Home > Third party warehousing contracts - heading north or rapidly south?

Third party warehousing contracts - heading north or rapidly south?

Supplier News

MANY companies are dissatisfied with their Third Partly Logistics (3PL) service provider, according to Rob O'Byrne, Managing Director of Logistics Bureau .

Comments such as "they don't understand us, they don't respond to our needs, our customer service levels are way below expectation" are common complaints. Rob O’Byrne says not to despair as the future need not be doom and gloom.

Rob has heard many similar stories over the last 10 years that he has been consulting in the area of logistics. When Rob hears these stories, it is often because the customer has reached such a stage of frustration that they want to re-tender their logistics contract and are seeking assistance through the process.

Rob says most 3PL contracts that appear to be under-performing, can be resurrected. It just takes open communication, willingness and a focus on the key issues.

An independent audit of the contract, is in itself, often a sufficient wake up call for the parties involved to improve.

However, in 90% of cases, Rob says that contract under performance does not lie solely with the 3PL. In many cases, contracts have been awarded in haste, without the necessary attention to detail that underpins success.

Rob recently was involved in a case that highlights 3PL problems. The customer had provided inadequate information regarding their needs to the 3PL, who in turn had under resourced the contract.

The result was scalating costs and finger pointing. Both parties needed to shoulder responsibility on this count.

But rather than give up on the existing 3PL and re-tender the contract, Rob was pleased that the customer was willing to first carry out a thorough audit of the contract to seek appropriate improvement.

Re-tendering and potentially relocating a warehouse operation is not without its risks, in terms of business disruption and transition costs. So Rob believes this step should only really be taken once other avenues have failed.

Rob feels confident that the customer will retain their current 3L once the audit is complete and they see improvements in costs as well as customer service.

The audit process with an 3PL should focus on six key areas:

1. Commercial arrangements - firstly, how is the contract resourced and costed? And secondly, what pricing mechanism is in place to ensure cost visibility as well as incentives for operational improvement.

2. Contractual arrangements - are the expectations of the customer clearly articulated in the contract, along with appropriate Key Performances Indicators (KPIs)? Does the contract term fairly reflect the required investment and commitment? What are the business risks involved in termination?

3. Service and cost performance - what has been the real performance of the contract, when compared to expectation? What has contributed to under performance?

4. 3PL processes - is the 3PL adopting appropriate processes in fulfilling the contract? Can these be jointly improved?

5. IT systems - are there IT issues that impact the performance of the contract and are there some easy fixes that can be employed?

6. The customer/3L relationship - at both the operational and account management level are there issues with the relationship? These might be due to a mismatch of culture, or more often due to individual clashes.

This simple six-point audit plan is an effective framework to apply to a poorly performing contract. It needs to be undertaken objectively, in co-operation with the 3PL management.

This plan is an important first step in the process to gain the 3PL contract that clients really need and want.

Ultimately, Rob says some companies may find that they still need to re-tender the contract, but at least they can do so with confidence, understanding where they went wrong first time and with a clear plan for future success.

Newsletter sign-up

The latest products and news delivered to your inbox