A successful transition to outsourcing with a 3PL is a process that depends on a variety of factors that differ from business to business. The decision to outsource will depend on the company's operation plans, goals, product lines, expansion, acquisitions, etc. Before making this decision, it is necessary to conduct a comprehensive study and document the advantages, challenges and cost benefits of outsourcing.
Once a decision has been made to outsource, the next step is to adopt a scientific selection process and appoint a team of consultants who are specialist in this area to assist in short listing and recommending the suitable 3PL that fits all your requirements at the best possible price. Evaluating and selecting the right 3PL partner is a challenging and risky process for even the most experienced companies. While this process can be challenging, a systematic approach and a well developed outsourcing strategy will clarify your needs and alternatives and positively impact the final decision.
The following strategy can be used for selecting a 3PL for your company:
SET OBJECTIVES. Clear business objectives for choosing a 3PL provider should be developed and prioritised. This will guide the selection process and assist in evaluating the success. The type of provider relationship that will be needed should also be determined.
DETERMINE CUSTOMER SERVICE REQUIREMENTS. Conduct upfront research to identify a select list of preliminary 3PL candidates. All eligible 3PL companies should be surveyed to determine facility locations, warehousing and distribution strengths and weaknesses as well as their service areas. This will help in eliminating companies that cannot adequately address your functional specifications. Developing a detailed method for critically evaluating the capabilities of 3PL candidates can make or break an outsourcing selection process.
SOLICIT REQUESTS FOR QUOTATION. The request for information (RFI) or quotation (RFQ) is a tool to gather information and measure the strengths with respect to capabilities and cost effectiveness of outsourcing. When selecting a 3PL, the RFQ document should be as detailed as possible and it should be accompanied by all relevant documents about the project and expectations. The RFQ should include a detailed description of the areas to be outsourced including: the scope of the contract, locations, facilities, departments; information on volumes involved, number of deliveries, warehouse sizes, number of items, etc.; the logistics tasks to be performed; the level of performance required. Furthermore, the RFQ should indicate a format for price quotation and a timeframe for responses.
VISIT THE POTENTIAL PROVIDER'S FACILITIES. Facilitating tours of a potential 3PL provider's facilities and interviews with their existing clients is an important next step. Experiencing the company's facilities gives you a chance to determine how flexible their operation is and their willingness to work to meet your needs as they change.
PREPARE LEGAL DOCUMENTATION. Contract negotiation is a pivotal step in a 3PL relationship. It is necessary to document what is agreed and what is disagreed clearly in order to avoid ambiguity in the relationship. It is also necessary to determine if the 3PL is accountable for the level of accuracy and product conditions and establish what party will finance improvements if system upgrades become necessary. The contract should address all possible friction points and address them with remedies. Exit strategies such as mediation and arbitration should also be part of a 3PL contract.
DEVELOP PROJECT IMPLEMENTATION PLAN. There should be a detailed logistics outsourcing project implementation plan as well as periodic reviews in place to make sure everything is on track and there are no drastic deviations in the scope of the project. The project implementation is the process of translating thoughts into actions and it requires active co-operation and co-ordination on both sides of the relationship. Project implementation includes IT integration, operating procedures customisation, understanding the service measures, defining the escalation process etc. All these activities require precise handling and a dedicated team. The 3PL companies usually have their own project implementation methodology. What is critical here is customisation, to suit the specific requirements and deliver agreed service levels.
DESIGN EFFICIENT PERFORMANCE MEASUREMENT SYSTEM. During the startup phase of the outsourcing relationship the customer must take the initiative to develop performance measurements and reporting methods that support the company's business goals for the outsourcing strategy. The 3PL's performance should be measured on qualitative and quantitative performance measures regularly. Ideally, financial, productivity, utilisation, quality and cycle time measures should be considered. One of the objectives of performance measurement is not just to measure the performance but also initiate necessary corrective actions with regard to negative performance and explore the possibility of gain sharing in the case of positive performance so as to encourage continuous improvements. Regular performance measurement presents the perfect opportunity for both the customer and the 3PL to communicate effectively to make the outsourcing relationship a great success.
TRUST AND COLLABORATION. The success of an outsourcing relationship between a company and the 3PL provider requires a combination of trust and collaboration. Trust determines the level of flexibility a company can allow the 3PL in managing the operations to the best of their capability. The outsourcing arrangement can be truly successful only when there is a high level of trust between both parties in the business relationship. Unless there is this sense of trust and collaboration in the client-3PL relationship, it most certainly will fail.
Companies who have managed to build a healthy structure of trust within their organisations are able to create a healthy structure of trust with their 3PL providers. Key to this is the understanding within the client organisation that there is a single set of goals and there has to be a commitment to support and live the goals. Once this infrastructure of trust has been created, then the client-3PL relationship can start to produce magnified value, and prove to be true win-win.
In order to build trust in your relationship with a 3PL it is crucial to select the right 3PL partner that can meet your particular requirements and with whom you can strengthen your relationships. Thus, the key to a successful logistics outsourcing is a well-organised process of selecting and communicating with the potential 3PL providers.
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