Can 3PLs Provide Customer Service?

My third article in the series “What do you want from your 3PL” and following on from my previous article on how a 3PLs IT systems effect you (their Client), this publication highlights what to look for and be aware of regards what Customer Care/Service your 3PL should be providing.

1.     Customer Care

Costs pressures are often blamed for Clients abandoning their 3PL, but this is often a symptom of the problem, not the first major issue. This scenario usually begins through lack of service, which strange as it may seem, is not raised as strongly as it should (either Clients feel awkward bringing it up or the 3PL “always has a reason” for it not working) so the Client starts looking for faults and at pricing, and as we all know, there is always someone out there who has a better price. It now becomes so easy for a Client to say, “drop your costs” or “I can get a better deal elsewhere”. Thus the endemic race to the bottom begins.

Good customer care is not just about the 3PL having a good relationship with the Client. The 3PL must also provide the service at a reasonable price, in a timely manner, be dependable, provide a quality service, use the latest technology, consistently innovate and maintain a high standard of corporate responsibility.

1.1.    Benefits

You select a 3PL to use their skills, expertise and experience so you can focus on what you a good at – your own core expertise. Your chosen 3PL therefore knows and anticipates what you require and will make suggestions to improve your service offering and returns, even before you ask. Your 3PL values you as a Client, knowing your success is their success, so will have a focus on:

a.      Continuous measurement and improvement – they provide more than the minimum DIFOT (Delivery on Time in Full) measurements and generic KPIs, they provide real-time, accurate Business Information covering a matrix of data, via your portal.

b.      Staff morale and skill levels – Your 3PL will have a skilled and stable workforce, for they know it is the quality, morale and loyalty of their staff that will ultimately affect the way your customers see how you perform (your 3PL’s performance is YOUR performance).

c.       Service innovation and quality – they keep up with trends in processes, technology and equipment to enable you to compete in your market, they will also have robust processes, such as a Non-Conformance Management system. They will be measuring AND adapting to minor and major environmental, social, regulatory and competitor changes.

d.      Delivery speed and agility – your 3PL knows the bar is being set by others who may not even be in your industry e.g. Amazon (B2C), setting new same day delivery standards that B2B customers now expect. Plus, they will have an IT system that can scale and morph with your business requirements.

e.      Lean and green – To be considered a progressive company today, you need to surpass the basic requirements, your 3PL also knows this and will be conscious of how they use power and fuel (there is also a financial gain for them, and you, to do it right).

f.        Proactive ‘alert’ and ‘exception’ management – your 3PL will have the “right” technology on board which they leverage to respond quickly and effectively to critical supply chain activities, exceptions or events, as supply chain complexity has increased significantly in recent years and they know good old “experience” will not cut it. Things move and change too fast, customers expect immediate results, irrespective of whose fault or where in the world it happened.

1.2.    Risks.

By entering into an agreement with a 3PL where the focus is solely on a transactional basis, the first risk is a conflict of interest – why would your 3PL innovate and improve service, reduce touch points and use cheaper transport when this would reduce their revenue.

a.      Continuous measurement and improvement – Your 3PL may not want to invest in improvement as to them, it already works, they are making a profit. By providing no more than the minimum of performance measurements, many problems can be hidden, hence just the standard DIFOT and maybe one or two more measurements are provided.

b.      Staff morale and skill levels – As a reflection of how your 3PL values your custom, so too may they value their employees. A high turnover of staff (>10-15%) is a very good indicator the lowest paid staff are being targeted who in all likelihood do not receive the correct training to perform or enhance the service being provided.

c.       Service innovation and quality – Innovation and quality generally come with a cost that does not benefit your 3PL so there is no incentive – or they just do not have the skills and expertise to manage innovation and quality appropriately.

d.      Delivery speed and agility – Your 3PL mat not have the systems, the skills nor the desire to provide a service that keeps pace with the industry – your customers will be affected by this this before you know of it.

e.      Lean and green – This may not even be on your 3PL’s radar, they are recovering all their costs including fuel and lighting by on-charging you (with a mark-up), so they see no real need to change or “go green”.

f.        Proactive ‘alert’ and ‘exception’ management – This could be an anathema to your 3PL. They may balk at informing you of issues or exceptions as they may see this as a reflection of their performance in general and so hide anything and everything that “looks bad” until they have no option, only then do they advise you. This in all probability will have put you in a compromising position with your customers – as the saying goes, if only you knew earlier.

Outsourcing to a 3PL who is not reputable could also, potentially, lead to a breach of confidentiality by exposure of your data, your customer data or the sharing of commercially sensitive information. Remember, your 3PL will need to have and maintain detailed records of your customers, locations, order volumes and new products – the question is, who now owns this data.

1.3.    Take-away

To ensure you are comfortable and can trust your 3PL to provide the service and care you are expecting, ask them to answer these basic questions (as well as the standard commercial and pricing questions):

a.      “What is your staff morale like” – turnover should be 5-15%, over 30% is VERY bad for Clients

b.      “As logistics and distribution experts, how will you help my business go from where it is now to where I want it to be and what is your time line” – what can they do to improve service to YOUR customers, how can they help reduce your overall costs.

c.       “What is your plan to improve your services and service outcomes” – make sure this is not a wish list or a proposal. Ask for evidence of continuous improvement, if they are not recording improvements, there are likely no improvements to record.

Preferably BEFORE signing and in collaboration with your 3PL, determine the right metrics and KPIs to ensure continual improvement in the following (which is what your customers are demanding):

  1. Service Quality
  2. Service innovation
  3. Service Delivery
  4. Service cost
  5. Company Culture
  6. Order cycle times (think from Order to Cash)
  7. Corporate citizenship (Social, environmental, etc)
  8. COR (Chain of Responsibility) – if your goods are delivered by a carrier/courier, you  MUST be aware of this; in Australia you cannot contract out of your responsibilities.

Ask your 3PL to provide at least three Referees, then ask them the same questions of your 3PL.

Regularly carry out customer surveys of your 3PL – find out what YOUR customers and your own staff think of the service. Ask some basic questions about packaging, labeling, timeliness, interaction with driver, problem resolution, etc. Your Sales Rep or Customer Service team could do this with every call (Voice of the Customer).

2.     Your story

If you have an example of a good or bad customer service experience from a 3PL please share them and bring them to the attention of both potential clients and 3PLs Providers. Helping everyone this way raises the bar.

My next article in this Series will be on 3PL Staff Training

Is your 3PL Provider an Expert

“Improve your competitive advantage, reduce your warehouse and distribution costs by up to 20% and improve customer relations, minimize your CAPEX” etc. These are some of the headlines often espoused by Third Party Logistics companies (3PLs) looking to gain your business and they are not totally wrong, but not all is right either, there is another side to any 3PL arrangement (as with any service arrangement) as many will have found out the hard and usually in very expensive way. As you may have guessed from the opening, for this series I am referring to asset based 3PL warehousing (the services provided by these 3PLs are at their facilities and not owned or operated in anyway by the Client).

To set the scene a little background may be appropriate – 3PLs are those entities to whom Client companies pass responsibility to for the control and management of part of their supply chain, in this case warehousing and distribution. As more control/management of the supply chain is given over to the 3PL, the more complex the agreement/contract becomes. 3PLs are usually engaged to fill the gap between your knowledge, resources and experience – meaning some Clients are often not even aware of how the arrangement works or even what a 3PL can do for them, thus making it difficult for themselves and the 3PL Provider to each get the most from the arrangement in the long term.

I will be writing some articles to help Clients understand the relationship, with the intent of building long term, collaborative relationships with their 3PL Provider. The articles will be broken up into different facets of the function/relationship – for example: information technology, collaboration and expertise, etc – where I provide the benefits and possible downsides. Having a knowledge of potential issues or being able to identify a current one is critical and could be the difference to making a profit or just making the relationship costly for both companies.

The first in focus is:

1.            EXPERTISE

Benefits

3PLs have experience in the storage, picking, packing, sorting and arranging distribution of orders. They will have the experience to identify and mitigate potential issues and know how to quickly resolve problems. Having skills in best practice, they will be working efficiently and effectively thus ensuring they can maintain minimum costs to them AND to you, whilst ensuring the integrity of the goods from receipt to delivery.

Whether they are using the latest 3PL Warehouse Management Software (WMS), integrated with Transport Management Software (TMS) or are using a legacy system, they will still be knowledgeable to the point they will know what reports you need and what access you will require to enable you to clearly and simply know your stock situation (24/7) and to know what is happening with each and every sales order/stock transfer up to the point of delivery.

Your chosen 3PL will also have expertise in the same industry you operate in. For example, a beverage 3PL should know how the beverage industry works, along with all the idiosyncrasies that go with that industry, which would be different for FMCG and again for industrial goods. This includes not only the inbound transportation, storage and distribution but also the Reverse Logistics which, due to e-commerce, is a growing business in itself.

All 3PL staff will have the relevant knowledge and experience to support your company and your customers, relative to their role/position.

With you being able to trust that the 3PL (as a whole) has the expertise to store and provide, not only the stock as and when required but also the information supporting the agreement, you can then focus on your own core competencies, resting assured you are leveraging the expertise of reliable and experienced professionals, providing value for money, keeping overheads low and minimizing your need to input time and labour into managing the flow of stock.

Risks

Unless you are aware of the potential risks (and indeed opportunities) there is a chance you will miss them, this is especially the case when talking to a perceived “expert” – remember they have many clients and receive regular enquiries from potential clients so they know exactly what to say and when to say it – whereas you would rarely be sourcing a new 3PL (hopefully).

So… I will start with an analogy for clarity. You are a passenger on an Airbus A380, you sit back and relax assuming the aeroplane has been checked correctly by properly trained and qualified LAMEs (Licenced Aircraft Maintenance Engineers). Another LAME, trained on Airbus A320s could probably do most of the checks and reviews but when it comes down to it, you do not want to drop from the sky because the LAME missed something critical to the A380 but not so on an A320. Even worse, a LAME trained on B 737s may have got the role – just because he could “talk the talk”.

Obviously, this would never happen on a commercial flight, as the aircraft are maintained to standards set by the respective domiciled country, for example CASA (Civil Aviation Safety Authority) in Australia, as well as IATA (International Air Transport Association).

Clients of 3PLs must do the same. You must know and agree the minimum standards and require the appropriate level of expertise from all personnel of the 3PL, relative to their position.

Typical problems that may be encountered by having a 3PL with less experienced or suitably skilled management and/or staff include:

  • Lower levels of efficiency – this will impact directly on the 3PL as their labour costs will increase, but ramifications may affect your business, for example the 3PL taking shortcuts to get the job done (still charge the same), with your customers not receiving their orders when expected – review the SLA (Service Level Agreement) as the 3PL will may have an unreasonable buffer built in e.g. Sydney to Sydney should be “Next Day” but the agreed SLA might say 1-5 days! Unlikely, but possible.
  • Higher expenses – by not correctly checking stock at time of receipt you may miss the chance to place claims on vendors for incorrect supply or on carriers for damaged deliveries. Other higher costs could be internal loss/damage (by warehouse staff) although a 0% SLA is a tough one to get into the agreement it should not be too loose either.
  • Increased errors and mistakes – picking, packing and dispatch errors will affect not only you but also your customers, it may cost the 3PL (or you) to correct the situation but this will not make the customer think any better of your customer service (especially if it’s a regular occurrence). Remember, your 3PL’s performance translates to YOUR performance – good and bad.
  • Lower levels of DIFOT% (Delivery in Full, on Time) –similar to above but this includes timeliness. If the Customer does not get their full order, when expected, there WILL be repercussions. Whether the under-performance for this SLA for example, was due the 3PL’s stock control being out of sync thus impacting your ability to raise purchase orders effectively, the result is still a very upset customer.
  • Miscommunication and slower response times due to a lack of understanding of your specific needs and requirements – Having functional as well as industry expertise ensures the 3PL understands your requirements as to what, when, where and how much and can quickly communicate to you if there is an issue or indeed any form of confusion, i.e. they should not need an interpreter or prompting.
  • Cost control – without functional and no less, industry expertise, costs may not be effectively managed along with ideas or suggestions on cost saving measures not presented to you. If the 3PL is also not professional, they may even restrict the presentation of ideas that may reduce their overall revenue e.g. suggesting a different Carrier to lower overall transport costs may affect the 3PL by lowering their mark-up on freight revenue.

Take-away

Prior to contract

  • Included in the Tender Process should be section to ascertain the skill/experience level of the 3PL, this can be by the 3PL providing references from actual clients and providing copies of the full resumes for the management team – from supervisors up.
  • Ensure the referees ARE followed up and questions asked regards when things are going well as well as when things go wrong (this will add a lot of value), then review the resumes. Each of the management team should have direct experience of at least 5 years in warehousing (at the respective level) and at least 1-years’ experience within your industry.
  • Remember to ask questions about:
    a.      How they manage the Supply Chain
    b.      How long they have worked in your Industry/Niche market
    c.      What SLAs and KPIs (Key Performance Indicators) they have in place to monitor efficiency, effectiveness and accuracy
    d.      Include subjects such as their Strategic workforce management and
    e.      Reverse Logistics/End of Life supply chain management (especially for e-commerce)
    f.       Focus; are they Process Driven or Customer Centric (lucky to have both)

 In Current contract

Being in a current agreement with a 3PL you should already have garnered most of the 3PL’s skills. That said, if you have any concerns about your 3PLs performance then ask to see the resumes and review the SLAs and KPIs on a regular basis. If the resumes are lacking or the SLAs and KPIs are anything other than optimum (and reasonable) then you should open discussions with your 3PL Provider and agree new SLAs and KPIs – and what happens if they are not met, and just as importantly, if they are met.

 Stories

If you have any of your own stories please share them and bring them to the attention of both potential client and 3PLs Providers. Helping everyone this way raises the bar.

My next article in this Series will be on Information Technology used by 3PLs