizational benefits and opportunities to improve based on the partnership relationships that I describe above?

 

If you see the benefits to this type of relationship, will you be taking steps to implement this type of relationship?

The current list of hot, or popular, phrases in business discussions and articles include ‘innovation’ and ‘pro-active’, among others making the rounds.  There are many variations and flavors of the phrases and you can select the specific phrase, or even combination of phrases, that fit your mood or particular situation.  I think it was an old Dilbert cartoon that made ‘buzz word bingo’ popular and while the phrases may change, the concept has not. 


I suggest that you should do away with these phrases in your supply chain outsourcing discussions because they can be misleading and almost impossible to measure.  While ‘innovation’ and ‘pro-active’ may sound like they are concrete concepts, in the real world they are almost impossible to define after the fact.  While you may be able to identify innovation, or pro-active actions, after the fact, the problem is that these phrases cannot be subjectively measured to support service levels or key performance indicators!  These phrases are great for marketing and presentations but they must be further defined into actionable and measurable activities and expectations to be of any value in your outsource partner management.


The challenge, and reason for requiring actionable clarifications, in utilizing these phrases is that they can mean many things to many people, one person’s innovation is another person’s commonplace practice; and in addition, one person’s pro-active practice is another person’s intrusive and over bearing practice!


The objective to supply chain outsourcing is to develop a sustainable and mutually beneficial partnership with your 3PL partner.  The cornerstones of a successful partnership is clear, open and honest communications along with clearly defined, measureable service levels based on mutually agree upon performance indicators.  So, in order to be successful and encourage innovation and a pro-active relationship you must be able to clearly define and measure your expectations.  You must also define the measurements and the measurement cycles to monitor the performance. 


Your measurement program will provide the vehicle to monitor and adjust the performance indicators and service levels in order to ensure that you are measuring the appropriate activities and metrics.  I would suggest that you start the review cycle at a monthly level in order to provide the appropriate level of visibility and review that will allow you to adjust the service levels and key performance indicators as necessary.  This process should be defined and agreed to by all parties up front, along with the governance program and the improvement program cycle.  This type of review cycle and measurement program will provide the means to develop the pro-active relationship between partners.  This process will also provide the means to develop the features and functions that deliver innovation to the organizations and partnership.  The can be encouraged through previously defined, and mutually agreed, performance goals and bonuses. 


I believe that it is unfair to the partnership and detrimental to the relationship and also the potential mutual benefits if these points and expectations are not defined up front, and monitored and updated on an on-going basis.  You must view this relationship with your 3PL as a partnership, and the foundation for a mutually beneficial partnership is open and honest communications, clear and measurable expectations, and the process to monitor, measure and update the expectations on a regular basis.

 

Now for the audience participation portion of this program……

 

What expectations, or objectives, have you defined as prerequisites for your 3PL partnership?

 

How do you define ‘innovation’ and ‘pro-active’?

 

I have come to think of collaboration to be made up of 3 pillars, or to put it another way the 3 legs required to balance collaboration are; Communication, Trust and Sharing.  I think that without these 3 key building blocks that any collaboration initiative is bound to fail.  I would advocate starting with a communication foundation that supports your partner network and then developing the trusted partner relationship and expanding the amount and types of information shared based on the development of that trusted partner relationship.  This will allow you to proceed at a pace that is measured and allows you to manage the risk to your enterprise.

 

Let’s start with the Communications building block.  Obviously this is a critical requirement to any collaboration initiative or framework!  The key to communications is a standards based method to ensure a two-way communication method to easily, efficiently and inexpensively communicate with partners.  This is one area where a cloud solution could provide value from at least a couple of perspectives.  First it would simplify the communications protocol and allow you to communicate to all of your partners through one standard communication outlet, you would connect to the cloud service provider and through that gateway you would be able to communication with your partners.  Second it would simplify adding new partners to your network; you would simply require your new partners to connect through your cloud service provider and you can then let the cloud service provider integrate the new partner and provide you with your standard communication format so you don’t have to validate the communications with each new partner.  Third the cloud service provider would provide a standard security level across all partners to ensure that communications and information across all partners is handled and managed in the same, secured manner.

 

As I’m sure you have already guessed, it is very important to select the right cloud service provider for your partner communications.  A key value that the cloud service provider brings to the table is the partner community that they have developed already, along with their stability and depth and breadth of services they provide to their community.  In my opinion the community developed by the service provider is the critical factor to developing a robust partner community.  They must develop a secured and safe environment framework to ensure that the information provided by the partners is provided only to the appropriate community members and also that new members can ‘plug in’ to the community and immediately gain a historical perspective of the partner.  Another value provided by the community is the shared policing of the community, in other words each member must maintain their standards and security because the size of the community will quickly identify inappropriate actions for quick retribution.

 

Now, Trust and Sharing go hand in hand; you would not share critical business information without a high level of trust of the partner.  This area will require that you develop a progressive method to develop, test, or validate, and expand the trust before sharing and expanding the shared business information.  Each enterprise must develop their own method and means to develop and monitor the trust in a continuous manner in order to ensure that the relationship is maintained, nurtured and developed into the strongest partnership that provides the greatest benefits to each of the partners. 

This method of developing and implementing a collaboration initiative allows you to progress and develop partnerships at a pace that allows you to manage the risk to the enterprise.  In addition, utilizing a cloud service provider will allow you to take advantage of the community and the security the service provider developed to support the community.  Partnering with the right service provider will allow you to plug into a robust community of partners that will allow you to quickly expand your partners.

 

Now for the audience participation portion of this program……

 

Have you investigated a collaboration initiative?

 

What are your concerns around trust and sharing?