Mumbai | February 11, 2020
As a seasoned logistician, you have negotiated hard and are putting final touches on the proposal with the third-party logistics service provider (or popularly known as 3PLs) of your choice. Yet, during GoLive or the final stages of negotiations, you feel that your 3PLs are ‘missing critical points’. A few simple things can be done to ensure that the association is effective and efficient.
The Initial conversations
It is important to lay out the big picture. Share your top line and supply chain spend. Outline where your manufacturing plants, warehouses, and distribution points are spread. Address your firms’ top concerns that the supply chain needs to solve for. Contrary to popular belief, it is okay to talk about your ex. Discuss what went well and didn’t go so well with your previous 3PL engagements, if any. While this may cover the basics, you may also ask how your 3PL company could help out in areas such as increasing your technological adoption or going green. And definitely ask your 3PL what more they could do for you. 3PL companies are expected to have researched your firm before meeting with you.
Your project that you are considering outsourcing has a fundamental crux to be solutioned for. The job of supply personnel, such as ourselves, is to be able to cater to that crux at the lowest possible cost. This crux needs to be well captured in the Request for Proposal (RFP) document. Often times, if time isn’t spent on writing a sufficient RFP, the time spent in shortlisting the 3PL firm often gets stretched and the lowest bid may start to look alluring. Writing an RFP for outsourcing takes time and effort. However, it is an exercise that is pays off.
Signing on the Dotted Line
Shortlist the top 3 posts the tech evaluation. Only then move into the phase of cost negotiation. While you drive costs down, always ensure that the crux is never sidelined. Pick your winner. Once you have both arrived at a consensus, it is inevitable that the lawyers be invoked and the 20-page contract be signed. In parallel, draft the Scope of Work (SOW) document. Or better yet, ask your 3PL for it. Well written SOWs are self-fulfilling prophecies. The process of writing and getting a good SOW signed away ensures both sides get well-aligned to the journey ahead.
What to do pre/post GoLive?
Expect a stabilisation period. Discuss contingencies and what-if scenarios with your 3PL once you have awarded the contract to them. Any third party service provider you choose is going to be your partner. The sooner this reality is accepted, the better-off both sides will be. A 3PL company is a relative outsider to your household. Both sides of the families need to meet. While most engagements stop at sales and operations, it is important that meetings (phone calls / VCs) take place between the commercial, implementation, legal, HR teams. It is imperative that both sides get to know each other well. Escalations matrices need to be established. Ask for org charts and understand who the mid to top management personnel are.
How to sustain a lasting relationship?
Like any long-lasting relationship, there are going to be a few hiccups along the way. Expect them. A 3PL company who knows their business will plan on expenses for contingencies. However, if you know that you have negotiated tooth and nail with your 3PL, set some budget aside for contingencies in the future when you make your annual cost targets. Even the best of 3PL companies have only studied your operations for a limited amount of time and only analysed the data for the period that you have provided them. When problems occur, call them and discuss as partners. There could have been lapses on either side. Discuss timelines for what needs to get done and by whom. Working as partners (in true spirit) ensures problems get resolved faster. More importantly, give your 3PL the comfort to warn you well before things escalate.
A happily ever after
In summary, it takes two to tango. Especially in a country where logistics works 30 hours a day. As supply chain personnel, when we need to cater to an ever-growing consumer base, the lines between vendor-client while well respected and acknowledged needs to be elevated to “delivery partners”. It is imperative that both sides value this thought and earn the title. Communication and openness to working towards the end goal - as always, will be key to a long-lasting relationship.