Avoid 3 Common Mistakes When Creating a 3PL Relationship

Adaptability, Expectations and Investment Are All Prominent Failure Points

Selecting a 3PL – or a 4PL – is more marriage than prom date. It is a relationship of mutual benefit and dependence.

Your goal is a successful outsourcing relationship, not a legal contract. Whereas a prom date might be a one-time event, a successful 3PL relationship needs to last for years. A relationship is more than transactional.

Not every 3PL is the right fit. Your 3PL selection will depend upon your sector and needs. Apparel, electronics, furniture, automotive, food and beverage – each sector has its own unique needs.

For decades, my team at Tompkins Ventures has helped businesses develop 3PL relationships. I’ve seen plenty of mistakes, but the most common errors revolve around three words:

• Adaptability
• Expectations
• Investment

Want to avoid those errors? Then your supply chain leadership team must understand three things: the requirements of your business; why you are outsourcing logistics; and the synergies between your company and the 3PL.

What Happens When Your Relationship Fails?

A failed 3PL relationship can devastate your company.

Beyond the costs associated with the divorce from your 3PL, a failed 3PL relationship can result in degradation in financial performance, customer satisfaction and brand equity

In supply chain and logistics, customer satisfaction is the name of the game. A 3PL that does not deliver on time and in full will have your customers looking elsewhere. Improper packaging will also lead to a less-than-delightful customer experience.

Sometimes you need your 3PL to be able to scale as your business grows. If it cannot, then that 3PL relationship hampers your growth. Failed technology integration can create issues with order tracking and business intelligence. These inefficiencies and errors also damage the business relationship.

Some 3PLs offer limited to no visibility into your inventory levels. Backlogs, inventory mistakes, even inventory loss or theft can have your organization looking for a quick divorce.

How 3 Words Devastate Your 3PL Relationship

So how do those three words I mentioned above – adaptability, expectations and investment – develop into mistakes that devastate your 3PL relationship?

1. Failure to Adapt: In today’s business world of perpetual disruption, the only certainty is that things will change. Your 3PL relationship must adapt to navigate surprises, challenges and problems. Just like a successful marriage, “Stuff happens.” Work through it.
2. Failure to Manage Expectations: No 3PL relationship is perfect. Millions of things can go wrong, and a few will. When those few things go wrong, strong relationships deal with failed expectations fairly and with maturity.
3. Failure to Invest: Outsourcing is sharing responsibility, not surrendering responsibility. Invest time for ongoing communications, problem resolution and future planning. These investments from both your company and the 3PL will grow the relationship. Both sides will prosper.

Let’s dive deeper into how to transform those 3 failures into successes that enhance your relationship with your 3PL.

Failure to Adapt

With disruption the new normal, adaptability is more important than ever.

• Open Communication: Regular and transparent communication is crucial. You and the 3PL must be open about your capabilities and limitations. If both sides in a marriage understand the other, they can anticipate change and plan accordingly.
• Collaborative Problem-Solving: As a Ph.D. industrial engineer, I think back to the writings of W. Edwards Deming. He wrote that great leaders don’t play the blame/credit game. Instead, they look to find solutions. When things go wrong, you and your 3PL should take a collaborative approach to find solutions, navigate the challenges and maintain a strong relationship.
• Continuous Learning: Spouses learn more about each other every day. The same goes with you and your 3PL. Both parties should commit to learning and improving. In business, this includes keeping up with industry trends, learning from past mistakes and continuously looking to improve efficiency and service quality.
• Flexibility in Contract Terms: Contracts should allow for some degree of flexibility. A world of perpetual disruption will require both sides to accommodate changes in business needs or market conditions.

Failure to Manage Expectations

Managing expectations is a critical aspect of any business relationship, including those with 3PLs.

• Realistic Expectations: Setting realistic expectations can help prepare for the inevitable situation where things go wrong, preventing disappointment.
• Regular Reviews: Regular performance reviews can keep each side up to date on where things are and whether each side is meeting expectations. Reviews give the brand/retailer and the 3PL the chance to address gaps, make adjustments and move forward.
• Constructive Feedback: When things go wrong, it’s important to provide constructive feedback. This should be done in a fair and mature manner, focusing on the issue at hand. Again, like Deming wrote, don’t look for blame. In other words, it does not matter which spouse is responsible for leaving the oven on. The key is to make sure that burnt casserole does not become a house fire.

Failure to Invest

One way to guarantee failure? Only one side is invested in the relationship. Both sides must offer the appropriate resources to make sure the relationship works.

The silent treatment, either in communication or investment, is not the way to go.

• Invest in Communication: The open communication mentioned above is not possible without routine meetings to discuss performance, address issues and plan. This requires time, resources and effective communication channels.
• Invest in Technology: The latest warehousing technologies enhance efficiency, transparency and integration. Visibility into your inventory, data analytics and more is impossible if you rely on legacy technology.
• Invest in Training: Brands/retailers should ensure that the 3PL team understands their products, processes and customer expectations. Similarly, 3PLs should train their staff to meet these expectations.
• Invest in Problem Resolution: When issues arise, both parties should commit to finding solutions. This might involve investing time, resources or even bringing in external expertise.
• Invest in Planning: Both parties should invest time and resources to understand market trends, anticipate future challenges and plan for growth.

Sharing Responsibilities Leads to Shared Success

Just like a good marriage, your relationship with your 3PL involves sharing responsibilities. You need more than key performance indicators, service level agreements and contract details.

Just like a spouse, you cannot just pick any 3PL off the shelf. Luckily, Tompkins Ventures has a global network of 3PLs that can serve your organization’s needs. Ensuring the right fit is key.

Managing adaptability, expectations and investment will help you and your 3PL go beyond a transactional relationship. That will lead to profitable growth. Fail at those and you wind up in divorce court. Contact me for more.