Today’s 3PL Isn’t Your Grandfather’s 3PL

As I anxiously await the 125th Anniversary conference of the International Warehouse and Logistics Association, I resonated strongly with the title quote from Paul Dittmann, executive director of the Global Supply Chain Institute at UT’s Haslam College of Business.

In the February, 2016 DC Velocity article, a University of Tennessee report identified three common complaints in outsourced logistics.

“Drawn from interviews with more than 60 executives, the study identified three common mistakes that companies admit they make when starting a relationship with a 3PL: First is their failure to conduct a thorough needs assessment before hiring a 3PL. Second is providing inaccurate information about themselves when they send out bids to find 3PL partners. The third error is omitting their top leaders from the 3PL selection process, leading to the lack of a businesswide strategy to support the new partnership.”

Based on my experience, I have found the same exact trend in selecting new accounting and warehouse management systems. As technology and information growth continues to accelerate, it is becoming more challenging than ever for many companies to decide what software they require in order to keep up with their customer’s demands. In an omnichannel world, expectations are increasing, new ordering and shipping options are becoming available every month and there is a fear of competition and survival. There are many choices out there and it’s challenging to understand all the benefits and risk of selecting a system that runs in the cloud.

The best 3PL partnerships focus on outcomes instead of processes, and implement contracts that include incentives for the 3PL to meet its goals, according to the report.”

This finding does not surprise me, since the study was co-authored by Kate Vitasek, who I had the great fortune to meet a number of years ago. I already was committed to collaboration in business and technology but I learned from Kate how “Vested Outsourcing”, based on Win/Win thinking, was applicable in the supply chain.

“The best result will come from everyone in the group doing what is good for himself and the group. It is the only way we all win.” – John Forbes Nash; Nobel Prize Winner

Again, I believe there are great parallels in approaching the selection of new accounting and warehouse management systems. Rather than the typical Win/Lose approach to negotiating new software, I would suggest that there’s a better way. Many companies choose to use a business consultant in the selection process. There are many benefits to the client and I would start with avoiding the 3 key mistakes noted above, especially in determining key business requirements, including:

  • Whether the system should be on-premise, hosted or cloud based.
  • Integration with other systems in place or planned for purchase.
  • Data migration (What information, if any, will be migrated, and what is the current quality of the information that exists)
  • User and Customer access (security, both on-site and via remote access).
  • Determining the specific software modules required – must have vs. nice to have and last
  • Creating realistic labor estimates to implement the project, including professional services and internal costs

The last point is where so many projects fail, resulting in finger-pointing and Lose/Lose results and where cooperation and collaboration will achieve greater business results. Given the pace of technological change, the threat of Amazon and the costs/risks of making a bad decision, I believe that this approach is needed now more than ever for 3PL executives.

*For the record, 8 Nobel prizes have been awarded to Behavioural Economists since John Nash in 1994.