3 RULES TO CHANGE THIRD PARTIES LOGISTICS (3PL)

  Likes many shippers, they were frustrated with the lack of innovation and risk – taking on the part of their 3PL. Previous studies lead by Georgia Tech have identified that after an initial contract period a major gap in expected capabilities particularly in technology and visibility appear in a majority of 3PL contracts. 

We looked at a number of deal reviews and have a dozens of contract. Workshops and interviews with buyers and providers bear out a few things. First, 3PL contract should not be based upon expanding traditional warehousing and/or transportation contracts. Second, 3PL services are in a unique position to be transparent and to clearly articulate quantitatively the value they add though innovation. Third, shippers and 3PLs need a new contract structure that is a hybrid performance – based contracts and business partnership agreements.

The research that created vested outsourcing identified two major categories of requirements for a successful contracting experience for both buyer and seller.

1.   There need to be compatibility and trust between the two organizations, or a collaborative open relationship. The relationship can be tested through tools developed by Professors Ledlow and Manrodt of Georgia Southern University that measure trust, innovation, communication, team orientation, and focus at the individual and the organizational levels. With a good reading on strengths and weakness in these attributes of the relationship an agreement can be designed to leverage the relationship.

2.    New agreement structure is needed that includes a “master services agreement” that covers the legal elements and properly structured business requirement attachments that address the key parts of a living, breathing and easily modified agreement. Successful agreements include a statement of intent, clear desired outcomes, and a statement of objectives, how the business will be control and flexible pricing model.

3.    Developed a win – win business model. A business model is based on achievement of desired outcomes not based on performing transactions. Establish and maintain through the contract a true “partnership” mentality with a desire to develop a “win – win” business model. The new business model is based on mutual self – interest. Both parties need to spell out their business goals including a profit margin for the 3PL.