Firstly, for those of you who do not know what a 3PL is, it is a third party logistics provider. We will be focusing on some of the benefits and the disadvantages of employing a 3PL for transportation of your product to and from customers.
The goal of your company is to make as much profit as possible and increase shareholder's value, as well as saving costs. The 3PL has the same goals for its own company. It will manage the operation you ask it to manage as best it can to ensure optimal earning potential for itself. There is nothing wrong with this, but if it isn't managed properly, you could find not saving half as much as you thought you would. You might also want to think about how savings can be generated in partnership with your 3PL, as most of the savings generally happen in the first three years. After that some serious innovation needs to take place as your budget will reflect the savings of last year and you would not be too happy if the cost stayed the same or went up exponentially instead of going down. Herein lies the conundrum most of these partnerships face. It is also one of the biggest reasons why cost savings opportunities are employed gradually by a 3PL. They need to pace themselves.
So, you outsourced your transportation function, and after heaving a huge sigh of relief because now you do not need to worry about gas prices, truck capacity, maintenance, vehicle purchases etc, you look at the brand new fleet outside and blithely focus on other issues. That would not be a great idea. Even worse, is if you got rid of your fleet manager when the 3PL walked in. That manager should have been employed as the manager in charge of managing the partnership with this new company. Also you negotiated a flat fee for two years with a slight increase in the third year and after those escalations that did not look too bad. In any case you can negotiate them down, can't you? You might find that negotiating them down might prove to be far harder than you thought. Did you think of forging a partnership and giving this 3PL a percentage of cost savings generated as a result of their participation? Not? This might have been a good idea too.
The benefits you get from this type of outsourcing is that, yes, you will not have to purchase new vehicles or maintain your own fleet. This is definitely a cost saving you want. You also do not have the advantage of favorable rates and terms when purchasing vehicles, that the 3PL might have. You are saving on not having to pay drivers their salary, benefits and 401K's. You are also saving management resources as you just got rid of three supervisors too. You do not have to deal with the suppliers that took all your time when ordering truck parts and you save money storing parts and paying your own mechanics or the service centre you used. You are excited that now you also don't have the burden of the additional insurance and the parking area you used for the fleet the past few years. It all adds up and congratulations, you have saved yourself some good money.
You are also sure that now you have transportation in the hands of experts. People that have been doing this for years and know what is happening in their part of industry will be better at managing it for you than an overworked transport manager that was occupied with only gas price increases and disgruntled employees. You also know that if there are any ways to save money on new technology or new equipment, this 3PL will give you access to it, as they have to stay on the cutting edge all the time. They also will aim to continue saving you money as their contract is renewable every three years and there is fierce competition in this industry.
The disadvantages are that you do not control the 3PL's employees and if they strike, you cannot do anything about it. You have no control over day-to-day issues anymore. This is a double-edged sword. You can manage it in so far as you can give them a scoreboard and keep them to that and penalize them when they do not perform, but you can't tell those drivers what to do. You also have less contact with your customer, as it is now someone else's employee that talks to them when product is delivered. You will also face a backlash from your staff on this outsourcing decision, as it will dampen morale. Staff wants to know that not all of them will lose jobs because of outsourcing, and how you manage this process will affect the entire company. The other issue that has come back to bite companies that outsource is that sometimes contractors hire companies or individuals that do not conform to your environmental and social policy, but the public does not attack the contractor or that company, they attack you, as these people are indirectly working for you. This could lead to a major PR disaster.
The idea is thus to manage the relationship and effective continuation of the transportation function in conjunction with the supplier. Make it a partnership with joint goals and measure a negotiated scoreboard on a very frequent basis. Dedicate a manager or two to this part of the operation and make sure that the 3PL knows that it can count on the company itself to provide solutions when a crisis hits as well. This is a joint venture and should be treated as such. Also demand and try to negotiate that employees of your company are given the opportunity to run the operation and just transfer to the 3PL or that they are re-deployed. This will save you a lot of heartache and pr